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The COVID-19 pandemic changed how people across the world work, with many transitioning to full-time remote work and some taking advantage of their newfound geographic freedom to become digital nomads, or people that work remotely while traveling. As a result of this new lifestyle, demand for short-term rentals (STR) has increased globally.

Before the pandemic, STRs were intended to be small in scale and often family-run ventures, but the growth of remote work coupled with the increase in housing instability has significantly shifted who can participate in and benefit from these shared-economy services. In recent months, local governments around the world have started promoting agreements with STR platforms to either welcome digital nomads into their cities or further regulate these spaces.

Both approaches present costs and opportunities for cities. On the one hand, incentivizing unregulated growth can result in the reduction of for-sale and rental housing supply and the displacement of local communities because of increasing rent costs or units being taken off the rental and ownership markets. On the other, residents can potentially diversify income sources, and cities can see an increase economic activities and tourism. As is often the case, different communities are affected in different ways.

When designing STR policies, local governments may want to take an equity perspective to consider effects and harms for different local communities. By centering equity when considering the costs and benefits of STR policies (or lack thereof), local governments can ensure these policies don’t widen racial and ethnic wealth gaps. In this blog post, we share examples of effective policies from around the world to illustrate the large international effects of STRs and to highlight innovative solutions from different policy environments.

Who benefits the most from an abundance of STRs?

Property owners who can rent their units and diversify income streams are the most direct beneficiaries of STRs. As such, understanding who property owners are is crucial in identifying who benefits the most from an STR-friendly environment.

In the United States, white households own 76 percent of the housing wealth despite only making up 67 percent of households. These patterns persist even in cities with large populations of people of color. In Houston, Latine households make up the largest share of total households but own less than a third of white households’ primary-residence housing wealth. This disparity indicates that white property owners could benefit disproportionately from expanding STRs in the US, although communities should evaluate who owns STRs.

But inequities aren’t solely based on race; they are income and class based too. In Mexico City, critics of a recent agreement between the local government and Airbnb have shown only the top 4.7 percent of households in the city have enough income to pay the average mortgage of a Mexico City house. As a result, Airbnb’s own data show 64 percent of hosts hold multiple local listings, which are predominantly (61.5 percent) full houses and apartments.

If the government doesn’t set incentives correctly, STR-friendly agreements, like the one in Mexico City, may end up benefiting wealthy individuals with multiple properties who are running large businesses, rather than those leveraging their sole assets to diversify their income sources.

Who may be harmed by an unregulated increase in STRs?

A recent study from the Economic Policy Institute suggests renters may be most harmed by an increase in STRs because housing costs have increased faster than those of short-term accommodations or consumer goods. The report cites several empirical studies that have linked these increases to the unregulated introduction of STRs.

In the US, increased rental costs have clear equity implications because Americans who are Black, Latine, and younger are more likely to rent than own. These Americans also are likely to earn less, have less wealth, and be rent burdened than homeowners and will have fewer opportunities to find affordable rentals or become homeowners if units are taken off the market to become STRs. Displacing communities of renters could also trigger more need in rental assistance, which could create a new set of issues for cities and renters (PDF).

Similar trends are observed in other cities around the world. A 2015 study looking at Barcelona showed that the introduction of STRs into the historic city center resulted in displacement of local communities. Rent prices were 9 percent higher in the area compared with the average rent citywide, despite having been 3 percent lower in 2007. A 2020 report (PDF) from a working group of the European Parliament documented that in 2020, between 15,000 and 25,000 housing units in Paris and 15,000 in Prague were removed from the housing market to most likely become STRs.

A few considerations for local governments

With more cities exploring STR policies, either those that encourage or regulate the short-term rental business, they ought to analyze how an increase of STRs can widen racial, ethnic, and wealth gaps. To do so, cities can collect demographic data on homeowners and renters in their cities and assess the effects of STRs on the local housing market.

Many cities and local governments around the world are already pursuing innovative solutions to prevent some of the unintended consequences of abundant STRs and set incentives correctly to benefit both STR businesses and citizens. Santa Fe County has presented various proposals to address its growing housing crisis by regulating STRs. The proposals include setting occupancy limits, requiring renters to register and pay a lodger’s tax, enacting quiet hours, and restricting parking and water use.

Cities around the world also are limiting how many rooms in a unit can be rented through these platforms, setting a cap on the number of days for a single reservation, and establishing licensing regulations. Each of these solutions has its merits, but to find the best solution for a particular city, local governments should prioritize equity and proactively consider the consequences of increasing STRs in their communities, including how to help STR owners in communities of color benefit from this market and how to use public funds generated by STRs for housing projects.