Airbnb and its influence on Amsterdam as a whole and, in particular, on the private rental market

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Airbnb and its influence on Amsterdam as a whole and, in particular, on

the private rental market

Abstract

This paper was written in order to explore the impact of Airbnb on Amsterdam and, in particular, on the private rental market. After the accession of Airbnb, the accommodation sharing platform has developed rapidly in the city of Amsterdam. Because of this rapid development, other markets were disrupted and the municipality of Amsterdam had to intervene. The regulations were imposed to contain the increasing number of Airbnb accommodations and to generate revenue through the arising sharing economy. The effect of the regulations on social welfare is not clear, though it shows potential for the future.

Bachelor Thesis

Economics and Business

Student: Stijn Martens (10447040) Supervisor: Andrej Woerner

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Statement of Originality

This document was written by Stijn Martens who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Introduction

Over the years, technological developments (e.g. mobile phones, the world wide web) have made it easier for people to communicate with each other. This makes it easier to share information. Along with shifted attitudes towards consumption, growing concerns about climate change and a desire for social embeddedness by local and communal consumption the sharing economy has developed (Botsman & Rogers, 2010).

The sharing economy, defined as “a peer-to-peer-based activity of obtaining, giving, or

sharing the access to goods and services, coordinated through community-based online services” has become an important industry with global revenue estimated at $15 billion (PwC,

2014). It is also expected to continue growing to $335 billion by 2025, which means that the sharing economy has considerable growth potential. This increase of the sharing economy will have a huge social impact and is therefore relevant for policy makers as well as the implementers (European Parliament, 2015). An important type of sharing is accommodation sharing with its most famous marketplace Airbnb.

Airbnb was founded in 2008. Since then it has already provided accommodations to more than 60 million tourists (Airbnb.nl). Airbnb is a peer-to-peer market place that matches people who have space to rent to people who are looking for a place to stay in over a 192 countries (Botsman, 2012). It allows individuals to rent out their room, studio, apartment, and house to tourists, thereby offering a unique travel experience. Because of Airbnb it is possible for tourists to stay in the home of individuals. This allows them to meet the owner, see how the owner lives, and experience the different culture of the place they are staying in. At first, for tourists, Airbnb was a great alternative for hotels, and for home owners, to generate an extra income. However, due to the enormous increase in Airbnb accommodations worldwide, it has an influential effect on other markets as well. Airbnb has entered throughout the Netherlands. However, the amount of Airbnbs in Amsterdam, currently more than 11,300 listings, accounts for 45 percent of all accommodations in the Netherlands (Insideairbnb.com and Appendix, graph 3).

This paper explores the potential impact of Airbnb on the private rental market in Amsterdam. In Amsterdam, Airbnb is still increasing rapidly and the municipality of this city is one of the first cities that announced a cooperative effort with Airbnb in order to provide a collective solution for the private holiday rental market. Out of this joint effort, some regulations came forth. By imposing these regulations, the municipality of Amsterdam tries to cope with rapid increase of Airbnb accommodations in the city. This is necessary because

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according to a research performed by the ING bank (2016), the increasing amount of Airbnbs could be the reason why the housing prices of Amsterdam are rising. The residential environment is very popular, from which homeowners in Amsterdam could benefit, but also could be detrimental for potential home seekers and the availability of rooms to rent for students.

In this paper, I will research the effect of the increase in Airbnb accommodations on the city of Amsterdam and to what degree the regulations will affect social welfare. Currently the expansion of Airbnb impacts the hotel industry and private rental market of Amsterdam. My hypothesis is that thanks to regulations implemented by the municipality of Amsterdam, the city could ultimately benefit from the accommodation sharing platform. In the next section, I will focus on literature regarding the sharing economy as a whole and I will discuss the similarities and differences between Airbnb, the hotel industry and the private rental market. I will then focus on the impact of Airbnb on the private rental market of Amsterdam and how it affects different actors. In the subsequent section I will provide insights on how the regulations provide guidance over Airbnb. In the end, I will explain my findings, present my conclusions and discuss limitations and provide insights for further research.

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2 The sharing economy: differences and similarities between Airbnb and

the private rental market

In this section I will first explain what the sharing economy is and how it affects various markets. Secondly, I will examine the similarities and differences between these markets.

