Some analysts have argued that lodging reservation website Airbnb is responsible for an increase in rent...

Some analysts have argued that lodging reservation website Airbnb is responsible for an increase in rent and housing prices in most American cities. Recent academic research supports this: a study found that between one eighth and one fifth of the observed increases in rents and home prices in US metropolitan areas between 2012 and 2016 can be attributed to Airbnb.

a) Use the supply and demand model to make sense of these effects in the typical US city. Make sure you clearly define the markets on which you choose to focus, explain which curves are shifting and why, and (if you think this adds to the analysis) justify the shape of the supply and demand curves by discussing their relative elasticities.

b) Over time, what do you expect the impact of Airbnb to be on rental rates and housing prices? Justify your answer using the supply and demand model. Once again, make sure you are clear and explicit about how you are defining the relevant markets and (if you think this helps the analysis) back up your arguments by bringing up elasticities.

Solutions

Expert Solution

Solution A

Airbnb as marketplace model has adopted sellers to purchase multiple properties and offer retail buyers on rent for particular period which jas immensely beneficial to sellers due to high return on investment. This has led to surge in aggregate demand for buying real estate jnsold properties and significantly shifted the Aggregate demand curve shift rightwards such that prices have rose exponentially for new properties in target market like urban and semi urban areas where collegew, institutions amd corporate are present. The price elasticity of demand therefore is increased.

Solution B

These latest surge and housing prices bokm is been closely monitored by Government amd thus we can expect series of reforms amd regulations in this spacewhich will limit buying and place price caps in future to clear unsold inventory and at same time reduce overall cost lf living to decrease inflation targets. This will cause lower aggregate demand as price caps will delimit potential of buters ajd sellers and aggregate demand curve return to normalcy by shifting leftwards such that supply and demand meet at equilibrium point and thus prices reduce in long run.. The price elasticity of demand thus now reduces.

Rahul Sunny answered 2 months ago

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