Short-Term Rentals and Residential Rents: Evidence From a Regulation in Santa Monica

Abstract

This study aims to investigate the relationship between Airbnb and long-term residential rents, using Santa Monica, California, as a case study. In 2015, Santa Monica adopted the home sharing ordinance (HSO), a stringent regulation aimed at restricting short-term rentals (STR). I employ the synthetic control method to a panel comprising Airbnb listings and residential rents from multiple cities in Los Angeles County. This approach is used to estimate the causal effects of Santa Monica’s HSO on Airbnb listings and residential rents. My results show a 60% reduction in Airbnb listings in Santa Monica within two years of implementing the ordinance. Despite this significant decrease, the effect of the regulation on rents was not significant. Suggestive evidence indicates that the ordinance’s ineffectiveness in increasing the number of houses allocated to long-term tenants may have contributed to its negligible impact on rental rates. This study reveals a scenario where a marked decrease in Airbnb activity did not lower residential rents, highlighting the need for context-specific evaluations of the relationship between STRs and local housing dynamics.