2.1 The sharing economy

There is no uniform definition for the sharing economy, but the idea of the sharing economy is to reduce transaction costs and increase convenience. New platforms created through the sharing economy are described by Rachel Botsman (2010) as “driven by network technologies

that enable the sharing and exchange of assets from spaces to skills to cars in ways and on scale never possible before.” She notes that these new platforms enable assets previously

unavailable or not conveniently available, to become widely accessible. Pushmann & Alt (2016) refer to the sharing economy as a tool where a physical good or service can be split up so the ownership can be shared with others, which allows a new phenomenon like ‘collaborative consumption’, where the access to goods and skills is more important than ownership of them (Sacks, 2011). Hamari et al (2015) identify three drivers behind the sharing of resources. First, customer behaviour for many goods and services changes from ownership to sharing. Second, because of technological advances it is more easy to link consumers through online social networks and electronic markets. And thirdly, the use of shared goods and services are being made more convenient through the development of mobile devices and electronic services. Because of these drivers, it is possible for platforms like Airbnb to be successful in today’s economy. Technological advances have enabled the possibility to connect people, which also enabled the option to share goods and services. By developing a platform, Airbnb has provided an accommodation sharing mechanism where individuals are the market.

It is because of these technologies, people can now evade conventional intermediaries and redefine classical market relationships (Nadler, 2014). By participating in these new markets, people are better able to carry out economic transactions without the interference of traditional companies. This shift allows platforms to bring people together and thus supply demand. Gansky (2010) describes two business models which encompasses all different types of platforms. The first is called the ‘Full Mesh’ model, where companies’ own assets and make a profit by leasing them. The second is called the ‘Own-to-Mesh’ model, in which third parties develop a platform to connect individuals with goods and services, for example Airbnb.

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Botsman (2010) identifies three categories in the latter model. The first category is ‘product service systems’, where its “a service that enables multiple products to be shared or products

that are privately owned to be shared or rented peer-to-peer.” In this category, the ownership

of the asset is not important. Another category is the ‘redistribution markets’ where pre-owned goods are being passed on from someone who does not need or use it anymore, to someone who does need it. Botsman says this is another alternative to the common ‘reduce, reuse, recycle, repair’. A third category is ‘collaborative lifestyles’. In this category, people with similar needs come together to share and exchange intangible assets, for example time and skills. Airbnb can be related to all three categories. Privately owned accommodations are shared between people and tourists, when anyone has a spare room which is not utilized, it is possible to redistribute this to tourists, albeit for a short term. Also, Airbnb guests can relate to their hosts because they are open to meet new people and develop trust.

Airbnb is a fine solution for tourists, and so acts as a good alternative for hotels. Consequently, it has an influence on the hotel industry. However, due to its popularity and huge expansion worldwide, we can see some developments in other markets as well, such as the private rental market. Airbnb is a competitor for the hotel industry, but provides accommodations which could also be suitable for the private rental market. To assess the influence of Airbnb, I will consider its similarities and differences with the hotel industry and the private rental market on four different characteristics: accommodation seekers, the facilities of the accommodation and the length of stay, reputation and trust, and the price.

2.2 Accommodation seekers

People have different reasons to look for an accommodation. Hotels and Airbnb provide accommodation for tourists and businessmen, who are just looking for a short term accommodation. A comfortable place to stay where they can unwind and relax. However, where hotels see a diversified group of guests, the people which book an Airbnb accommodation are typically younger people (Goldman Sachs, 2016). Under the age of 45, more than 64 percent said that they have used a home-sharing service, while only 23 to 29 percent of the people who are 45 or older have used this. Also, there seems to be a positive correlation between the familiarity with peer-to-peer travel and income, but not between using a home-sharing service and income. Still, not only the amount of tourists using Airbnb is rising, also the amount of businessmen using the service is increasing (New York Times, 2014). Airbnb has developed a

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section which is intended for business travelers only and offers full houses and apartments. Hereby competing on a bigger scale with the hotel industry, but also impacting the private rental market.

The private rental market offers houses and apartments for home and rent seekers, who are looking for a place to live, so these groups are looking for long term accommodations. It is important for them to affiliate with the neighbourhood, because they will spend a significant longer period of time in their new accommodation than the mentioned tourists and businessmen.

2.3 Facilities and length of stay

Most of the time, the hotel industry is able to provide rooms with the basic needs. These are a bed, a closet, a television, a toilet and a shower. The more luxurious rooms offer a bath and a sitting area. Overall, a hotel does not offer a kitchen or the possibility to prepare and cook your own meals. More often, hotels provide a restaurant inside the hotel building, where guests can enjoy their breakfast, lunch or dinner. In addition, some hotels provide a common seating area or a conference room where businessmen can hold meetings.

For Airbnb accommodations, there are two different categories to identify: apartments and full houses, or rooms. Both accommodations generally offer the same basic needs as a hotel, but because the accommodation is rented out by an individual, guests often have the chance to use the kitchen and their host’s seating area, as the host should also have this at his/her disposal when the accommodation is not rented out. Most of the time, the full houses’ and apartments’ category offers a complete apartment with bed, kitchen, seating area, and a bathroom, where you will have more privacy. In the room category, you will usually be given a bed and a closet, and have access to a common bathroom, seating area and kitchen. With this option, it is relatively more easy to get into contact with the host and thus meet new people.

