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The Effects of Airbnb on the Real Estate Market

effects of airbnb on the real estate market

What are the effects of Airbnb on the real estate market? Ever since its launch in 2008, a growing number of homeowners in SoCal are solely offering short-term rentals. A study in 2015 revealed that more than 7,000 houses had been taken off the rental market in Los Angeles for use as short-term rentals. Even before that, vacancy in Los Angeles and surrounding areas was limited and demand high. The rise of short-term rentals has further increased demand. It’s becoming harder and harder to find an affordable place to live. As a result, Los Angeles is now one of the most expensive areas to rent in the USA.

Following are the ways in which companies like Airbnb may have hurt the real estate market:

Fierce Competition

With short-term rentals trending nowadays, most property investors are looking to buy in desirable locations. This ensures that their properties earn (high) rent throughout the year. However, this has created fierce competition over properties in certain parts of Los Angeles and OC. In turn, this means that owners are able to sell their properties at inflated prices, due to the rising demand for rental properties. The increase in real estate prices is so constant that many investors buy properties and sell them a few years later at a good profit.

High Rents

As we had discussed earlier, fierce competition for house ownership in certain parts of Los Angeles and OC has made them, significantly, overpriced. When these overpriced houses are put up for rent, the rentals charged by homeowners are significantly higher as well. Platforms like Airbnb give homeowners a chance to rent their houses on short-term basis to tourists. In a desirable area, Airbnb rentals have a high occupancy rate. In addition, they are usually rented for more money per night than a regular “long term” rental. So, renting out houses short-term is much more lucrative than long-term for homeowners.

So what are the effects of Airbnb on the real estate market? Many homeowners have taken their houses off of the traditional renting market, and have put them up on Airbnb instead. This sharp decrease in the number of houses available for local tenants has resulted in extreme competition for the rentals that are available. The demand is high, so the rents are high as well – making L.A. a very expensive place live in.

Entrance of Commercial Operators

Commercial operators (such as big real estate companies) have gone on purchasing sprees, buying off properties at inflated prices only to rent them out to tourists in a hotel-like business model. This has also made the L.A. area more difficult for “normal” investors to invest in.

The effects of airbnb on the real estate market can be felt throughout Los Angeles. Renting a two-bedroom unit in Studio City, for example, costs you around $2900. Airbnb has contributed heavily to this surge in rents, proof of which can be seen in the fact that more than three hundred rentals have been uploaded on Airbnb, from Studio City alone, at extraneous prices.

(If you’re ready to stop renting and become a homeowner, read this.)

In order to put a stop to these sky-rocketing rents, Los Angeles City Council is considering the amendment of the Los Angeles Municipal Code which, if passed, would mean that there would be strict restrictions on platforms such as Airbnb. Will this measure be effective in controlling the situation? Only time will tell.

If you are interested in buying or selling a property in the Costa Mesa area, Contact Torelli Realty.

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