Comparing Rents in Cities Around the World: Can Airbnb Help?
Conference
64th ISI World Statistics Congress - Ottawa, Canada
Format: IPS Abstract
Keywords: , housing
Session: IPS 440 - Commercial Property Price Indices and their Place in Official Statistics
Wednesday 19 July 10 a.m. - noon (Canada/Eastern)
Abstract
Two important issues in urban economics are how rents and rent-income shares (or housing affordability) differ with income across cities. Using harmonized micro-level Airbnb data, we construct hedonic quality-adjusted spatial Airbnb rent indices for 60 cities from Europe, the Americas, Asia, Africa, and Australia. We find that Airbnb rents are rising in per capita income, with a 10-thousand dollar increase in per capita income closing the rent gap to the most expensive city -- San Francisco -- by around 5.8 percent. The Airbnb rent premium (i.e., short-term rent divided by long-term rent) is decreasing in per capita income. This implies that landlords in poorer cities may have a greater incentive to switch properties from the long-term rental market to Airbnb. Combining our Airbnb and long-term rent indices using an errors-in-variables approach, we then demonstrate the pivotal role played by rents in determining the price level. A 1 percent increase in the rent price level in a city raises its overall price level by about 0.28 percent. We also find that the rent-income share is broadly stable across cities, which is consistent with the common assumption in the academic literature of a unit elasticity of substitution between consumption and housing.