If you haven’t heard of the term disruptive innovation, it’s a business term used to describe innovation that spurs a new market, while simultaneously disrupting an existing one, and this term aptly describes the current housing situation in California. Whether you travel for business or pleasure, you’re most likely familiar with an Airbnb. It’s an online service that enables those who are traveling to rent or lease lodging accommodations, and this very online service is reportedly the impetus for rising rental rates and home prices in the state of California.
Although there is no definitive basis for the sudden increase in home prices and rental rates, many pundits have theorized that the Airbnb business is encroaching on the supply of long-term rental property, available to prospective renters. As a result, rental property that would have otherwise been leased to long-term tenants are instead being leased to vacationers, which creates a demand in the real estate market. In microeconomics, this is referred to as “supply and demand,” which suggests that the cost associated with a particular commodity is determined by the demand in the market. Since there is a demand for long-term rental property, those who are tasked with leasing are free to charge more for available units.
But why does this result in increased home prices in the real estate market? Since there is a demand for short-term rentals, most homeowners are less likely to sell; many prefer to rent their property to generate additional income, and those who opt to sell, will naturally want to sell for more.
According to many well-known publications, California has seen a 2% annual increase (between 2012 to 2016) in rental prices, and many pundits have attributed this increase to Airbnb’s popularity.