Researchers analyzed temporary rental listings in New York City and found a pricing gap between races, but is it discrimination?
Black hosts who offer their places for temporary rent in New York City via Airbnb don’t get as much for their rentals as non-black hosts, even though the places maybe in equally good neighborhoods, and have just as many amenities, according to a new study.
The findings are from a paper written by an associate professor and an assistant professor from the Harvard Business School. For their study, which has not yet been published or peer reviewed, Ben Edelman and Michael Luca analyzed all of NYC’s Airbnb landlords, looking at the hosts’ pictures, which are commonly posted on the website and the quality and location of their accommodations, as judged by a panel of non-experts who gave each one a rating. “We find that non-black hosts are able to charge approximately 12% more than black hosts, holding location, rental characteristics, and quality constant,” they write. “Moreover, black hosts receive a larger price penalty for having a poor location score relative to non-black hosts.” (There aren’t enough hosts of other races to do a meaningful study.)
Edelman and Luca suggest that online marketplaces, like Airbnb, which have mechanisms for hosts to reveal their identities so that people trust them, are, perhaps unwittingly, more susceptible to discrimination than had been believed.
For the uninitiated, Airbnb is a website where people can rent out their homes or part of their homes. Sometimes empty nesters have a spare room, sometimes people have a vacation home they don’t use as much, sometimes people just need help making the rent, so they offer up a couch or go and stay with a friend for a few nights. Because of the inherent danger of staying with a stranger or inviting a stranger to stay, Airbnb members reveal quite a lot of detail about themselves upfront, including a picture.
New York City is Airbnb’s biggest market, and no wonder. Hotel rooms are expensive and the city is so jam-packed, it rewards those who have a source of local knowledge, like a friendly host. On the supply side, rents are eye-wateringly high and apartment owners often have steep maintenance or tax bills. The top 40 Airbnb hosts in New York have each taken in at least $400,000 over the past three years. Oddly enough, many Airbnb hosts are probably breaking the law, since renting out a place for less than 30 days is illegal in NYC, unless the owner is there. And now this.
Airbnb, of course, is none too chuffed that two Harvard biz types are suggesting that their site design leaves some hosts vulnerable to discrimination based on race. “We are committed to making Airbnb the most open, trusted, diverse, transparent community in the world,” it said in a statement. “Our Terms of Service prohibit content that discriminates. The data in this report is nearly two years old and is from only one of the more than 35,000 cities where Airbnb hosts welcome guests into their homes. Additionally, the authors made a number of subjective or inaccurate determinations when compiling their findings.”
Edelman says this study examines the same data that customers see when they make their accommodation choices, meaning that users would be making similarly subjective determinations. So why do the authors think black hosts get less money for similar abodes? “There are two distinct interpretations,” says Edelman. “It could be guests prefer non-black hosts, but it could also be guests anticipate that non-black hosts will have higher quality properties even holding equal all the information we’re able to control for.”
But it’s the host that sets the price on Airbnb, so why do black hosts offer lower prices to begin with? Because, the authors say, they need to, in order to get the attention. “Our understanding of the mechanism is that black hosts anticipate, correctly, that their race is prominent to guests and that they need to offer somewhat lower prices in order to attract as many guests as an otherwise-similar property from a white host,” says Edelman. “We think that’s entirely plausible, and it is consistent with what our data indicates.”
Without a survey of the hosts, it’s impossible to know for sure why African Americans undervalued and underpriced their homes, or whether they’ve tried to rent their homes at higher rates and had to reduce their rates because they didn’t get enough takers. Nor is there any way to figure out whether potential guests were discriminating based on the race of the hosts or are assuming for some reason that black hosts will not have as nice a place. “We just don’t have a way to get into guests’ heads to identify which effect is truly occurring here.”
But if the price gap is because that tourists don’t like to stay with black people, then it would follow that the difference in prices for shared digs, where they meet and hang out with the owner, should be larger than for renting whole apartments, where there can be a simple key handover. Edelman ran an analysis on this for Time. “I can confirm for you that the effect persists and remains stable,” he writes. “If we consider only the properties where the guest receives the entire property, with the host staying elsewhere, the effect remains.” That suggests, although it doesn’t prove, that it’s not just discrimination that is driving the price down.
The academics’ proposal is that Airbnb make the photos on its site less prominent. It’s true that other online marketplaces such as eBay and Etsy don’t offer photos of vendors. Then again, buying somebody’s old snowboots is not the same as staying with them. There’s a level of intimacy in sleeping in another’s apartment or welcoming a stranger to yours, that suggests some kind of introduction is necessary.
Unfortunately, this is a problem that’s not going to be solved with a simple design tweak.