The private rental market offers apartments, houses and rooms which generally have all the facilities that an Airbnb accommodation provides. Because the Airbnb accommodations are offering the same facilities as private rental market listings, these accommodations would be fit for a potential home or rent seeker. However, these accommodations are available for short term accommodation seekers. Therefore, the supply of accommodations for the long term could decrease.

In the private rental market, people are looking for long term options. As mentioned, hotels and Airbnb offer accommodations for a short term, but the average time people stay in

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hotels is substantially lower than the length of stay in Airbnb accommodations. The average time a traveller spends in a hotel in Amsterdam is 1.9 nights, against 3.9 nights in a Airbnb accommodation (Airbnb Economic Impact, 2013). This difference could arise because an Airbnb accommodation gives the experience of a ‘home’ environment, which gives visitors the feeling they are living like a local.

Another difference is the flexibility of stays in hotels and Airbnbs with regards to the long term accommodations. With hotels and Airbnbs, the owner is not attached to the guests. The guests will have to leave when their stay has ended. If the guests do not want to leave, the issue can be resolved by contacting the manager or Airbnb, who will mediate with the guests. If the hosts believe the matter cannot be resolved through this, the involvement of police is an option. However, a home owner or a tenant has signed a contract which makes it impossible to swiftly change between accommodations. A tenant has also something called rent protection, which allows them to stay at the premises as long as the contract is abided. This could be a disadvantage for landlords, because there is no room for flexibility. When a landlord chooses to rent out an accommodation to a tenant, he cannot evict the renters unless they leave voluntarily or when their contract has ended. A landlord can therefore not sell the house when there are tenants. Because of this, it might be more attractive for landlords to rent out their accommodation through Airbnb.

2.4 Reputation and trust

In the private rental market, reputation is less important than for the hotel industry or Airbnb. When a landlord does not treat his tenant well, a tenant has the option to leave and complain that his landlord treats its tenants poorly. This goes from mouth-to-mouth, there is no known platform that reflects where tenants can argue which landlord is better than others. Also, because the demand for rooms is larger than the supply, a landlord will quickly find a new tenant.

Trust is more important than reputation in the tenant-landlord relationship. A landlord has to believe that the tenant will behave appropriately. Only then will the landlord accept the tenant’s request to rent the accommodation. This also works the other way around, tenants have to trust that the landlord will also behave appropriately and fulfill his obligations.

In the sharing economy, the role of trust is the key to success, and particularly the interaction between trusting and being trusted (Forbes, 2012). An example of stock-exchanges

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is mentioned, where there is no human interaction. But when you lend out your car, home or tools, to a stranger, there is a social risk involved. Trust is the result of a trustor and a trustee arriving at an agreement. The trustor is the person who takes the risk, by relying on the trustee to commit to a social contract and not being certain if he or she will fulfill this. The sharing economy relies on its users to share, but in order to make an exchange, users have to be trustworthy and, more importantly, trust each other. This depends on reputation and behaviour. Reputation is something that is easy to assess, but can also easily be imitated, where behaviour is more difficult to fake. To engage in an agreement, the trustor wants information about the trustee to reduce risk. In the sharing economy, people will even go a little further. It’s not just the reliability of the trustee that a trustor is looking for, but also the willingness to trust. By relying on a stranger, the trustor hopes to inspire people and that they are also willing to take social risks to meet others, and by doing this, develop new trustors. Studies have shown that we are better able to trust people who seem to share our values and personal traits (Ziegler & Golbeck, 2007). By participating in the sharing economy, we create the power to make us comfortable with people and experiences we would never have seemed possible otherwise. With Airbnb, it is possible for tourists to check the owner, and vice versa. It is valid for tourists and owners to build a solid reputation.

Reputation capital is the worth of your reputation, such as intentions, capabilities, and values, across communities and marketplaces. Botsman (2012) believes that reputation is becoming a currency that will be more powerful than our credit history in the 21st_century.

Reputation as a currency says that you can trust me. More so than our credit history, we can shape our reputation and have complete control over it. Ultimately, reputation capital could create a massive positive disruption about who has got power, trust and influence. Reputation can be used to buy cooperation from others, even people we have never met. For the sharing economy to work, positive ratings are critical to entrepreneurial and platform success. Studies at the platform level (Nosko and Tadelis, 2014) show that eBay buyers draw conclusions about the marketplace based on their experience with specific sellers. Buyers who have a poor experience with a seller are less likely to return to eBay. The same conclusion could apply to Airbnb. Zervas et al (2015) found that staying at an Airbnb accommodation resulted in an above average experience. The ratings on Airbnb are more positive as compared with those on other established platforms. This suggests that in order to succeed on sites like eBay and Airbnb, you probably have to receive high ratings, which could be the core of success for Airbnb as well. Airbnb relies on hosts and guests to get along and leave good reviews. Otherwise, if there are no good reviews, then people are not eager to stay with an Airbnb host. Because when guests

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had a bad experience with a certain host before, the possibility exists that one’s stay with the same host could be comparable. Therefore, hosts may put in extra effort to avoid negative reviews. For example, to reject guests which they deem to be unfit, or even delete an accommodation and make a new one for a fresh start.

