Study Warns Against “Whac-A-Mole Enforcement” of Airbnb Listings

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By Scott Lewis

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Liad Wagman

When does a three-bedroom apartment become three single rooms?

According to a study conducted by researchers at Illinois Institute of Technology’s Stuart School of Business, such transformations can occur when a city or state cracks down on illegal short-term rental listings, as their research illustrates in New York’s Manhattan, one of the largest, most active short-term rental (STR) housing markets.

New York state law prohibits most STRs, and Professor of Economics Liad Wagman and Jian Jia (Ph.D. MSC ’20) have studied the effects—and the effectiveness—of local and state enforcement of those rules in Manhattan. Their paper, “Platform, Anonymity, and Illegal Actors: Evidence of Whac-A-Mole Enforcement from Airbnb,” has been accepted by the Journal of Law and Economics.

Illegal operators of Airbnb listings may try to evade detection and punishment by converting their entire-home listings into a less-enforced category of the Airbnb marketplace—single rooms—and thus, a large apartment gets relisted as multiple single rooms. In events studied by Wagman and Jia, such sleight-of-hand took place after New York’s mayor publicly committed $10 million to enforcing STR laws and after New York State enacted stricter STR regulations.

“There are other approaches to regulating a market that are not solely brute force in terms of detecting illegal operators and punishing them. Alternate approaches can yield similar outcomes, require fewer resources [for enforcement], and result in less of this sneaky behavior [by STR owners],” says Wagman. “[The cities] create rules in the market and work with the platforms to facilitate those rules being followed by individual operators. That middle ground approach seems to be the way to go, because you get compliance and tax revenue that can be put to good use.”