Short-Term Housing Rentals Lead to Housing Shortages

Housing availability has plummeted while housing costs have skyrocketed for residents of Florence, Italy, in the wake of popularity for shorter rentals via platforms like Airbnb.

The housing shortage leaves lower income Italians and students particularly hard pressed to find affordable housing.  In the absence of action by the central government, the city of Florence has taken matters into its own hands, banning new short-term residential leases on sites like Airbnb. Other cities around the world have faced similar problems.

Video Spotlight:  

• The Airbnb effect: why second homes have become so divisive (Aug 15, 2023, CNBC International)

This post is based on the Reuters article, Florence bans new short-term rentals in historic centre, by Silvia Ognibene, October 3, 2023; the Fox News article, Historic Italian tourist spot seeks to ban short-term rentals amid housing crisis, by Peter Aitken, October 4, 2023; and the YouTube video in the spotlight.  Image source: Lukasz Janyst/Shutterstock

Discussion Questions:

1. How has the popularity and success of sites like Airbnb affected the availability and cost of housing in Florence?

Guidance: Seven years ago, there were about 6,000 apartments available in Florence on Airbnb.  That has risen to over 14,000 now.  Residents of Florence have seen their monthly rent increase 42% during that same time period, and in 2023 alone, it rose over 15%.

These rates of increase are unsustainable in terms of housing affordability for many of Italy’s citizens.  In addition, many of the Airbnb rentals are held by just a few players in the market.  In fact, 1,000 rental apartments are hoarded by a mere 20 landlords.

Many see this practice as very unfair to locals who are unable to find an affordable place to live, especially in the historic city center.  Though there are certainly other factors that have caused long-term rental rates and housing prices to rise more quickly than incomes, the increase in short-term rentals has played a significant role.

2. How does this capacity planning problem differ from some that are more commonly seen?

Guidance: Normally, capacity planning problems have short-, medium-, or long-range solutions which ultimately result in increased availability of the product of service.  In more typical cases, this may involve a factory adding employees, equipment, space, or new facilities.  Other examples include a store or restaurant hiring more employees, extending hours, or opening additional locations.

However, adding capacity, regardless of the time frame involved, is often very constrained when it comes to rental property availability in historic city centers.  Oftentimes, there is not room to build new units, and there may be zoning restrictions on what can be built, and rules about how things must look.

Since adding actual new rental units is difficult, the city of Florence is seeking to plug the widening gap between those who want to rent and the number of available units by banning new short-term rentals on platforms like Airbnb.

Now, however, to try to increase the availability of the existing units for long-term housing, Florence is offering a three-year property tax exemption for landlords who convert their properties from short-term rentals to regular, long-term leases.

Currently, many cities around the world struggle to collect accurate data with which to monitor the practices of short-term rental landlords.  Italy’s central government is also trying to enhance registration requirements for short-term rentals.