Does Airbnb Cause Gentrification?

Abstract

The rise of Airbnb in the recent decade has certainly disrupted housing markets and affected the hotel industry, and recent concerns about Airbnb growth include its effect on gentrification. This paper tests for the existence of a causal relationship between Airbnb activity in an American metropolitan area and gentrification in that area, which is measured with changes in rising median income, rising home prices, change in racial and age makeup, and the share of residents holding a college degree. We find significant correlations between Airbnb density and the gentrification outcome variables via panel fixed OLS regressions. However, when we instrument for Airbnb density using the passage of municipal ordinances limiting short-term rentals, we find that the instrument is not valid and does not allow for proper causal analysis using two-stage least squares (2SLS) estimation. Therefore it is undetermined if Airbnb growth directly causes gentrification in American cities, but it certainly is correlated with gentrification measures. It is left to future research to determine whether the direction of causality goes from Airbnb to gentrification or whether rising Airbnb density simply reflects rising local demand.