Does Home-sharing Create Negative Externalities?

(The Silver Lake neighborhood in Los Angeles is a popular destination for Airbnb / wikipedia)

A decade or two ago, a traveler who wished to stay in a city temporarily had no alternative to a hotel. Even if the owner of a house or condominium wished to rent out a room for a short period of time, the costs of advertising in a newspaper would have at least partially canceled out the financial benefits from renting.

But the Internet has made home-sharing much more economical, through websites like Airbnb.com.  At first glance, the home-sharing industry seems highly beneficial: guests get a cheaper and/or more exotic vacation, home-sharing hosts get extra money to pay off mortgages, and their neighborhoods benefit from tourist revenue.

Nevertheless, NIMBYs have attacked home-sharing.  One major argument is that home-sharing creates negative externalities.  For example, a recent law review article(1)  notes that some neighborhood activists in Silver Lake (a trendy Los Angeles neighborhood) sought to exclude home-sharing from their neighborhood on the ground that shared homes are “hotel-like room rentals”  and such a “commercial use [causes] the noise and traffic levels of the area [to] increase as a result of people coming and going, and the transient nature of the establishment can increase the crime rate.” As a result of these problems, home-sharing “brings nuisances to residential areas, thereby lowering the value of all homes in the neighborhood.”

In other words, the “externalities” argument rests on the following chain of logic:

Assumption 1: Home-sharing, as a commercial use, is no different from hotels.

Assumption 2: Commercial uses bring down property values.

Conclusion: Home-sharing brings down property values.

But none of these claims has significant factual support.  First,  home-sharing is somewhat different from a large hotel. An individual hotel might have hundreds or thousands of guests on one block.  By contrast, home-shares tend to be spread out over a much larger space, thus mitigating the impact on any individual block.  For example, I found 126 Airbnb listings on Silver Lake for a random date in September.  Even a cursory glance at a map shows that Silver Lake has around 200 blocks; thus, the neighborhood had one listing every block or two.  Even if every single Airbnb listing was being used on any given day, the neighborhood would be subjected to no more than one guest (or guest family) per block–hardly an impact comparable to that of a chain hotel.

Second, the Silver Lake residents’ fear of mixing uses seems unwarranted. One way to measure an area’s level of mixed uses is through Walkscore.com–and high Walkscores tend to correlate with high housing values. For example, of the Los Angeles neighborhoods with the highest Walkscores (Downtown, Macarthur Park, Central Hollywood, Koreatown, Westlake, Mid-City West, Pico Union, East Hollywood, West Los Angeles, and Hollywood Studio District) all but one have median home prices above the citywide average.(2)

Similarly, neighborhoods with lots of Airbnb listings tend to have high and increasing property values. One article states that these listings are most common in Venice, Downtown, Hollywood, Mid-City, Echo Park and Silver Lake– all neighborhoods(2) where property values are increasing more rapidly than the citywide average.

Homeowners’ fear of being overrun by “transient” renters is based on an outmoded picture of urban life.  In a rural area where most people are born and die in the same town, a fear of “transients” may make sense- but urban life is already highly transient. In renter-dominated blocks, people move in and out every year, so transience is already the norm. Homeowner-dominated blocks tend to be somewhat more stable–but even so, Americans constantly move from one house to another.

(1) See Tristan P. Espinosa, The Cost of Sharing and the Common Law: How to Address the Negative Externalities of Home-Sharing, 19 Chap. L. Rev. 597, 601 (2016)

(2) The neighborhoods with the most Airbnb listings are mentioned at Dayne Lee, How Airbnb Short-Term Rentals Exacerbate Los Angeles’s Affordable Housing Crisis: Analysis and Policy Recommendations, 10 Harvard Law & Policy Rev. 229(2016).  I have critiqued the notion that home-sharing increases rents in this blog post.  (This post by Dan Bertholet also addresses the argument).

(3) Data on home prices are available at realtor.com and zillow.com.