How Short-Term Rentals Impact Local Economies: Benefits, Costs, and Tradeoffs

Tourist Spending Patterns in Short-Term Rentals

Visitors who book short-term rentals often spend differently than hotel guests. The National Association of Realtors is a U.S. trade association representing real estate professionals. The National Association of Realtors reported that short-term rental guests spend an average of $1,145 per trip, compared to $742 for hotel guests source. This spending flows to restaurants, grocery stores, shops, and local attractions near the rental properties. Visitors who stay in residential neighborhoods spend at businesses near those neighborhoods, not just in hotel districts. However, this data comes from industry sources, and independent research shows the picture is more complex. Trip length, group size, and destination type all affect spending patterns. Some tourists choose short-term rentals specifically to save money by cooking meals instead of dining out, which can reduce spending at local restaurants. A family of four renting a house with a kitchen may spend less at local restaurants than the same family staying in a hotel.

Employment Effects in the Short-Term Rental Sector

Short-term rentals create jobs in property management, cleaning, maintenance, and customer service. Vacasa and TurnKey are property management companies that specialize in short-term rental operations. Vacasa and TurnKey hire workers to service rental properties. The Florida Vacation Rental Management Association is an industry advocacy group for short-term rental operators in Florida. The Florida Vacation Rental Management Association reported that the short-term rental industry supports over 45,000 jobs in Orlando, though this figure comes from an industry advocacy group rather than independent analysis. These jobs include roles in property management, cleaning, maintenance, and customer service. These jobs often pay hourly wages and may lack health insurance and paid leave compared to traditional hotel employment. Cities must weigh these new jobs against potential job losses in hotels and the displacement of residents who provided stability to local businesses year-round.

Tourism Growth and Visitor Diversity

Short-term rental platforms expand accommodation options beyond traditional hotels. Travelers can book treehouses, houseboats, historic homes, and other unique properties. Airbnb reported that 42% of travelers surveyed said they would not have visited a destination or stayed as long without short-term rentals available source. This self-reported data from platform users suggests increased tourism in some markets. However, critics point out that this additional tourism can strain local infrastructure, increase crowding at popular attractions, and change the mix of residents and businesses in ways that reduce quality of life for residents.

Tax Revenue and Enforcement Costs

Many cities impose occupancy taxes on short-term rentals similar to hotel taxes. New Orleans, for example, charges a 6.75% occupancy tax plus additional fees on short-term rentals. Airbnb reported collecting and paying $2.1 billion in tourism taxes globally in 2019. This revenue can fund public services and infrastructure improvements. However, tax compliance rates vary significantly, and many property owners underreport or avoid taxes entirely. Cities also incur costs to monitor compliance, investigate violations, and process complaints from neighbors. Some municipalities find that costs to monitor compliance, investigate violations, and process neighbor complaints exceed the additional tax revenue collected from short-term rentals.

Economic Dynamics in Seasonal Markets

Short-term rentals affect seasonal tourist destinations differently than year-round markets. In places like the Outer Banks of North Carolina or Lake Tahoe, California, property owners can rent during peak seasons and use properties personally during off-seasons. The Short-Term Rental Advocacy Center is an industry organization that advocates for short-term rental operators. The Short-Term Rental Advocacy Center reported that short-term rentals support $14 billion in economic activity in rural areas across the United States source. This figure comes from an industry advocacy organization and represents economic activity that occurs in areas with short-term rentals, not economic activity that short-term rentals directly generated. In seasonal markets, communities often face tradeoffs between tourism revenue and affordable year-round housing for workers in tourism and service industries.

Property Values and Housing Affordability

Short-term rentals correlate with property values in complex ways. Redfin, a real estate brokerage, found that homes in areas where short-term rentals are legal sell for 5% more on average than in areas where they are banned. This correlation does not prove causation. Desirable neighborhoods may both allow short-term rentals and command higher prices for other reasons. Property value increases benefit existing homeowners through increased equity but make housing less affordable for renters and first-time buyers. When investors purchase properties specifically for short-term rental income, they remove units from the long-term rental market. Each unit converted to short-term rental use is one fewer unit available for long-term renters. This reduces housing supply and drives up rents for local workers and families.

