We document significant heterogeneity in the marginal effect of short-term rental (STR) listings on housing prices across LA county. In some areas, the effect of STRs on housing prices is _negative_. We develop a simple theory and provide descriptive evidence for our proposed mechanism.">
The supply of housing for short-term rental (STR) has grown dramatically with the emergence of platforms such as Airbnb. This trend has led to contradictory concerns about increasing housing prices and negative externalities. We provide evidence that in some areas, STRs can decrease housing prices. Using a parsimonious model of housing occupancy with externalities, we show the marginal effect of STRs on housing prices depends on the net impact of STRs on local amenities. Using zip-code-level data from Los Angeles County, California, we show heterogeneity in the marginal effects of Airbnb listings on housing prices across localities. We then examine the consequences of a 2015 law restricting STRs within the City of Santa Monica in the coastal region of Los Angeles County. In that City, we estimate a negative relationship between the prevalence of STRs and housing prices. Using a differences-in-differences approach, we show that the 2015 law increased housing prices – which can be rationalized by our theory. Finally, we provide evidence for a potential mechanism: party-related nuisance calls to the Santa Monica Police Department decreased after the policy was enacted.