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As short-term rentals have grown globally, they’ve been blamed for driving up housing prices and displacing residents. Barcelona and New York are among the cities that have taken steps to restrict the operations of vacation rental companies such as Vrbo and Airbnb.
But in a study of Airbnb’s effects in Amsterdam, Chicago Booth’s Milena Almagro and Booth research assistant professor Tomás Domínguez-Iino find that the company had nuanced effects on inequality—and could even lessen it.
Researchers are seeking to understand the dynamics between housing prices, population movements, and inequality. In a study of housing price fluctuations within cities, Booth’s Veronica Guerrieri, the Federal Reserve Bank of Chicago’s Daniel Hartley, and Booth’s Eric Hurst find that poor neighborhoods bordering rich neighborhoods tend to be hit hardest by gentrification. Using data from 1980 to 2000, Stanford’s Rebecca Diamond finds rising inequality across American cities tied specifically to educational attainment and housing costs.
Almagro and Domínguez-Iino consider the role of short-term rentals in this discussion while also taking into account the mix of commercial offerings and residents’ preferences for those. A neighborhood with three nurseries and a pottery studio signals it is family friendly, Almagro explains. One with a dozen bars and a 24-hour Taco Bell Cantina signals something different about its demographics.
“Some neighborhoods are good for families and others for young professionals, and if you put all of these characteristics in a single dimension, you’re losing that information,” she says.
The researchers recognized six categories of amenities (restaurants, bars, food stores, nonfood stores, nurseries, and “touristic amenities”) and included those in their analysis of how a doubling of tourism and a dramatic expansion of Airbnb lodging changed Amsterdam. They collected data between 2008 and 2018 on rental prices, household demographics, and residential histories, along with neighborhood-level information such as rates of tourism and local amenities. (Airbnb formally launched in Amsterdam in 2008, but its activity picked up starting in 2011.)
Then they built a model to explore how tourism, preferences of individuals in different demographic groups, and neighborhood development all interact.
How short-term rentals changed a city’s amenities
An expansion of short-term rentals in Amsterdam led to changes in business offerings across the city, to positive or negative effect for the primary population in those areas. For example, bars increased the most in a neighborhood populated by older homeowners with children. Nurseries decreased in some areas favored by younger families, while restaurants opened in some places popular with singles.
Amsterdam has a higher ratio of tourists to residents than Florence, Italy, the researchers report. The number of overnight visitor stays reached almost 16 million in 2017, up from 8 million in 2008. Meanwhile, the short-term rental market—80 percent of it on the Airbnb platform—was nonexistent in 2008 but later surged to more than one of every 20 rental units citywide. In some central neighborhoods, the ratio was one out of five.
The researchers calculate that as tourism and Airbnb offerings rose, so did housing costs, but some residents gained a net benefit from the amenities that tourism attracted. For single people and young families, the new amenities offset the increase in housing prices. Older families, meanwhile, tended to leave neighborhoods heavily influenced by tourism, and the researchers inferred that they moved at least in part because they didn’t care for the new businesses.
This demographic movement can reduce urban inequality, they suggest, since “location sorting”—people migrating to neighborhoods with amenities they value—lessens pressure on housing inventory and rental prices.
In this way, the mutually reinforcing presence of tourism and touristic amenities can serve as a progressive tax, the researchers write. In their model, wealthier older families show an average welfare loss equivalent to a 5 percent income tax. Rents go up, and the commercial dimensions of the neighborhood serve them worse. Younger families and single people, on the other hand, show welfare gains of 1–3 percent of their income, the researchers find.
The model’s nuanced evaluation of amenities allows for a look at different approaches to regulating tourism. Almagro and Domínguez-Iino considered the difference between taxing short-term rentals and taxing touristic amenities. They find that taxing short-term rentals benefits all residents—older and younger families along with individuals—since housing costs don’t rise as rapidly when fewer short-term rentals enter the market.
But taxing touristic amenities hurts younger families and singles, two groups that benefit from the amenities’ entry into a neighborhood.
“Our paper opens up this box of understanding,” Almagro says. “Heterogeneity matters when it comes to how people choose where to live in a city and what benefits they get from those choices.”
- Milena Almagro and Tomás Domínguez-Iino, “Location Sorting and Endogenous Amenities: Evidence from Amsterdam,” Working paper, April 2024.
- Rebecca Diamond, “The Determinants and Welfare Implications of US Workers’ Diverging Location Choices by Skill: 1980–2000,” American Economic Review, March 2016.
- Veronica Guerrieri, Daniel Hartley, and Eric Hurst, “Endogenous Gentrification and Housing Price Dynamics,” Journal of Public Economics, April 2013.
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