TAXES IN THE SHARING ECONOMY: EVALUATING TAXATION AS A REGULATION ON AIRBNB

Abstract

Airbnb, since its conception in 2008, has become a disruptive force in the hospitality industry. While the platform has granted many more people access to the short-term rental market, allowing homeowners the ability to now choose to rent either to vacationers or to long-term residents, this choice has consequences for traditional residents of cities. A decision by a homeowner to rent on Airbnb is an implicit choice not to seek out a long-term resident to fill that room or home, and thus the rise of Airbnb affects not only the hotel industry but the rental market as a whole. Legislators looking to address these concerns with the platform have options ranging from policies that disincentivize use of the platform to outright bans of short-term rentals in their community. Looking specifically at cities in the Los Angeles regional housing market, this study analyzes how taxation of the platform can affect outcomes in the short-term and long-term rental markets, and how different methods of increasing taxes differentially affect these outcomes. We find that, not only are taxes an unsuccessful regulatory tool in discouraging Airbnb rentals, but that they may in fact lead to further increases in long-term rental market prices and increases in the number of Airbnb listings in a community.