Crowds press together in the streets of New Orleans as people gather to see the city’s festivities, but this year, there’s something different about the tourists. This year, instead of staying in the city’s hotels, more tourists are pouring into residential areas after using an app to quickly book a home for the week.
Airbnb, founded in 2008 as an online marketplace for short-term rentals, has seen its business grow exponentially in the last few years. In 2014, rooms available through the site jumped from 300,000 in February to more than 1 million in December, outpacing many of the largest hotel groups in the world. In May of 2016 Airbnb had almost 1.4 listings on the site and raised its revenue projection for this year to more than $900 million.
But the site impacts more than just hotel chains. As more investors, not just homeowners, use the site to rent out spare rooms — and even spare couches — it strains the supply of rental houses.
This is especially true in a place like New Orleans, where rising home prices have caused serious affordability problems. Home prices have risen 46% since Hurricane Katrina hit, according to an article by Katherine Sayre for The Times-Picayune.
Besides the number of lives lost, the most tangible impact the hurricane had on the city was the demolition of its housing stock, where 26% to 34% of its housing was lost or damaged, according to an article by Allison Plyer for The Data Center. The Center’s “The New Orleans Index” was the most widely used means of tracking rebuilding efforts in the months and years following Hurricane Katrina.
As of February 2016, Airbnb had a total of 3,621 active listings in New Orleans, according to data from Inside Airbnb, a non-commercial set of tools and data that shows how Airbnb is being used in different cities around the world.
Of course, there would seem to be a correlation between the rise in home prices and the gains in the app’s popularity, however, correlation does not always equal causation.
In order to truly understand the app’s effects, or lack thereof, you have to look deeper.
One letter circulating on Facebook entitled “Dear Airbnb Renter!” talks about what it sees as the dangers of Airbnb.
“The spread of tourism into residential neighborhoods is pushing out the people who live there,” the letter stated. “When landlords can get so much more for a property on Airbnb they no longer want to rent to actual working New Orleanians. Even residents that own their home are finding it difficult to pay their taxes because of the rising property values.”
That kind of outcry has reached lawmakers. In a letter sent on July 13 to Federal Trade Commission Chairwoman Edith Ramirez, several prominent senators expressed their concern. Sens. Brian Schatz, D-Hawaii; Elizabeth Warren, D-Mass, and Diane Feinstein, D-Calif, stated that they are especially concerned that short-term rentals are not only making housing more expensive in certain communities, but also making it harder to buy a house in the first place.
“We are concerned that short-term rentals may be exacerbating housing shortages and driving up the cost of housing in our communities,” the lawmakers write in their letter.
“Theoretically, as the supply of something goes down, we would expect the price of it to go up, and this is true for residential housing in a given city or town, assuming demand stays constant,” said Jennifer Connolly, University of Miami assistant professor of political science.
“Generally speaking, many cities have restrictive zoning codes that allow residential buildings only up to a certain height or number of floors; this is essentially a local government limit on the overall supply of housing,” she continued.
“When investors come in and take residential units off the long-term market in order to use them as short-term rentals, this further reduces supply. Economic theory would suggest that in such a scenario, prices, or rents, would increase,” Connolly concluded.
Connolly suggests another solution that could help solve the affordability crisis some cities face; however, this plan is not without its own set of problems.
“One way to address this is to ease building codes such that residential buildings could have more floors and more total units, say allowing apartment buildings to go up to 10 floors instead of three or four floors, but there is still the possibility that investors would then purchase or lease any additional residential units that such changes to the building and zoning code would create and use those units as short-term rentals,” she said.