Toss a Coin to Your Host: How Guests End up Paying for the Cost of Regulatory Policies

Given their rapid growth in recent years, peer-to-peer rental markets like Airbnb have gained increasing attention from scholars and legislators. Scholars have uncovered the adverse effects these platforms have on the traditional lodging industry and housing affordability, fueling the public demand for regulation. While legislators around the world have implemented various regulatory policies to address these issues, little is known about their economic consequences. Therefore, we analyze a policy implemented in New Orleans, where short term rentals were legitimized by introducing a licensing system while simultaneously banning Airbnb from the touristically popular French Quarter. Our estimates reveal that hosts increase their prices by up to 3.17% in response to the policy shift. We find that this price hike is not driven by an increase in demand but rather by a pass-through of higher bring-to-market costs. This cost pass-through implies that the policy falls short of reducing pressure on housing affordability.