How Airbnb Affects Home Prices in Puerto Rico

Airbnb raises property values in entire areas and cities, not only in those communities in which it is a common practice.

A UCLA study named “The Effect of Home-Sharing on House Prices and Rents” shows precisely how Airbnb affects home prices and rents. From the years 2012 to 2016, this study found that every 10% increase in the total number of Airbnb rentals led to a 0.42% increase in rent prices and a 0.76% increase in house prices in a given area.

Why does Airbnb affect home prices in such a way? It’s simply due to the fundamental laws of supply and demand. Airbnb takes long-term rentals off the market and moves them into the short-term market. When this contraction in long-term rentals supply occurs, tenants are forced to bid higher for the remaining properties, which increases prices and therefore rental yields.

This increase in yields incentivizes investors to go into the market for new properties and compete with traditional homeowners, which increases regular housing pricing as well.

Is this a good thing? It depends on whether you own or rent and where you live. If you live in an area that is close to being fully developed (Manhattan or Barcelona), this is bad news if you rent and great news if you own. The reason is simple, since the area is close to being fully developed, no new units can be easily added through construction or rehabilitation, and therefore higher prices will hold.

On the other hand, if you are a tenant in an underdeveloped market like most of Puerto Rico, an increase in long-term rent prices will hold only in the short run. The reason for this can once again be explained with basic supply and demand. Higher rent prices will incentivize developers to rehabilitate abandoned properties or build new projects; these new units will help stabilize the market and bring prices back to where they were before the additional demand came in.

In Puerto Rico, this impact in prices has been more notable in areas like Old San Juan, Isla Verde, Condado and Rincón due to a stronger demand for short-term rentals. This demand is currently strong due to several factors. First, there’s a still a significant shortage in available rooms/nights. Second, the Puerto Rico tourism industry continues to grow each year. Third, there’s over 5 million Puerto Ricans living in the States willing to buy properties in Puerto Rico only if they can pay the expenses associated with ownership by renting through Airbnb.