The Effect of Short-Term Rentals on Residential Investment

We provide new evidence that short-term rental (STR) platforms like Airbnb incentivize residential real estate investment. We exploit two complementary identification strategies. First, we use variation in the timing of STR regulations to estimate the effect of regulation on both Airbnb listings and residential permits. We find that over the first 12 months following the start of the regulation, STR regulations reduce Airbnb listings by 12.6% and residential permits by 13.8%. We estimate an elasticity of permits with respect to Airbnb listings of 0.832. Second, we show that residential permits decline discontinuously across jurisdictional boundaries in which one side of the boundary has a STR regulation and the other side does not. The effect is especially pronounced for accessory dwelling units, which decline by 16.5% across regulatory boundaries. Our results imply that STRs incentivize residential investment, and especially so for housing units that are well suited for short-term renting.