The rise of Airbnb and other short-term rental platforms has had a major impact on the housing market.
Since Airbnb's inception in 2008, the platform has been one of the most popular short-term rental platforms, and its impact on the housing market has been significant. Airbnb has made it easier for people to rent out their properties for short periods, and as a result, property values and the demand for rental properties has increased.
Platforms like this allow homeowners to make money when they have more room than they need. This option is called home sharing and is generally more easily managed than a short-term rental business model with lots of units. For example, absentee landlords reduce the housing supply, which, in turn, increases the cost of living for local renters. In fact, it currently contributes to about one-fifth of the average annual increase in rental rates and about one-seventh of the average annual increase in real estate prices in the U.S.
How exactly does the presence of AirBnB and other short-term rentals actually affect the value of properties? The answer to that may not be as simple as we think. Let’s take a look at 3 key factors that come into play:
The Concentration of Rental Homes In A Neighborhood
Cities only have so much housing available, and when a large percentage of these homes are being rented out as short-term rentals, it has an effect on the overall housing market. As the market shifts from serving long-term local renters to serving the nomadic short-term rental crowd, housing costs start to go up. For example, some studies show that if a neighborhood has over a third of the homes being used as short-term rentals, rental prices go up due to supply and demand.
The income potential of short-term rentals has been causing more and more landlords to switch their long-term rentals to short-term. Some studies suggest that about 10% of landlords consider making the change. This quickly changes the demographics of a neighborhood as it attracts visitors to the area rather than local residents.
Studies have shown that a 1% increase in Airbnb listings is causally associated with a 0.018% increase in rental rates and a 0.026% increase in house prices.
On the other side of the coin, a high saturation of rental homes in a neighborhood can decrease the value of both the rental homes and the neighboring properties. Often, rental properties are not maintained with the same level of care as a home that the owner lives in. Landlords overlook things that should be taken care of right away, or put in minimal effort to maintain the home just enough that it will continue to rent out.
After all, it costs a cut of their potential profit to pay professionals to clean and maintain the home. Doing it themselves means that it cuts into their personal time. If the investor owns lots of homes, this effect is magnified as they have less time to check in on each home. So even if they are paying to have it professionally maintained, they may not be checking to make sure that maintenance has been completed. Even a few homes in a neighborhood that are poorly maintained can stagnate or lower the value of the surrounding homes.
Besides maintenance, the quality of the short-term renters themselves can have a large impact on the overall value of a home.
How Respectful Are The Renters?
When a home is used strictly for short-term rentals, it can attract renters that come to have a good time, and leave in a few days. If the homes in a neighborhood develop a reputation for attracting loud renters who like to party, families looking to move to a peaceful neighborhood will steer away from purchasing in that area. In situations like this, the value of all of the surrounding homes can be very quickly and dramatically impacted.
This isn’t usually a problem when the short-term rental is in a home-share situation. In a home share, the owner of the home rents a room, suite, or carriage house to the renter. Because they will be in close proximity to each other, the owner will generally take the time to properly vet potential renters and offer the space to someone who is more respectful of their rental. Home sharing also tends to attract renters who are looking to rent for a longer period of time, rather than just a few days. They think of the rental more as their home, rather than a hotel, and settle in a bit more.
The Condition of the Home
Since short-term rentals provide somewhat passive income, the fact that a home is set up to be used as one rental can increase its value. Potential buyers are attracted to the fact that they can purchase the property and with little effort, start renting it out to help cover the mortgage payments.
Some simple updates that can raise the value of a rental property are:
- A security system to help renters feel safe and secure
- Parking that is easily accessible
- Maintenance: The fewer repairs a house needs, the better! Homes in good repair are more attractive to both renters and potential buyers when the time comes that you are ready to sell.
- Good quality appliances. They don’t need to be fancy, but short-term renters appreciate the convenience of having access to appliances such as a washer and dryer and are usually willing to pay more for them.
- Upgrades. They can improve the curb appeal of a home, which helps it retain value and keep the value of neighboring homes higher. Little details such as updated flooring, cabinets, or light fixtures also attract renters who are looking for a beautiful, peaceful place to stay.
- Curb appeal is helpful both for attracting renters and maintaining the value of the neighboring homes. Landlords that invest in professional help to mow, trim, and clean on a regular basis generally see the value of their home increase.
Conclusion
With the right investment of time, money, and effort, the potential is there for the value of a home to increase due to the AirBnB effect. Homeowners enjoy the benefits of increased income, while travelers enjoy the convenience and comforts of home. Unfortunately, due to absentee landlords and high-level investors taking over a larger portion of the market, the negative impacts can outweigh the benefits in some areas.
