Regulating Airbnb: how cities deal with perceived negative externalities of short-term rentals

Abstract

In recent years, home-sharing platform Airbnb has developed into a major player in the tourism sector. It allows tourists to have authentic, off-the-beaten-track experiences in neighbourhoods previously unvisited. Although neighbourhoods can profit from increased attention and income, Airbnb and other short-term rentals (STRs) can also be disruptive to the traditional lodging industry and trigger gentrification processes; housing affordability and availability are jeopardized when housing units are turned into vacation rentals. Local governments worldwide are struggling to regulate STRs and their negative externalities. This paper focuses on key challenges cities face when dealing with STR platforms and the rationale behind different regulatory approaches. It first compares policies of 11 European and American cities and then zooms in on Denver to see how it regulates the impact of Airbnb. Most cities are relatively lenient towards STRs, with little to no (complete) prohibition. Instead, they limit the number of guests, nights and times a property can be rented, demand certain safety precautions and information provision, or require primary residency. Regulations are mostly directed to mitigate neighbourhood impacts, rather than creating a level playing field for the traditional lodging industry. Enforcement remains difficult due to the STR market’s dynamic nature and online practice.