Thus for a landlord to present his accommodation on Airbnb successfully, he must invest in his reputation and behaviour to gain the guest’s trust. It might not be important for the first guests that stay in his accommodation, but when his reputation is below average in regarding to other hosts, he will lose customers. Every guest that stays will have an opinion about the accommodation and how they were treated by the host, so a bad review could damage future income. However, the host also has the opportunity to review its guests. If guests want to be permitted to other Airbnb accommodations, it is better for them to behave well. Hereby Airbnb tries to minimize the social risk, because both parties benefit when the stay is perceived good. This is also an example of how technological advances have assisted in the uprising of Airbnb.

Where an Airbnb host can reject guests or delete accommodations, a hotel does not have the ability. They have to maintain a high standard and provide a good service to its guests. Today, hotels must be able to respond adequately to the needs of customers and ensure high customer satisfaction. Otherwise, because of technological advances and social media, a bad experience from a guest could spread and be detrimental for a hotel. Also the reputation of hotels is one-sided, they cannot assess beforehand what kind of guests they receive. There is almost no level of trust between hotels and its guests, so there is no real connection. To compete with the sharing economy, hotels must be able to provide more reliable, consistent, broader and safer services than their upcoming competitors (Cusumano, 2015).

2.5 Prices

The price of an accommodation is an important characteristic for both the short and long term markets. The price is set to equate the quantity being supplied to those that are being demanded. As we will see, there is a huge difference between the price set for short term demand and long term demands. This difference arises because when people for the long term acquire an accommodation, they tend to stay there for a longer time. They will take over the responsibility for the landlord’s or seller’s accommodation and make sure they can live there for a long time, also offering the landlord financial stability. Furthermore, with long term renters the landlord avoids the bother of handling the booking, preparing the accommodation,

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welcoming the guests and saying goodbye. A tourist or businessman will be responsible for the accommodation only approximately 2 to 4 nights, which means they will care less about the state of the accommodation when they leave. For example, they could ruin the place because they feel like it and have no bond with the host or accommodation. So with short term rentals, there is a higher risk for the person who rents out their accommodation. In order to reduce the risk, the price for short term rentals is much higher.

The average price to stay a night in a hotel in Amsterdam was in 2015 €154 for a room suitable for two persons (Trivago, 2016). The average price of a night in an Airbnb accommodation in Amsterdam is €131 (InsideAirbnb, 2016) for an accommodation suitable for two persons.

For rent seekers, the price per month is significantly lower than for the short term accommodations. For example, students pay an average of €425 per month for a room in Amsterdam (LSVb, 2015). For social housing in Amsterdam, the price per month for an accommodation suitable for two persons does not exceed €710, but the private rental market in Amsterdam is significantly higher than everywhere else in the Netherlands. The average rent per month for a private rental accommodation suitable for an average of two guests in Amsterdam is €2,223 (Pararius, 2016). The gap arises because there is a big shortage in private housing in the region. Meanwhile, the demand from tenants with middle income rises.

Home seekers are also influenced by the shortage of private housing. Data from the Central Bureau of Statistic of the Netherlands (CBS, 2016) shows that the housing price index of residential in Amsterdam has increased. The housing price index measures the price changes of residential housing. Furthermore, the housing price index of Amsterdam is at its highest point, even higher than the peak before the credit crisis in 2008. Overall, the housing price index in the Netherlands is not close to the level before the crisis (Appendix, graph 2). This increase could have been caused by the expansion of Airbnb accommodations in the capital. Overall, the housing price index in the Netherlands is not close to the level of before the crisis.

2.6 Summary

To summarize, Airbnb differs from hotels in the ability to provide cheaper accommodations where guests perceive a more ‘local’ experience which enables them to feel more connected to the city they visit. Furthermore, Airbnb provides a close relationship between the host and its guest, while there exists a bigger distance between hotels and their guests.

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In relation to the private rental market, Airbnb provides accommodations for the short term, although these accommodations are also suitable for long term accommodation seekers. Because these accommodations are offered via Airbnb, they are not available for long term accommodation seekers.

This shows that Airbnb has placed itself between the hotel industry and the private rental market, and influences both markets.

