Several European cities have introduced “day caps” to regulate short-term rentals in response to the rise of home-sharing platforms like Airbnb. But do these measures do more harm than good? Drawing on a new study of short-term rental regulations in Berlin, Hamburg and Munich, Sonja Gensler, Nadine Riedel and Andrea Schneider explore how day caps affect residents, hosts, guests and platform providers.

As urban areas face housing shortages and the disruption of local communities, regulators have turned to measures like “day caps”, which limit the number of days a property can be rented out through platforms such as Airbnb. In a new study, we examine three major cities in Germany that have implemented day caps to mitigate the negative impacts attributed to short-term rentals. Four key findings emerge from our analysis.

Targeted and non-targeted hosts left Airbnb

Our first finding is that there was a noticeable decline in Airbnb listings and bookings, affecting both targeted hosts – those who frequently rent out their properties – and non-targeted hosts, who did not rent out their properties frequently before the regulation. The reservation days of occasional hosts decreased between 26.27% and 51.89% depending on the city in focus. Targeted hosts experienced a similar decline.

While the impact of the short-term rental regulations on targeted hosts is highly intuitive, the decline in reservation days and the number of active properties of non-targeted hosts is more surprising. The adverse reactions of occasional hosts partly stem from reduced expectations regarding future short-term rental revenue potential. Additionally, registration costs and non-monetary burdens resulting from the regulations may have further encouraged occasional hosts to exit the market.

Almost no effect on long-term rental markets

Second, contrary to expectations, the regulations had little impact on the availability and pricing in the long-term rental market, suggesting that the assumed benefits of such policies might be overestimated.

Even if, quite unrealistically, all exits from the short-term rental market, including those of occasional non-targeted Airbnb properties, triggered a one-to-one rise in the number of properties used for long-term residential purposes, the total increase would still be small relative to cities’ housing needs. Effects of the studied short-term rental regulations and long-term rental prices are close to zero.

Lack of enforcement

Third, we found that while some targeted hosts left the market in response to the regulation, the average number of reservation days of remaining hosts did not shift substantially after the implementations of the day caps. This observation suggests that targeted hosts who remained in the market were non-compliant with the short-term rental regulation, renting out their properties for more days than allowed. Indeed, a significant portion of hosts did not comply with the regulations, highlighting challenges in enforcement and the effectiveness of these rules.

Figure 1: Distribution of annual reservation days per property in Munich (2017, 2018, 2019)

Note: For more information, see the authors’ accompanying paper in the Journal of the Academy of Marketing Science.

For example, in Munich the distribution of reservation days is strikingly similar across the years 2017 (the year before short-term rentals were capped at 56 days per year) as well as in 2018 and 2019 (see Figure 1). In 2019, the number of active Airbnb properties in Munich declined, but it is mainly properties with fewer than 56 reservation days that dropped out of the market. Consequently, the share of properties that did not comply with the regulation increased to 46.6%.

A negative net welfare effect

Finally, the regulations had mixed impacts across different groups, with minimal benefits to residents and considerable disadvantages for hosts, guests, and the platform provider.

Our findings paint a complex picture of the short-term rental landscape. On the one hand, residents see little to no improvement in their long-term housing situations, challenging the primary goals of the regulations to protect resident welfare and housing availability.

On the other hand, guests face a moderate decline in welfare because of slightly higher prices and fewer choices, diminishing the appeal of platforms like Airbnb. Hosts are hit hard by reduced earnings (between 9.02% and 46.30% depending on the city in focus). As the short-term rental platform participates in hosts’ revenues through a fee system, the regulation-induced reduction in hosts’ revenues directly translates into a reduction in the revenues of the platform challenging the business model of home-sharing platforms.

Given that the overall welfare effects of day caps are likely to be negative, current regulatory approaches for short-term rentals require critical reevaluation. Simple day caps do not adequately balance community needs, housing availability and economic opportunities. As cities continue to navigate the challenges of the sharing economy, the welfare of various stakeholders – residents, hosts, guests and platform providers – must be considered to ensure a sustainable urban development and the future of the sharing economy.

For more information, see the authors’ accompanying paper in the Journal of the Academy of Marketing Science (co-authored with Patrick Gauß and Michael Kortenhaus).

Note: This article gives the views of the authors, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured image credit: Pixelbliss / Shutterstock.com