Airbnb has driven up rents in India

The rise in short-term rentals has put pressure on rentals in India to such a degree, it might be time for authorities to step in.

Airbnb bookings have taken off in India since the end of the COVID pandemic.

There are at least 70,000 properties listed on the site in India, as per The Economic Times (July 7, 2021). Domestic bookings rose 80 percent in the third quarter of 2022 over pre-pandemic levels, while hosts collectively made over $12 million from bookings with families in 2022.

But there are serious questions about the effect this explosion in short-term rentals might have on housing and rents across the country.

This is because there are already many affordable housing problems in Indian cities, as pointed out by the India Infrastructure Report which documents that approximately 19 million urban households face a housing shortfall, despite 11.1 million houses being vacant in cities.

Further, fewer than 1.8 million houses have been constructed as a result of various programs initiated by the government. Some studies estimate that more than two-thirds of the urban housing shortage is due to overcrowding in households.

Indian cities are also experiencing a severe affordable rental housing crisis, with a steady decline of the market share of rental housing from 54 percent in 1961 to 28 percent in 2011, as per the Census of India.

Based on the Airbnb website the nightly price of an Airbnb stay in an Indian city is about Rs 4,800 (USD$58). The most popular places for short stay rentals are Goa, Bengaluru, Karnataka, Pune, Hyderabad, Dehradun, Jaipur, Raigarh, Ernakulam, New Delhi and Nainital.

The natural assumption is that in cities where Airbnb is active, rental accommodation and housing would be relatively more expensive. This is because we assume such units are withdrawn from the housing market. It logically follows that the price of housing will also be pushed up, since the return from renting out properties on Airbnb makes it more attractive to invest in real estate, increasing competition.

Recent research found that Airbnb density has significant effects on the rent of all sizes of apartments and housing prices in Indian cities.

Prices and rents for three bedroom apartments showed the greatest effects. These results are quite pronounced, given that the extent of Airbnb penetration in Indian cities (measured by Airbnb density) has been quite limited in the emerging market. The results are also quite striking considering the data on active rentals were obtained during a pandemic, which means the impact could be even more prominent under normal circumstances.

The homestay market is estimated to be about $15 billion globally. Studies from the United States have found Airbnb increased the price of rental housing there. Rents in New York City rose by 1.4 percent, or $384 per year. Research also found that Airbnb removed anywhere between 7,000 and 13,500 long-term rental units from the market. One study found that the sale price of a house in New York City increased by 6–9 percent if the number of Airbnb properties 300m away were doubled.

The effect of Airbnb increasing rents in India leads to the question of whether Airbnb should be regulated, and if so, how.

It might be a good idea for local governments to regulate Airbnb properties, such as requiring hosts to not overcharge. This could limit incentives to list properties on the platform in the first place, as opposed to placing them on the rental market. This, in turn, could mean more properties available for long-term rentals and make housing more affordable.

Airbnb hosts could also be made liable to pay taxes on the income of the property. Currently, India exempts all Airbnb hosts who earn less than Rs 2 million (USD$24,178) income from reporting for Goods and Services Tax.

Airbnb itself has come up with certain policy tools to guarantee their hosts and guests respect the communities in which they share space and agree on guidelines and norms to be used for the same. Quite similar to the mandate by New York City, Airbnb could also encourage the sharing of data by hosts and guests with city governments, without sacrificing user privacy.

The outcome of all such regulation is that it eventually becomes more restrictive for a potential host to list their property on Airbnb, which would likely lead to housing becoming more affordable, although there is no guarantee these policies will solve the housing affordability problem.

This piece is derived in part from an article published in Housing Policy Debate – Sridhar, Kala S. (2022). Understanding the digital platform economy: Effect of Airbnb on housing in Indian cities, Housing Policy Debate, 32 (4-5) (July): 713-729, available online at Taylor & Francis Online: Peer-reviewed Journals(tandfonline.com)/https://doi.org/10.1080/10511482.2021.1929389

Kala Seetharam Sridhar is Professor at the Institute for Social and Economic Change (ISEC), Bengaluru, India. She has been a visiting Fulbright Nehru Fellow at the University of California Los Angeles Luskin School of Public Affairs, Department of Urban Planning during 2021 and 2022 and a visiting scholar at UNU-WIDER, Helsinki, Finland, multiple times. She has authored or edited 10 books, written several journal articles and is on the Editorial board of journals such as Area Development and Policy, Urban Science, Urban India and is frequently consulted by the Asian Development Bank for research on urbanisation. She is among the top 10 percent of authors globally on the Social Science Research Network.

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