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3 Impact of Airbnb on the private rental market and its effects on different

actors

The accession of Airbnb has made an impact on several markets. First, Airbnb was a good alternative for hotels. But now, more homeowners are noticing the short term rental possibilities that Airbnb offers. In this section I will comment on the impact of Airbnb on the private rental market and how it influences tourists, accommodation seekers and what the effect is on social welfare.

3.1 Tourists

At first, Airbnb was a good alternative for hotels. Tourists appreciate the use of Airbnb for the personalization, authenticity, flexibility and contacts with local citizens (European Parliament, 2015). As mentioned before, the average time a tourist rents a room in Amsterdam via Airbnb is twice as high as the time they spend in a hotel. This means that Airbnb is becoming a bigger player in the hotel industry. Zervas et al (2016) conducted a research on the impact of Airbnb on the hotel industry in Texas. They collected hotel room revenue from 3,000 hotels in Texas dating back to 2003. Analyzing this, they quantified the extent to which the accession of Airbnb has negatively impacted the revenue of hotel rooms. The analysis has shown that the revenue “has decreased by about 8-10 percent over the past five years.” This decrease stems from large differences between the hotel industry and the ‘peer-to-peer’-market. Also, 79 percent of the people who haven’t booked a peer-to-peer accommodation say they prefer the traditional hotels. Unfortunately for hotels, this number drops to 40 percent after people have booked a peer-to-peer accommodation. This means that the effect of Airbnb could be even bigger (Goldman Sachs, 2016).

Furthermore, the average Airbnb user spends more in Amsterdam than a hotel visitor. Airbnb guests spend €792 during their trip, from which €179 is being spent on local businesses in the neighbourhood where they stay. A hotel visitor spends €521 on average during a trip to Amsterdam (Airbnb EI, 2013). This could have a beneficial effect for the capital, which will be addressed later.

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3.2 Accommodation seekers

The rapid development of Airbnb in Amsterdam has influence on the residential market as well. In this section I will explain the influence on accommodation seekers and divide these people in two groups: students and non-students.

3.2.1 Students

Many students want to get out of their parental home and start living on their own. Most of the students cannot afford to buy a home or apartment when they first leave their parents. Therefore, they will try to rent a room in a student house. To find a room, students can look on rental sites like Kamernet.nl. A spokesperson of Kamernet.nl shared some insights with me on the development of Airbnb and the availability of rooms in Amsterdam. (Appendix, Interview). She said that Kamernet experienced a decrease in the amount of rooms offered on their site in Amsterdam, whereas the amount of visitors on the site and the amount of house seekers has not. She said that this could be caused by the recovering economy, which leads to more people selling their home instead of renting it out. Although Airbnb accommodations are not intended for the long term rentals, the accommodations offered on its site are. As previously mentioned, with Airbnb landlords are identifying new options to rent out their accommodation. By using Airbnb, a landlord could generate an average of €655 per month (ING, 2016). While it can only generate an average income of €425 per month through renting it out to students. There is a gap of €230. On top of that, by using Airbnb, a landlord is not attached to its guests. When they leave after a short period, the landlord is able to sell the accommodation, or rent it out again. With a tenant, the landlord can only change the purpose of the accommodation when the tenant’s contract has ended. This flexibility and the income gap give the landlord reasons to opt for renting his accommodation to guests through Airbnb for a short term, instead of permitting a tenant to stay for a long term.

However, landlords could be interested in long term renters because they give more financial stability. When you rent out through Airbnb you are dependent on the experience of your customers.

The spokesperson also mentioned another reason why the supply of rooms could be decreased. She noted that the student subsidy system has been abolished. Before September 2015 students were given a fixed monthly amount to pay the tuition. However, this has been abolished because of budget cuts. However, she first mentioned that the amount of room seekers has not changed, so the demand remains the same.

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I also asked if she believed that Airbnb would become a competitor for Kamernet in the future, to which she replied that it might happen but they do not regard Airbnb as a true competitor at this time even though Airbnb does supply the accommodations that could also be offered on Kamernet. Kamernet and Airbnb are currently not active in the same market and they do not have the same customers or target group. This is because when using Airbnb people are mostly looking for a short term rental, while students are looking for long term rental accommodations, on average six months or more.

3.2.2 Non-students

The group of non-students are the people who have more money to spend on accommodations, for example people who are working or expats who stay in Amsterdam for more than one week. As the spokesperson of Kamernet already mentioned, the recovering economy results in non-students buying more houses instead of renting. As mentioned before, the housing price index of Amsterdam has also increased fiercely, which could be partly due to the popularity of Airbnb and the immense amount of listing in Amsterdam (ING, 2016). ING also notes that because of the extra generated income through renting out an Airbnb accommodation, a host can generate an average additional income of €655 per month. In the residential market this could be equivalent to an extra mortgage of €95,000, meaning that home seekers can borrow more. This translates into an increase in the housing price index (Appendix, graph 2). Equivalently, because the housing prices are rising, the average rent per month is rising as well.

