The Airbnb rent premium and the crowding-out of long-term rentals

Concerns about crowding out of long-term rentals have led many cities to impose limits on the days that properties can be let via Airbnb or similar platforms in a given year. However, so far, there has been little research into the effect of such measures. Using micro-level data on long-term rental and Airbnb contracts for Sydney, Australia, we first estimate how much more landlords can earn on Airbnb compared to the long-term rental market. We use three different methods to control for differences in the quality of Airbnb and long-term rentals (hedonic regression, switching model, and matching approach) and find that, on average the weekly Airbnb rent is nearly double that in the long-term market. This Airbnb rent premium reflects the higher costs borne by Airbnb landlords. Consistent with a spatial equilibrium, landlords require a higher Airbnb rent premium in postcodes with a higher average time since the last review (a proxy for the Airbnb vacancy rate). Similarly, we find that Airbnb rent premia and time-since-last-review are lower in cheaper postcodes. It is therefore important to recognize that the impact of day restrictions is likely to be felt more in the cheaper rather than more touristic areas of a city.