More expensive and smaller supply of short-term accommodation in Denmark

Fewer properties are now available on the home-sharing site Airbnb in Denmark. The average prices for renting short-term accommodation in the country have increased significantly. Researchers Andrea Schneider and Marcel Garz at Jönköping International Business School (JIBS) conclude this in a new study. They have analyzed how the data sharing agreement negotiated between the Danish government and Airbnb in 2018 affects individuals who offer their residence on Airbnb and customers who rent through the platform.

Over the past decade, home-sharing platforms like Airbnb have become increasingly popular for renting short-term accommodation. It has been difficult to enforce users' tax liabilities on these platforms. To improve compliance, in 2018, the Danish government negotiated an agreement with Airbnb to transfer data on users' income on the platform to the country's tax office.

Airbnb is the leading home-sharing platform worldwide. Its business model is based on a two-sided peer-to-peer platform that allows visitors to easily connect with people. These so-called hosts want to rent their apartments or house for a shorter period. The platform has grown rapidly over the last decades, counting over four million hosts in 100.000 cities.

However, the success of Airbnb has been met with criticism. For example, the hotel industry fears unfair competition and erosion of safety and quality standards, while residents feel negatively affected by streams of noisy visitors. Another critical argument is that taxes related to activities on home-sharing platforms are difficult to enforce. The authorities in charge cannot trace online transactions but must trust that hosts themselves report income generated on these platforms. Therefore, it is not surprising that large cities worldwide have implemented restrictions on short-term rentals. The Scandinavian countries, especially Denmark and Norway, have followed an added strategy: collaborating with Airbnb.

Noticeable effects of the Danish agreement

"We have analyzed the effects of the data-sharing agreement reached between Denmark and Airbnb in 2018. Based on the agreement, Airbnb reports the income hosts realize on the platform to the tax authority. Evaluating how hosts' behavior on the platform has changed gives us an idea of what kind of hosts and customers are affected by the agreement," says Andrea Schneider.

In their study, Andrea Schneider and Marcel Garz find four key results:

• 14% fewer properties are now available on Airbnb, reducing the variety of places that can be rented while visiting Denmark, particularly Copenhagen.
• Renting a place on Airbnb during the next Denmark visit becomes more expensive since average prices have increased by 11%.
• Many hosts that only offered one property on Airbnb dropped out of the market. In contrast, the commercial hosting of multiple properties increased.
• The regulation led to a shift in short-term renting from big cities to rural areas.

"Generally, regulators want to allow individuals to rent their property during shorter periods of absence. They are skeptical towards individuals who relocate housing space from the long-term housing market to offer – often multiple properties – on Airbnb. The shift towards commercialization of short-term renting in Denmark that we find can therefore be seen as a negative side effect of the data-sharing agreement", says Andrea Schneider.

New European reporting obligations from 2023

According to the researchers, findings from evaluating the Danish agreement provide insights on how visits in Denmark might be affected and offer first knowledge about the impact of the recently implemented reporting obligations for digital platforms in the EU. Taking effect in 2023, EU Council Directive 2021/514 makes it mandatory for providers of digital platforms to share information about sales of goods and services on their platform with tax authorities in the relevant member states. So, Airbnb and other home-sharing platforms conducting business in the EU must report the hosts' earnings to local tax agencies.

"While it is too early to evaluate the effects of the new European reporting standards, our results give us an idea about what to expect from the EU Council Directive. The new reporting standards are expected to greatly impact digital platforms. Even if some users leave the platforms, governments can expect a noticeably positive effect on tax revenue", says Marcel Garz.