3.3 Social welfare

The sharing economy has the potential to increase social welfare (Botsman, 2012) and a large population of individuals could benefit from Airbnb. Hosts that receive extra income through renting accommodations, guests who choose Airbnb as an alternative to a hotel stay, and consumers who benefit from lower prices and an increase in competition. Also, when staying at an Airbnb accommodation, the guests are staying longer and spending more on local businesses.

However, the overall effect on social welfare is less clear. There are reports about disturbance in the areas where Airbnb accommodations have entered and tourists arrive in neighbourhoods which do not have the facilities to cope with this group. Airbnb notes that 73 percent of their accommodations are located outside the central tourist districts (Airbnb Economic Impact, 2013). Airbnb can potentially expand supply wherever a house exists or will

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be built, which generates a gap between advocates of the sharing economy and opponents. To cope with complaints, Airbnb has designed a tool where anybody, for example neighbours, can share their concerns. A team reviews the concerns and if necessary follows up with the host.

Also, the accession of Airbnb has caused a potential higher inflow of tourists to Amsterdam. Research from the department ‘Onderzoek, Informatie en Statistiek’ from the municipality of Amsterdam shows that the amount of foreign tourists visiting Amsterdam has increased sharply (Appendix, graph 6). The increase in tourists over the last few years after the crisis could also be explained by the recovering state of the economies worldwide, which means people have more income, thus could afford to travel more. However, the increase in the amount of Airbnb accommodations in Amsterdam is something to take into consideration (Appendix, graphs 5 & 6). The increase in supply of a unique travelling experience could be a reason why there is an increase in tourists. If this is the case, then Say’s Law is applicable. This law states that aggregate production creates an equal quantity of aggregate demand (Say, 1803). The law also states that where there is an excess supply of one good, there must be a shortage of another, which applies to the private rental market. The amount of Airbnb accommodations is still increasing (Appendix, graphs 7 & 8) and, as previously mentioned by the spokesperson of Kamernet, the amount of accommodations available for long term rent has decreased, while the demand has not.

This increase in tourism could be beneficial for the capital. As mentioned earlier, Airbnb guests stay longer and spend more so local businesses and the capital are likely to benefit from this.

Finally, as mentioned above, the housing prices are increasing. A higher demand for housing has an upward effect on the housing prices in Amsterdam. While this is just a simple market mechanism, it has a detrimental effect on renters and buyers. They cannot afford to live in Amsterdam which, if this continues for a long time, could have a disadvantageous effect on Amsterdam.

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4 The impact of regulation

Airbnb continues to grow worldwide, which has led to a growing concern regarding the accommodation sharing platform. The company grows faster than the regulations at hand. In San Francisco opponents of the platform have demonstrated at the headquarters of Airbnb (NRC, 2015). The opposition believes that Airbnb leads to disturbances by tourists in residential areas and they believe Airbnb is responsible for the increase in housing prices causing people not to be able to pay their rent. For this reason, the municipality of San Francisco introduced a referendum in November 2015 to build up a resistance against the spread of short-term home rentals. The referendum concerned a proposal in order to maximize the number of days for Airbnb rental at 75, which is now 90 days. Despite a hotel industry-sponsored campaign, the referendum was rejected with 55 percent of the votes, so up to this day the service is not restricted. But the turmoil shows there is great disunity surrounding Airbnb and it demonstrates how Airbnb conflicts with local residents.

As indicated previously, the legislation regarding upcoming platforms lags behind the rapid progress the platform is going through. Also, in Berlin the presence of Airbnb was regarded a problem for the municipality (Verge, 2016): a rise in rent rates and housing rates was observed. To keep housing affordable, the city of Berlin imposed a law that prohibits renting out entire homes or apartments in the capital, but homeowners can still rent out individual rooms.

As mentioned earlier, the municipality of Amsterdam has imposed regulations to cope with the increase of Airbnb accommodations. At first, the city was reluctant to approve accommodation sharing, but it noticed that the development was unstoppable, so there was decided to cooperate with Airbnb. An interesting development is that the presence of Airbnb shifts the income for cities from taxes through hotel stays to taxes through increased tourist revenue (Zervas et al, 2016). This is a distortion which is hard for municipalities to cope with, but must be done in the future to capture revenue. To do so, the municipality of Amsterdam introduced the tourist tax. With the tourist tax, the city of Amsterdam is able to profit from the amount of tourists that are staying in the capital via Airbnb. Now, hosts pay a tourist tax of 5 percent per tourist per night, which resulted in an estimated 5.5 million euros of income through Airbnb for the city of Amsterdam (Parool, 2015). To compare, in 2014 the overall income generated in tourist tax was a total of 48 million euros, so Airbnb provides an extra revenue of more than 10 percent for the capital. Another regulation is that one needs to own the accommodation one rents out, which was not an issue before. Now, it is no longer possible to

