The expansion of Airbnb into major cities has had a profound impact on local rental markets, with significant consequences on housing affordability. While Airbnb has provided hosts with a platform to earn income, revitalised underutilised properties, and created unique lodging options for travellers, it has also intensified the challenges faced by residents in securing affordable housing. Locals living in tourist hotspots are increasingly frustrated with high rental prices and housing shortages. Airbnb has grown exponentially, expanding to over 100,000 cities worldwide, with millions of listings available on its platform. With an increasing demand for short-term holiday rentals, there are currently over 7 million active listings on the platform.
Airbnb offers several advantages: convenience of location, ease of use, and a sense of living like a local. The company’s mission to "create a world where anyone can belong anywhere" has resonated with many. However, one of the most significant criticisms of Airbnb is its impact on local rental markets. The platform has been linked to rising rental prices and reduced availability of long-term housing in popular tourist destinations.
Airbnb's Impact on Cape Town's Rental Market
Cape Town has become a key market for Airbnb in South Africa with its rich cultural heritage, stunning landscapes, and popularity as a tourist destination. The city’s appeal to international visitors made it an ideal location for Airbnb, and it has since become one of the platform’s most successful markets in the country. Over the past decade, Cape Town has experienced a sharp increase in Airbnb listings, with over 23,000 properties currently available according to Inside Airbnb.
Tourism adds major value to Cape Town’s economy and is a job intensive industry. Over the past decade the sector has directly contributed between 2% and 3.5% annually to the local economy and has directly sustained between 3% and 5% of all jobs in the city. Tourism has seen a significant uplift, with foreign tourist arrivals to Cape Town by air ticking upwards. The below graphic represents passenger growth for international arrivals into Cape Town International Airport.
South Africa is expected to see an influx of foreign nationals as the Department of Home Affairs works to introduce the so-called "nomad visa." This new visa is designed to attract remote workers employed and paid by foreign companies, provided they earn at least R1 million annually. Initially, the Department of Home Affairs proposed allowing people employed and paid by companies elsewhere to live in the country for as long as six months a year without paying tax, as long as they met the income threshold. Additionally, Western Cape Government has set out an economic action plan - ‘Growth for Jobs’ - where a key target is to double the number of visitors to the province by 2035.
Tourists often prefer accommodations that offer proximity to major attractions, vibrant nightlife, and convenient transportation options. Cape Town’s Atlantic Seaboard is particularly attractive for visitors due to its walkability and accessibility. This area provides easy access to popular amenities like the Sea Point Promenade, the V&A Waterfront, and other tourist hotspots. Additionally, tourists can easily navigate the city using MyCiti buses or e-hailing services.
However, the rise in short-term rentals has come at a cost to local residents. Property owners are increasingly prioritising tourists over locals, as the demand for short-term stays continues to rise. Investment in micro-apartments and short-term rentals has been trending upward as they provide investors with an additional income stream. Real estate remains a favoured asset class, as many are confident in its ability to generate returns. While long-term rentals offer stability, backed by thorough risk assessments and credit checks on tenants, short-term rentals often yield higher returns for those willing to take on additional risks. Although there is the potential for tenants to damage property, many short-term rental platforms have implemented safeguards to mitigate these risks, such as management teams dedicated to property oversight.
Neighbourhoods like City Bowl, Sea Point, and Green Point, once affordable for middle-income residents, have seen rental prices soar due to the growing demand for vacation properties. This has displaced long-term tenants, particularly lower-income households, who are now being pushed into more affordable but less accessible areas on the outskirts of the city. The trend has intensified social inequality and contributed to urban sprawl as families are forced to relocate farther from the city centre.
The issue is compounded by Cape Town’s already constrained rental market, where the availability of long-term rentals is shrinking as more properties are converted into short-term vacation rentals. This disparity between Airbnb listings and long-term rental options underscores the imbalance in housing availability, as seen in the stark contrast between the concentration of Airbnb properties and long-term rentals across the city. This shift in the housing market paints a concerning picture for residents.
National flat vacancy rates in South Africa currently hover around 8%, but in the Western Cape, these rates are notably lower. As of the first quarter of 2024, Cape Town’s flat vacancy rate stood at 2.5%, down from 2.8% in the previous quarter. This low vacancy rate reflects the limited housing supply available for renters, leaving many with few options in an increasingly competitive market.
While Airbnb is not solely responsible for Cape Town’s rising rental prices, its influence cannot be ignored. Other factors such as semigration (relocating within one's own country) - often driven by the pursuit of lifestyle improvements - have also driven demand for both rental and owned properties. Nonetheless, rental prices in the Western Cape have increased significantly. The graph below illustrates residential rental escalations across provinces, highlighting how the Western Cape has outpaced other regions.
Comparing Cape Town to Other Major Cities
Cape Town’s experience is not unique; cities worldwide have grappled with the challenges posed by the rise of short-term rental platforms like Airbnb.
A recent case in Barcelona highlights the extent of these issues. With a population of around 1.6 million, Barcelona struggles to manage the influx of approximately 13 million visitors each year. While tourism significantly contributes to the local economy, accounting for 14% of the city's revenue, residents have voiced concerns over the increasing number of tourist rentals. Many seasonal hospitality workers are finding it increasingly difficult to secure affordable housing. With rental prices rising over 60% in the past decade, the mayor has announced plans to phase out all short-term lets by 2028.
We are seeing many cities around the world implement new regulations around short-term rentals. Major cities such as New York, San Francisco, Berlin, London, Barcelona, Paris, Rome, and Lisbon are among those taking action. Whilst some cities have opted to only allow property owners to list their primary residence, others have limited rentals to 90 days per year and enforce strict permitting requirements.
The Path Forward
While tourism brings significant economic benefits, the scarcity of affordable, long-term rentals presents a pressing issue. Property owners often find it more profitable to offer their apartments as short-term rentals through platforms like Airbnb rather than committing to long-term leases. In cities that rely heavily on short-term rentals, especially those with seasonal tourist influxes, this can lead to noticeable shifts during the off-season, leaving some neighbourhoods empty and desolate.
As Cape Town and other cities navigate the challenges posed by Airbnb, it is crucial for policymakers to find a balance that supports both tourism and the rights of residents. The South African government has begun to address the issue by proposing regulations similar to those abroad. The Department of Tourism is considering introducing a cap on the number of nights a property can be listed and requiring property owners to register and comply with zoning laws. These measures aim to balance the economic benefits of short-term rentals with the need to protect housing affordability for residents. Whilst cities have introduced strict regulations to curb the negative impacts of short-term rentals, enforcement remains a complex and contentious issue.