Airbnb & Housing Affordability: Miami (Part 1 of 2)
Across the United States, and to a larger extent across the world, cities have been cracking down on the availability of short-term rental homes. With the rise of online platforms like Airbnb and Vrbo, these growing businesses have been the focus of a lot of community backlash. When reading about why so many citizens and municipalities are looking to cull the expansion of the vacation rental market there is usually one common theme: housing affordability. The anti-Airbnb argument is that with more homes dedicated to the short-term market longer term tenants are either being pushed or priced out of their cities.
AllTheRooms Analytics has targeted one specific market where this argument has become a serious source of contention, Miami. Has the rapid growth of short-term rentals exacerbated the housing affordability crisis in Miami?
In a paper published in 2018 Kyle Barron of the National Bureau of Economic Research and his associates, professors from the University of Southern California and Cal State Northridge, found that:
“At the median owner-occupancy rate zip code…a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices.
This effect is stronger in zip codes with a lower share of owner-occupiers, consistent with non-owner-occupiers being more likely to reallocate their homes from the long-term to the short-term rental market.”
The share of owner-occupiers refers to the proportion of homes in an area that is occupied by the owner of the property. In an area with a low owner-occupier rate, more properties are occupied by tenants, meaning there’s a larger potential for properties to be re-allocated from the longer-term rental market to the short-term rental market.
If you were to take the paper’s findings at face value, then the model would imply that Airbnb is having a significant impact on housing in Miami. According to the latest American Community Survey data, Miami-Dade County has a significantly lower owner-occupier rate, 52%, when compared to the national average, 71%. Additionally, the supply of Airbnb listings in Miami has grown rapidly in the last few years.
Figure 1 – Entire home Airbnb supply growth in Miami-Dade County by listing type, excluding inactive and dormant listings
Figure 2 – Zillow Rental Price Index composite for Miami-Dade County zip codes since Jan 2008
Figure 3 – Zillow Home Value Index composite for Miami-Dade County zip codes since Jan 2008
Airbnb Inventory as a Share of Housing Supply
A common counterargument used to refute Airbnb-induced housing affordability arguments is simply that there are not enough Airbnbs to influence the market. In the case of Miami-Dade County this may not be entirely false. While there are 858,289 housing units in the area (American Community Survey, 5 Year Projections 2017), there are only around 12,600 entire home Airbnbs (excluding inactive and dormant listings). So even in a county with a low owner-occupier rate, in a popular tourist destination, the entire home properties on Airbnb constitute only 1.5% of housing supply in the county. For the sake of this study, we are most concerned with entire home rentals as these are the properties that would/are theoretically being taken off the market away from long term renters.
Regardless of Airbnb, Miami has proclaimed that it is experiencing a housing crisis. Florida International University’s Metropolitan Center identifies the housing deficit in Miami-Dade as 134,295 homes. So the number of housing units being removed from the long-term rental market and on to Airbnb makes up about 10% of the housing deficit in Miami-Dade.
Figure 4 – Entire home Airbnbs in Miami-Dade relative to supply/demand of housing units relative to Miami-Dade
Looking at this chart, it seems apparent that the number of entire homes on Airbnb in Miami-Dade is too small to be having a significant impact on housing affordability in the county.
Price Inelasticity of Housing Supply and Demand
However, one factor that should not be overlooked is the price elasticity of housing supply and demand. Intuitively, housing demand should be relatively inelastic (or unresponsive) to changes in price, based on the assumption that everyone with the means to do so will want a house to live in. It could be argued that housing demand is even more inelastic (higher) in a housing market that has a supply deficit. Another factor that could add to this is that, given the highly accommodative monetary policy regime that has been in place since the global financial crisis, and more broadly the secular decline in interest rates over the last 30-40 years, mortgage rates are at generational lows. Easier financing for buying a home probably contributes to inelastic housing price demand.
Figure 5 – Average US 30-Year Fixed Rate Mortgages
The price elasticity of housing supply is widely seen as inelastic in the short-run too, for the simple reason that it takes a long time for developers to respond to rising house prices and build more units, and they often have an incentive to not flood the market with properties to ensure good sale prices on their constructed units.
With this said, given inelastic housing supply and demand numbers, a small change in the level of supply (for example, if a relatively small number of homes are taken off the market to be used as short-term rentals) can lead to a larger impact on house prices than one might expect.
Figure 6 – Large prices changes resulting from small changes in supply in a market with high price inelasticity of supply and demand
To back this statement, there are numerous recent studies suggesting relatively small changes in housing supply due to the reallocation of homes to the short-term rental market can cause significant changes in the cost of housing in U.S. cities, some of which we list here:
Airbnb in Miami: Owners & Occupiers
The literature therefore implies that even small reductions in housing supply can cause outsized price increases in an area.
One of Airbnb’s main defences against this is that in Miami Airbnb claims that half of the entire homes rented on Airbnb are rented for less than 60 days out of the year. The implication here is that most of these entire homes are being rented out for short periods of time by owner-occupiers, and so are unlikely to be contributing to housing affordability issues.
The question becomes what proportion of Miami’s 12,600 active entire home Airbnb listings are owner-occupiers – people who rent their property out when they are out of town and who are not reducing housing supply. We must also look at what proportion of the listings are people who don’t live in a property they own, and instead are renting that property out on the short-term rental market where they can make money.
Figure 7 – Distribution of number of days booked for entire home Airbnbs in Miami-Dade over the last 12 months, for all entire home listings with at least 1 day booked
According to our analysis, the average entire home listing looks to be booked for 91 days, based on the last 12 months.
Going further, really what matters isn’t how many days the property is booked, but rather how many days the property is booked or available to book, or put differently, how many days is it available on Airbnb. If an entire home property is available to be booked on Airbnb for large periods of time it implies 1) the owner isn’t living there in a traditional sense and 2) the property isn’t available for long-term rental to long-term tenants.
Figure 8 – Distribution of number of days booked and vacant for entire home Airbnbs in Miami-Dade over the last 12 months, for all entire home listings with at least 1 day booked
When looking at the data this way, we see 50% of entire home properties in Miami are booked or available to be booked for 141 days or more, and 42% of properties in Miami are booked or available to book for half the year or more (182 days).
Going further still, we looked at how much entire home Airbnb listings in the county are consecutively blocked off for a given number of days. In order for a property to be lived in by an owner or by a tenant for at least 3 months consecutively, the listing would need to be blocked-off the short-term rental market for at least 90 days, otherwise it’s unlikely that the owner lives there and it’s unlikely to be available to rent long term to long-term tenants, and so can reasonably be identified as a property that has been allocated from the long-term rental market to the short-term one.
We found that 90% of the entire home Airbnb listings in Miami-Dade county were never off the short-term rental market for more than 45 days consecutively. This implies that the vast majority of entire home Airbnb listings in the county have been completely removed from the long-term rental markets and are not occupied by a typical owner for any significant amount of time.
Figure 9 – Distribution of number of maximum number of consecutive days NOT booked and vacant (on the market) for entire home Airbnbs in Miami-Dade over the last 12 months, for all entire home listings with at least 1 day booked
The economic literature focusing on reductions in housing supply due to reallocation of housing units to the short-term rental markets consistently points to an increase in rental rates and house prices.
It seems clear from the data that the majority of entire home Airbnb listings, at least in Miami-Dade County’s case, are indeed being removed from the pool of long-term housing supply.
In order to really hone in on the localised impacts, the next step is to look at the distribution of Airbnb entire home listings and housing supply at a smaller geographic unit, such as by zip code or by census tract. We will be following up in part 2 of this analysis.