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rent out an accommodation which is rented from a landlord (Amsterdam1_{, 2016). Also, it is}

restricted to rent out one’s accommodation for more than 60 days per year and you cannot rent it out to more than four persons at the same time. Although the regulations have been imposed from February 2015, there seems to be no stopping the attractiveness of Airbnb. During 2015, the amount of new Airbnb accommodations in Amsterdam was more than 2,800, with the average increase approximately 235 accommodations per month (Appendix, graph 4). When we also take into account the increasing number of tourists in Amsterdam, then the revenue generated through tourism will probably increase over the next of years. But if these regulations will help to limit the number of Airbnb accommodations in Amsterdam is hard to predict. In order to maintain the regulations, the municipality of Amsterdam has developed a new tool which tracks down illegal hotels and housing fraud (Amsterdam2, 2016).

The tourist tax will generate an extra income for the city of Amsterdam, but the overall rental rate and housing price increase have a negative effect on overall welfare. Therefore, the effect on social welfare is not clear: if the municipality chooses to use the extra income in favour of the residential market, it has the potential to increase social welfare. The capital could use these extra funds to build new residential housing for students to increase the supply of rental accommodations. Hereby, the average rental rates should decrease which makes the city of Amsterdam more attractive for rent and home seekers.

Airbnb is still an upcoming company that shows no signs of a declining growth, which can be seen from the increase in accommodations in Amsterdam (Appendix, graph 7). The city of Amsterdam introduced a hotel stop to limit the building of new hotels in order to prevent oversupply and the overflowing of the city by tourists (FD, 2016). However, by introducing a hotel building stop, and allowing Airbnb accommodations to increase, the outcome could be counterproductive as Airbnb provides a unique travelling experience. Equivalent to the increase in Airbnb accommodations over the years (Appendix, graph 7) the increasing amount of tourists in Amsterdam shows no reduced growth (Appendix, graphs 5 & 6). Therefore, the city of Amsterdam has the potential to benefit from the increased tourism, although it has to consider regulations imposed to contain the amount of Airbnb accommodations in order to potentially increase welfare.

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5 Conclusion

If the accession of Airbnb in Amsterdam could increase the social welfare of the capital is not clear. The hotel industry notices that Airbnb is becoming a bigger player in their market, even though most of the Airbnb accommodations are located outside the touristic regions. Because these areas have not been designed to support the increasing amount of tourists, this is leading to disturbance in these neigbourhoods.

To decrease these disturbances and at the same time restrain the development of Airbnb in Amsterdam, the municipality has imposed regulations. Their first regulation, the tourist tax, is the option for the city to generate income through the accommodation sharing platform and therefore could be advantageous for the capital. Also, guests who are visiting Amsterdam are spending more, from which local businesses benefit and eventually the capital city as well. The ownership regulation, the 60-day regulation, and the no more than four people per reservation regulation are imposed to contain the amount of Airbnb accommodations in Amsterdam.

Contradictory, living in Amsterdam is becoming more expensive. The amount of Airbnb accommodations in the city could be the cause of increasing rental rates and housing prices, and could also decrease the amount of rooms available for rent seekers. To increase social welfare, the municipality of Amsterdam could use the extra generated income through the tourist tax to build new residential buildings thus increasing the supply of properties for long term accommodation seekers.

The regulations imposed are trying to contain the amount of Airbnb accommodations. Furthermore, the municipality has also announced a hotel building stop to counter the growth of hotels. Although, the municipality tries to contain the growth of hotels and Airbnb accommodations, the data shows that tourism in Amsterdam is increasing. If this is the case, the municipality of Amsterdam should regulate tourism, but at the same time notice the potential benefits tourism is bringing to the city.

Further research is required to validate if tourism in Amsterdam is increasing and with which growth rate, and if the regulations imposed to contain the amount of Airbnb accommodations are functioning.

