Dealing with the Externalities of the Sharing Economy: Effect of Airbnb in Long-term Rental Prices in the City of Madrid

The rapid rise of accommodation platforms such as Airbnb has helped to democratize tourism as a leisure activity, due to the lower prices offered when compared to traditional hotels. However, this rising disruptive industry is affecting the social structures of the hosting cities, which can be understood as an externality of the industry. Prices in the long-term rental market have been stated to rise when Airbnb reaches a city. This is attributed to the switch of part of the properties traditionally offered for long-term rental to the new touristic accommodation market. In this research we focus on how the long-term rental market in the city of Madrid is affected, in terms of prices, by the presence of Airbnb (with a special focus on multilistings) and the distance of the proprieties to the city center. We use artificial neural networks to show that long-term rental prices are directly correlated with the number of properties offered on Airbnb, with the number of multilistings and the distance to the center of the city ranking in second and third position, respectively.