Overview of Short-Term Rental Regulation in Chicago
The rise of short-term rentals (STRs), particularly platforms like Airbnb, has raised concerns regarding housing affordability. The increasing popularity of STRs often results in the conversion of long-term rental properties into short-term rentals, further exacerbating the housing supply crisis. In response, several cities, including Chicago, have implemented regulations to control the growth of STRs. Chicago became the first city in the U.S. to introduce STR regulations in June 2016, aiming to balance public safety, affordable housing, and the continuation of STR operations.
Chicago’s regulation requires hosts to obtain proper licenses and registrations before listing their properties. Furthermore, since March 2017, the city has mandated that Airbnb share data with local authorities to improve enforcement efforts. This regulation has been under scrutiny to understand its broader impacts on the local housing market, crime rates, and economic performance.
Key Findings of STR Regulation in Chicago
1. Effect on Listing Availability
The enforcement of STR regulations in Chicago led to a 16.4% decrease in the number of active short-term rental listings between 2016 and 2018, a trend that became more pronounced after March 2017, when enhanced enforcement measures were implemented.
- Professional hosts and full-time individual hosts experienced a 10% decline in their probability of remaining active, with professional hosts being more flexible in switching between long-term and short-term rental models.
- Data-driven enforcement, which included improved registration requirements and stricter rules, led to a rise in registered hosts—from 53.2% in December 2020 to 74.4% in 2023.
- Local Prohibited Buildings Listings (PBL), which completely banned STRs in certain buildings, led to a 55% decline in listings from full-time individual hosts and 45% from professional hosts. Additionally, Restricted Residential Zones (RRZ) further restricted STRs by requiring a vote from local residents to approve new listings.
2. Economic Impact of STR Ordinance
Despite the drop in the number of active STR listings, prices, revenue per listing, and reservation days for remaining listings remained largely unchanged. This suggests that the reduction in listings did not lead to significant financial losses for the remaining hosts.
However, the overall decline in active listings led to a noticeable decrease in Airbnb’s Gross Book Value (GBV) and local tax revenue:
- In areas with a high concentration of hotels, STR listings managed by professional hosts saw their GBV drop by 38.1%, while listings from full-time individual hosts saw a 30.6% decrease.
- Despite an increase in the lodging tax rate (from 4% to 6% in 2018), local government tax revenue from STRs decreased by 3.6%, largely due to the reduced number of listings.
3. Impact on Local Crime
One of the most significant concerns surrounding STRs is their potential to increase crime, particularly in neighborhoods where STRs are prevalent. The regulation aimed to reduce crime by imposing stricter rules on STRs. However, the study found little to no change in crime rates (theft, burglary, assault, robbery) across the city post-regulation.
- However, areas near buildings that prohibited STRs saw a 12.4% decrease in burglaries, suggesting that some localized benefits did emerge in terms of safety in areas where STRs were restricted.
Conclusion
The regulation of short-term rentals in Chicago has led to a decline in listings, particularly after the introduction of data-driven enforcement measures. While the number of STRs has decreased, the economic impact on remaining listings has been minimal, with revenue and tax collections still lower than expected due to the overall reduction in active properties. Additionally, while crime rates remained largely unchanged, there was a small reduction in burglary rates in areas where STRs were prohibited.
Despite these regulatory efforts, the overall impact on housing affordability remains limited. The regulations have not significantly improved the availability of long-term rental housing, and, in some cases, have inadvertently benefited traditional hotel businesses by reducing competition from STRs. Similar results have been observed in New York City, where stricter regulations in 2023 also led to a sharp decline in listings, but rents continued to rise.
These findings reinforce the broader concern that regulations, while addressing some negative externalities, may not provide substantial relief for the ongoing housing affordability crisis. As the debate around STR regulations continues, further examination will be needed to understand the long-term effects on both housing availability and affordability.