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7. Appendix

Graph 1: Hotel Price Index Amsterdam (Trivago, 2016)

€ 0 € 50 € 100 € 150 € 200 € 250

January February March April May June July August September October November December

Hotel Prices in Amsterdam

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Graph 2: Housing Price Index Amsterdam and Netherlands (CBS, 2016)

0 20 40 60 80 100 120 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Amsterdam Housing Price Index (2010 = 100)

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Graph 3: Airbnb accommodations in the Netherlands and Amsterdam

(InsideAirbnb, 2016)

Graph 4: Increase of Airbnb accommodations and hotel rooms

(Amsterdam and InsideAirbnb, 2016)

45% 55%

Total Airbnb accommodations in the

Netherlands

Amsterdam Rest of the Netherlands

0 500 1000 1500 2000 2500 3000 3500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Growth of hotel rooms and Airbnb

accommodations over the years

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Graph 5: Tourist in Amsterdam (Amsterdam

3

_{, 2016)}

Graph 6: Foreign Tourists in Amsterdam (Amsterdam

3

, 2016)

0 2000000 4000000 6000000 8000000 10000000 12000000 14000000

Foreign Tourists in Amsterdam

Airbnb enters Amsterdam

0 2000000 4000000 6000000 8000000 10000000 12000000 14000000 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16

Tourists in Amsterdam

Domestic Foreign

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Graph 7: Increase of Airbnbs in Amsterdam (InsideAirbnb, 2016)

0 2000 4000 6000 8000 10000 12000

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Graph 8: Increase of Airbnbs in Amsterdam per region (InsideAirbnb, 2016)

0 500 1000 1500 2000 2500 3000 3500 au g-08 o kt -08 d e c-08 feb -09 ap r-09 ju n -09 au g-09 o kt -09 d e c-09 feb -10 ap r-10 ju n -10 au g-10 o kt -10 d e c-10 feb -11 ap r-11 ju n -11 au g-11 o kt -11 d e c-11 feb -12 ap r-12 ju n -12 au g-12 o kt -12 d e c-12 feb -13 ap r-13 ju n -13 au g-13 o kt -13 d e c-13 feb -14 ap r-14 ju n -14 au g-14 o kt -14 d e c-14 feb -15 ap r-15 ju n -15 au g-15 o kt -15 d e c-15

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Interview with Kamernet

1. Hebben jullie een verandering gemerkt in het aantal kamers dat op Kamernet verschijnt? Of een verandering in het aantal bezoekers op de site? Zo ja, welke dan?

Kamernet heeft in de afgelopen jaren inderdaad een verandering in het aanbod van woonruimtes opgemerkt. De verschillende ontwikkelingen op de huurmarkt en de huizenmarkt (aantrekkende economie, weer meer verkochte huizen/minder huizen te huur) en de veranderingen die effect hebben op studenten (leenstelsel; minder studenten op kamers) zorgen ervoor dat het totale aanbod van (studenten)kamers in Amsterdam op Kamernet is afgenomen. Het aantal bezoekers op Kamernet en het aantal woningzoekenden bij Kamernet is niet gedaald, evenals de vraag naar kamers in Amsterdam.

2. Airbnb geeft aan huurders niet dezelfde rechten als een huurder van een ruimte voor een langere tijd. Airbnb ziet huurders nog steeds als gasten. Vinden jullie dat de gemeente Amsterdam, of eventueel de overheid, hier iets aan moet doen? Zo ja, wat?

Zoals je tegenwoordig veel ziet gaat de ontwikkeling van een platform als Airbnb vaak veel sneller dan de regelgeving, dus is er een goede kans dat er nog dingen zullen veranderen die momenteel achterlopen.

3. Denken jullie dat de komst van Airbnb ervoor gaat zorgen dat er op den duur minder aanbod komt van kamers omdat mensen er eerder voor zouden kiezen hun kamer te verhuren aan iemand die slecht tijdelijk blijft, dan een huurder in huis te nemen die veel meer rechten heeft?

Beide vormen van verhuren en huren heeft zo zijn voordelen; Kamernet merkt bijvoorbeeld dat hospita's vaak voor een langere periode (6 maanden of langer) een huurder zoeken, omdat ze direct met de huurder in huis wonen en mogelijk juist willen weten wie er in hun huis woont, in plaats van elke week een nieuwe huurder te hebben die ze niet kennen.

Dit zal natuurlijk altijd afhangen van de soorten woonruimtes, de verschillende plaatsen en de verhuurders. Er zijn veel verhuurders die kiezen voor meer (financiële) zekerheid en dus zoeken naar een huurder voor een langere periode, terwijl er ook veel verhuurders zijn die hun woonruimte voor een korte periode aanbieden op Kamernet en die zo over een periode van een jaar voor veel aanbod zorgen. Kamernet verwacht dus niet dat het aanbod alleen door de komst van Airbnb achteruit zal gaan.

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4. Zien jullie Airbnb als een toekomstige concurrent of denken jullie dat Airbnb zich vooral spitst op toeristen en dat het zichzelf niet zal mengen in de strijd om studentenwoningen? Zo ja, waarom?

Airbnb is in zekere zin een concurrent, omdat ze aanbod op hun platform hebben staan wat ook bij Kamernet staat of kan staan. Toch bespelen we niet precies dezelfde market en hebben we niet enkel dezelfde klanten of doelgroep.

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Airbnb and its influence on Amsterdam as a whole and, in particular, on the private rental market