Airbnb Rentals Survived COVID, But Are Still Plagued by Bad Local Policies

Editor’s Note: A version of this article was published by French media outlet Contrepoints on September 10.

In response to the dramatically decreasing number of tourists due to the COVID-19 crisis, many Airbnb hosts are advertising their homes on long-term rental websites to make ends meet. But another reason for this shift is that some European cities, such as Paris, Barcelona, Amsterdam, Madrid, and Berlin, have been restricting the supply side of the short-term rental market, on the grounds they are distorting the local housing market. For example, cities are reducing the number of days allowed for renting, and suing property owners for renting out buildings. As a result of these measures, what used to be a convenient, easy-to-use, and convivial platform has now become less attractive to home owners and users. This hurts both buyers and sellers in the sharing economy, and signals national and local governments’ broader reluctance to embrace new innovations.

Making it more difficult for individuals to use platforms of the sharing economy like Airbnb and pushing home owners and consumers to rethink their use of their services will not give a much-needed boost to the economy in general, and to the local tourism industry in particular. Paris Mayor Anne Hidalgo, while her ambitions are to sustain the city’s lead in innovation, recently asserted her "absolute determination to make sure regulations relating to rental platforms are reinforced" and potentially ban Airbnb, as part of a plan to lead the post-COVID-19 recovery. Such attitudes also provide another case in point of how Europe keeps cocking a snook at innovation and fighting the wrong battle—with some level of hypocrisy: While its cities are battling Airbnb’s business model, France decided to spend millions in building what it hopes will be a competitor.

Some communities have questions about the impact of short term rentals on local housing costs, quality of life, the hospitality industry, and the collection of municipal taxes. But as a 2019 study by the Economic Policy Institute shows, a wider variety of affordable and available rental listings supports an increase in visitors to a city, which in turn benefits local businesses and leads to more economic activity. Platforms such as Airbnb pay millions of euros in tourist tax to French cities (Paris getting the lion’s share) and bring them each year millions of tourists who spend money at restaurants and on local leisure activities. Moreover, policymakers blame Airbnb and other similar platforms as the cause of rising prices and lack of rental stock in cities, but this is a convenient excuse to downplay their failure to deliver on their zoning and other policies related to residential construction, and their policies towards landlords such as tenant fee bans in London and the decrease of mortgage relief measures in the UK and the Netherlands.

Restrictive measures discouraging individuals from turning to platforms like Airbnb and its competitors such as Homeaway or TripAdvisor’s FlipKey will also limit the benefits of the sharing economy. In particular, these policies will restrict the ability of individuals to increase their purchasing power by generating additional revenues through home rentals—between €1,500 and €4,500 for a full month—and to diversify the potential streams of revenue they generate from owning homes. Indeed, the rise of Internet-based service firms reduced the transaction costs incurred by advertising for and screening of tenants. In addition, such measures will limit consumer access to a system of affordable, short-term accommodations that many find ideal to sustain a flexible lifestyle. Instead, they will have to turn to rental websites and agencies that require stricter tenancy agreements and long notice periods.

By disincentivizing the use of short-term rental platforms, European policymakers are hurting the competitiveness of the overall European economy, negatively impacting the goals of the economic recovery, consumer choice, and welfare. National and local governments that want to be digital trailblazers should eliminate these types of policies and back up their ostensibly pro-innovation rhetoric with meaningful action to ensure people are not restricted from participating in the sharing economy.