Small Business Impacts in Tourist Areas

Neighborhoods with concentrated short-term rentals often see changes in local businesses. Entrepreneurs may open cafes, boutiques, and tour companies targeting tourists rather than residents. Austin’s South Congress neighborhood exemplifies this shift, with tourist-oriented businesses growing alongside short-term rentals. For example, a pharmacy serving residents may close and be replaced by a tourist-oriented boutique or cafe. The Small Business Administration’s tourism research suggests businesses in active short-term rental markets can experience revenue growth, though attributing specific percentages to short-term rentals alone requires careful analysis that controls for other factors. Short-term rentals reduce the number of permanent residents in a neighborhood, which reduces demand for daily-need businesses. Meanwhile, businesses serving daily needs of residents — grocery stores, pharmacies, dry cleaners — may struggle or relocate when the residential population declines due to short-term rental conversions.

Guest-Host Interactions and Local Recommendations

Short-term rental hosts often recommend local businesses to guests. Airbnb surveyed hosts and found that 84% recommend local businesses to their guests. These recommendations can benefit locally-owned establishments over chains. Some platforms offer “Experiences” where locals lead activities like cooking classes or guided tours, creating additional income opportunities. However, the economic significance of these interactions remains difficult to quantify compared to the measurable impacts on housing availability and affordability.

Supplemental Income for Property Owners

Homeowners use platforms like Airbnb or Vrbo to rent spare rooms or entire properties, supplementing household income. A study examining Airbnb’s economic effects found that the average host earns $7,900 per year source. This income helps some families afford mortgage payments or remain in expensive neighborhoods. However, the same research noted significant concerns about housing market effects and regulatory challenges. The distribution of this income is highly unequal. Some hosts operate multiple properties as businesses while others rent occasionally. Studies show that in many cities, a minority of hosts control the majority of listings, suggesting professional investors rather than occasional home-sharers dominate the market.

Housing Market Tradeoffs and Community Concerns

Short-term rentals create significant challenges alongside their economic benefits. Cities including Barcelona, Spain, and Santa Monica, California, have implemented strict regulations after experiencing housing shortages, gentrification, and neighborhood disruption. Research in multiple cities shows that short-term rentals reduce long-term housing supply, increase rents, and contribute to displacement of long-term residents. Neighbors often complain about noise, parties, strangers in buildings, and loss of community cohesion when apartments become revolving-door tourist accommodations.

The fundamental tradeoff centers on who benefits and who bears costs. Property owners and tourists gain flexibility and income opportunities. Local governments collect additional tax revenue. However, renters face higher housing costs, and residents experience neighborhood changes they did not choose. Service workers, teachers, and other moderate-income employees increasingly cannot afford to live in tourist-heavy cities where short-term rentals have proliferated. Communities must decide whether the economic benefits to some justify the housing affordability and quality-of-life costs to others.

Regulatory Approaches and Policy Challenges

Cities take varied approaches to regulating short-term rentals. Some ban them entirely in residential areas. Others allow only owner-occupied rentals or limit rental days per year. Registration systems, licensing requirements, and occupancy taxes all serve as regulatory tools. Registration systems require owners to list their rental with the city. Licensing requirements set conditions on operation. Occupancy taxes charge guests a fee per stay. Enforcement remains difficult because platforms often resist sharing host data with cities, and identifying violations requires significant resources.

Effective regulation must balance the concerns of homeowners, tourists, businesses, long-term residents, and service workers. Homeowners deserve opportunities to use their property for income. Tourists benefit from diverse accommodation options. Local businesses appreciate additional customers. Yet long-term residents need affordable housing and stable neighborhoods. Service workers must live within reasonable distance of their jobs. Communities benefit from neighbors who invest in local institutions and relationships rather than transient visitors.

Policymakers increasingly recognize that short-term rentals’ economic effects depend heavily on context. In seasonal resort towns with abundant housing, short-term rentals may support local economies with minimal housing impact. In high-demand urban areas with housing shortages, the same rentals can accelerate displacement and inequality. No single approach works everywhere, and communities continue testing regulations designed to capture benefits while minimizing harms.

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