The housing affordability crisis has prompted a lot of speculation that short-term rentals are to blame. Critics argue that they decrease the amount of available housing and contribute to higher home prices and higher rent levels. But a new study concludes that those concerns are unfounded. It’s a first-of-its-kind analysis commissioned by VRBO to quantify the impact of short-term rentals on the cost of housing.
The research was done by Oxford Economics with data from 2,500 U.S. counties over a period of four years, from 2014 through 2018. Researchers used more than 70 variables in their analysis, including inventory levels, building permits, tourism data, rental listings, average household income and more. (1)
Among the key findings are that short-term rentals only account for .2% of the 4.3% increase in rents over the four-year study, and just one percent of the 14.9% increase in home prices. Researchers say, the impact of short-term rentals resulted in an average of $2 more for rent in 2018, and $8.75 in monthly mortgage payments or about $105 per year.
VRBO’s parent company, Expedia Group, released the full report in mid-November. Expedia’s Amanda Pedigo said in a press release, “We commissioned this study to gain a clear-eyed and accurate understanding of the impact of short-term rentals have on housing and rental prices in American cities.”
There’s been a growing amount of debate over the need for short-term rental regulations because of the housing affordability crisis. Many economists argue that the crisis is due in large part to a supply issue, and that short-term rentals are taking a big bite out of supply. But there are many factors affecting the cost of renting and/or buying a home, and this study shows that short-term rentals don’t have the kind of impact that many city officials believe they do.
Minimal Impact on Rents, Home Prices
The study shows that the U.S. median rent rose 4.3% between 2014 and 2018, and the top reason for the increase was that consumers were earning more. Income rose 10.8% during that time. Researchers for this study say higher paychecks resulted in 3.9% of the increase in rents.
They also found that 5.1 million new households were formed during the four-year period with just 4.1 million new units. Researchers say, the ratio of housing units to households dropped, but they determined that the drop in that ratio only contributed .2% to the increase in rents.
The number of short-term rentals increased six-fold during the four years, but researchers say the data shows that that only contributed to another .2% increase in rents. As for higher home prices, research points to a thriving labor market with a very low unemployment rate. The study claims that 6.8% of the price growth is due to the extremely low jobless rate.
The second factor was an increase in average incomes. That accounts for 5.6% of the price growth. The drop in inventory also contributed but only by a factor of 1.6%. And, if you look at the ratio of short-term rental listings to housing units, the research shows they are responsible for a 1% increase in home prices.
One of the factors that offsets the decrease in housing units is the higher number of building permits issued during that time. Researchers also factored in the economic contributions of tourism and lower lending rates that pushed prices higher. But those two factors only account for about .6% combined.
Rethinking Short-Term Rental Regulations
What does all this mean? According to this report, the increase in the number of short-term rentals has had little effect on home prices, rental prices, and affordability. Researchers say, “The rapid U.S. house price and rent increases of the past few years have not been substantially driven by STRs.” Instead, home prices have been driven by “economic and labor market outcomes.” They also believe that the increase in building permits is a good sign and that an increased supply will help bring down home prices.
Oxford Economists economist, Alice Gambarin suggests that cities should rethink their fight to restrict short-term rentals. She says, “Adopting strict regulations on STRs is unlikely to solve the housing affordability crisis faced by many U.S. households.” In addition, by limiting short-term rentals, cities will have fewer tourist dollars going into the local economy and the local government.
Researchers say, their report has important data for cities to consider as they weigh the positive and negative effects of short-term rental regulations. Pedigo says, VRBO remains committed to working with local governments on policy issues. She says policies need to “balance the concerns of some community members with the important role vacation rentals have played for generations of homeowners and traveling families.”
(1) Short-Term Rental Study: Global News Wire