Airbnb crowding out is a symptom, not a cause of housing shortages

Jim Pagels
3 min readAug 24, 2016

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( Paul Joseph / flickr)

When journalists, NIMBYs, politicians, and activists make claims about Airbnb taking potential full-time housing stock and converting it to leisure space, they operate under the assumption that the housing supply must be fixed.

This assumption is half true: By no means must the housing supply be fixed, just as the supply of laptops, shoes, or milk has no requirement to be fixed. In reality, though, the supply is, yes, somewhat fixed, but that is merely an option, chosen by NIMBY residents, politicians, and misguided housing activists* that force through restrictive construction policies that either largely inhibit or outright prohibit new housing development. Economists Ed Glaeser, Joseph Gyourko, and Raven Saks estimate what they call the “zoning tax” accounts for, on average, more than 10 percent of the price of the average U.S. home. In cities with extreme restrictions like San Francisco, the zoning tax is as high as 50%!

Here’s a thought exercise: Imagine the U.S. had very restrictive laws regarding smartphone production. If a new Apple factory wanted to produce more iPhones, each phone would have to go through a long, onerous, and costly approval process by the local government and regulatory agencies. In addition, nearby established phone factories or incumbent phone owners in many areas could successfully pressure the local government to prohibit the new factory from producing phones. Because of these burdens, the supply of phones rises only very slowly (far less than the growth in phone demand), and many people have to go about sharing a phone with family or friends or diverting huge portions of their monthly budget to owning/renting a scarce phone.

In this alternative phone regulation reality, the criticism that “some tiny portion of phones are used for leisure like social media and games rather than important things like work or talking to your family!” as a major cause the phone shortage and high prices would seem obviously wrongheaded.

It’s similar to the notion that a brain cancer patient need only some Tylenol to alleviate her real issue: a headache. Yet for some reason, many are content to frequently make these arguments when it comes to limited housing supply. The latest example of such reasoning about Airbnb’s effect on supply is an analysis in FiveThirtyEight, in which nowhere in its near-2,000 words does it mention anything building restrictions.

That Airbnbs may in fact take some small portion** of houses from the optionally relatively fixed full-time housing stock is a symptom, not a cause, of housing shortages and high prices. Asking if Airbnbs take permanent housing is a somewhat fair*** question to ask given the realities of contemporary U.S. zoning codes, but it’s the wrong question. It’s time to stop asking what pain relief medication will cure our country’s housing supply cancer.

*It is odd that housing activists, who either do not understand or ignore basic laws of supply and demand when arguing greater supply of houses increases price, somehow cling to this supply point when discussing Airbnb. If, as the activists claim, a) more housing supply leads to higher prices and b) Airbnb reduces supply, then why are activists not vehemently in favor of *more* Airbnb rentals?

**As the FiveThirtyEight article and other studies show, it’s extremely small. Roughly 0.1% of the housing in Airbnb’s largest market, New York City, is a “commercial listing,” and only a fraction of that 0.1% would conceivably have gone to permanent housing.

***I would argue that even in a mandatory fixed housing supply world, this would not be a very fair question. If someone wants to pay high rates to use a resource for a non-traditional use, it’s inefficient to prohibit that transaction and makes both the potential buyer and seller worse off.

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Jim Pagels

Economics PhD student at the University of Michigan.