Are short-term Airbnb rentals in Denver placing stress on affordability and housing stock?

Written by Emily Large

In Denver, Colorado, is the influx of short-term rental properties to the city increasingly placing stress on affordability and housing stock while also accelerating displacement and gentrification?

“To live in the world where one day you can feel like you’re home anywhere & not in a home, but truly home, where you belong,” proclaims Airbnb’s wordy mission statement. 

The irony of this declaration is that Airbnb, VRBO, and other short-term rental providers could potentially be catalysts for less affordability and housing availability and more displacement and gentrification around the neighborhood in which they are located. Are short-term rentals affecting your chances of being “not in a home?”

What is a short-term rental (STR)? According to the Denver City and County Government, a STR, “means a primary residence used for lodging accommodations by a Guest for a period of less than 30 consecutive days.”

The effects of STRs have not yet received much attention in Denver. However, many Colorado mountain towns have conducted research on STRs’ economic and social effects (see here, here, here, and here, for examples). 

It is very much up for debate if STRs are good, bad, or neutral as far as affecting a location’s local economy, affordability, safety, and displacement. In reality, the effects of STRs are likely felt differently on a city-to-city/ neighborhood-to-neighborhood basis. The infographic to the right (Image A) summarizes just some of the potential pros and cons of STRs.

In attempt to control the rising number of STR properties, Denver government enforces laws for obtaining a license to become a STR “host” –a person who makes its primary residence or any portion of its primary residence available for Short-Term Rental. 

Those who do not follow the rules related to safety, taxing, zoning, and insurance of STRs in Denver County can supposedly expect to be fined, potentially have their license revoked, and face other penalties.

However, these laws are neither stopping nor slowing down the rising numbers of STRs across Denver County. 

According to data published by the Denver City Government website, applications for STR hosting licenses have risen significantly every month so far in 2022. As of May 6, 2022, the Denver Government had 306 total pending STR applications, which was up from 244 in April, 222 in March, and 194 in February.

If you are a Denver resident with a rentable space, then why not try to profit? 

Research suggests that renting out one’s property as a STR as opposed to a LTR (long-term rental) is very profitable; so long as one can rent out their property cheaper than the price of a hotel room (or make their property more appealing than a hotel room), there is an overpowering incentive to list each unit as a STR rather than rent to local residents. According to research from Airdna, the average market rent of a LTR property in Denver County in 2021 was $1,605, while the monthly revenue earned from a STR in Denver county was $2,814 (after the several taxes placed on STRs).

Mac Brower, a well-established Chattanooga realtor and recent Denver realtor transplant, explains that, “Really, any housing space that was once occupied or could be occupied in the future by a long-term Denver resident, but is instead listed as a short-term rental, is a housing space which is taken off the normal rental market, is jacked up in price, and can ultimately be treated as a hotel room.”

Denver residents themselves are aware of the rising number of STRs in their neighborhoods and communities. Long-time city resident Hayden Anderson, age 30, had a lot to say about the topic.

“I think they [STRs] do contribute to a housing shortage,” said Anderson. 

He continued, “It’s crazy– when I was helping my girlfriend look for a place to rent this year, we found hundreds of Airbnb properties and just tens of actual long-term rentals available. All of these options felt overpriced, and I know the thought of comitting to a long and expensive lease was difficult for her, but ultimately it’s what she had to do.”

Interestingly, as a homeowner paying an expensive mortgage and living in an increasingly costly city, Anderson himself chooses to rent out the ground level of his townhouse using Airbnb. He says, “It provides an easy and needed source of income from an unused space in my house, which would be unrentable as a long-term option.”

Anderson is not the only person who has experienced the stress-inducing hunt for affordable rental options in Denver. However, the hunt turned out differently for Emma Norris, age 24. She explains that, “Long-term renting in Denver has become too much of a commitment for me purely for financial reasons.”

If Norris does not soon get a raise in income, she may be forced to move out of Denver or to increase her number of roommates. After her current rental contract ends in September of 2022, she plans to temporarily rent a more expensive but shorter-contracted property through Airbnb so that she is not binded to a 12-month lease.

It may seem obvious that while STRs provide some Denver residents (homeowners with sufficient space, time, and resources) with opportunities for extra income, this is not the case for most Denver residents. STR licenses and hosting laws prove that not just anyone can profit from STRs, and realistically, many are not benefitting at all.

The LTR market for Denver residents and locals who have historically inhabited Denver neighborhoods is being minimized every time a property is converted into a STR. In opposition, with each additional STR property, the market for short-term guests and workers and tourists is being maximized. 

Studies which take census data into account seem to suggest that STRs reduce integration by displacing lower-income tenants and previous permanent neighborhood residents, exacerbating racial and socioeconomic inequality, and resulting in inequitable housing in the community. Not only do they place stress on housing stock and affordability, but they can also potentially affect the quality of life, health, safety, culture, and welfare of neighborhood residents. 

And while Airbnb self-proclaims to be based on an amorphous “trust” and “sense of community” endemic to the sharing economy, this is a trust that may extend to only some social groups. According to a Harvard Business school study done on Airbnb, African American hosts earn 12% less than white hosts for equivalent rental listings and minority guests are systematically denied lodging by Airbnb hosts.

There are some situations from which low-income and communities at risk of gentrification may benefit from STRs. STRs are often located in gentrifying neighborhoods, and more foot traffic can lead to more income for local business. 

More short-come rental properties in an area may introduce a possible drive in community development due to visitor traffic and/or hosts recommending local businesses and employee service providers. 

Is it more about affordability, then? 

It should be noted that Denver residents are increasingly renting and not owning. Perhaps, this is due to struggles such as the high cost of living, the low supply and high demand of affordable housing, and the steady influx of more people moving to the city. 

The cost of living in the Denver-Aurora-Lakewood area has significantly risen in recent times, with the Consumer Price Index for All Urban Consumers (CPI-U) reporting a 2.0% increase from February to March 2022 and a 9.1% increase from March 2021 to 2022. 

It may seem promising to read that there are 93.01% more houses and condos for sale in Denver as of July 2022 than in July 2021, but the reality is that in properties priced between $300,00 and $499,999, there are 54.25% fewer homes on the market than in June 2021. 

This is not to mention very high mortgage rates in Denver and elswhere.

While there is a lack of supply and a high demand for more affordable LTRs and housing, as discussed earlier in the paper, the number of STR properties is continuing to increase. 

Ultimately, research done explicitly concerning the literal correlation of STRs to housing affordability and availability, gentrification, and displacement in Denver is lacking. However, data seems to suggest that a practical case can be made that increasing numbers of STRs are placing stress on housing affordability and availability while also contributing to displacement and gentrification. Research also suggests that more STRs will continue to pop up around Denver.