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Rent Increases: The Effects of Airbnb on the Real Estate Market

People from Western Europe residing in the Czech Republic face a daily cost of living that is extremely competitive compared to the expenses they normally deal with in their home countries.

Groceries are quite inexpensive and an evening spent at a local restaurant with friends -—eating goulash and drinking beer — doesn’t usually exceed the amount of 300 CZK all included.

Foto: fotolia

Nevertheless, there’s one changing trend that’s affecting foreigners’ and locals’ pockets: the rising prices in the real estate market taking place during the past five to 10 years.

Prague has become more touristy in the past decade, and its reputation as a stunning European capital has fostered the tertiary sector’s expansion and related prices: apartment costs have followed.

One factor that has affected this trend is certainly the widespread use of Airbnb by flat owners and tenants in major cities. Airbnb is an online platform that allows users to rent their flat for a few days or weeks, helping travelers to avoid the renowned costs related to hotels and boarding houses.

What’s occurring is that Airbnb is moving properties from the long-term rental market —which is aimed at residents looking for permanent homes — to the short-term rental market focused on tourists and temporary visitors. This phenomenon reduces the amount of long-term rental units available while increasing prices for residents searching for this type of accommodation.

This circumstance is well-described by numbers. A recent not-yet-published study from the University of California, Los Angeles (UCLA) confirms that Airbnb is increasing home prices and rental rates. Between 2012 and 2016, 100 metropolitan areas were analyzed in the US: Researchers found out that a 10 percent increase in Airbnb listings per year corresponded with a 0.64 percent increase in house prices and a 0.39 percent increase in rents.

Although the percentages might seem ridiculous at a first glance, during four years house prices have increased by 2.5 percent within the studied sample, a trend that is likely to keep increasing.

The researchers believe that the study can be applied to all metropolitan areas around the globe where Airbnb has developed solid communities and is growing at a fast pace. Prague, being one of Europe’s hubs of economic growth and urban expansion, certainly qualifies among these cities.

For Dr. Edward Kung of UCLA, governmental policies should try to lessen the conversion of properties from long-term rental units to short-term ones in order to prevent the phenomenon from enlarging.

The idea behind the study is that policy makers shouldn’t restrict home renting for owner-occupiers using Airbnb for sharing unused rooms. Home sharing allows these people to fully utilize their properties while generating an additional income flow without affecting the real estate market overall.

In fact, they should aim at stopping those real estate agencies acting as private owners, turning properties under their jurisdiction into Airbnb sources of revenues, or tenants using the online platform without declaring their activity to the state or the landlord. Both entities foster a vicious circle that sees the price increase trend moving forward faster and faster, as they contribute to an uncontrolled spread of the online service beyond its regulations.

The real challenge is to understand the intention of homeowners and deliver a precise set of policies that will deal with that. Clear guidelines should come either from the side of municipalities and governors as well as Airbnb lawyers and developers.

On the other hand, users of Airbnb services should themselves be more attentive when choosing where to stay for their trips, making sure — way before their arrival — that their host is the actual owner of the location and not an outlaw abusing the hospitality platform.

Author: Nilo Castaldini, Foreigners, Prague 08.11.2017 

The Wall Street Journal
Fast Company


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