Why Marketing Jobs Will Disappear from New York In 10 Years
Hint: thank Airbnb and the housing crisis; plus what will be the financial impact
Airbnb, the #1 marketplace on a16z list of top 100 marketplaces, started out as a sharing platform for individuals to put their empty space to good use. It promised to be good for the environment, provide extra revenue and enhance tourism. It did all that for a while (I, myself a user of the platform, will admit) but slowly house owners turned into investors, inflating the local housing markets and instigating a housing crisis! Surely enough, this started driving away the talent seeking to live in these cities, altering its baseline economy from what it was before Airbnb to a tourist economy. I’d like to quantify the financial impact of the housing crisis instigated by Airbnb, starting with New York.
What Does it Cost to Live in New York?
Let’s consider New York — a city almost all of us can relate to on some level. And let’s consider an iconic New York profession — marketing — to really drive the point. To evaluate how housing may impact the economy, let’s consider the income threshold that would drive away workers in that city, given its housing prices. According to the 30%-spend-on-rent rule, for a city like New York, where the median rental price for a one-bedroom apartment hit $2,980 last year, the rule would imply a median income of around $10k/month. According to Salary.com, the median annual Marketing Manager salary in New York, NY was $124,267 as of October 30, 2019, so just a tad bit higher than needed for a median priced apartment. Once that apartment rises in price by even 5% (or $127/mo), considering other factors constant, the average marketer will have to choose between a lower-end apartment or a city with lower rent prices.
How Long Can You Really Last in New York?
A national study by NBER and USC says that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices. According to this math, if Airbnb continues growing at a rate of 30% year over year, in 10 years from now it will instigate a change large enough to force the marketers to have to make this choice. If their demand for housing is elastic, an average marketer will choose to move to a different city, when faced with this situation, rather than absorbing the extra cost. This may have a transformational effect on the businesses in New York. (Note, this conclusion hinges on the assumption that other market forces, such as the wage growth and the ensuing migration, remain constant, such that the housing opportunities relative to the wage stay the same. So, the rents rise proportionally with the wage as a factor of higher demand.)
What is the Financial Impact of Losing All Those Jobs?
A quick search on LinkedIn for marketing jobs in New York reveals 36,683 results, which, according to the New York State Department of Labor, is just the tip of the iceberg for the 3rd largest occupation in the Professional and Technical Services sector, itself accounting for 365,500 jobs in 2014 and an average annual wage of $122,000. The sector size was expected to rise by 28.0% by 2022 (note, the predicted rise in wage is not stated, perhaps because the employee wages have not risen much over the past decade). If we assume the current average wage for a marketing manager ($124,267), and extrapolate to half of the sector (those at or below average), the change would entail a total of close to 1/4 Million jobs with an annual output of around $28.5B (and even more 10 years from now).
The Changing Face of NYC, How Does it Feel?
In sum, given the Airbnb’s projected growth, an elastic demand for housing, and other factors constant, the city could stand to lose up to $28.5B in output from professional services moving out of the city due to the rising costs of housing associated with Airbnb over the next decade. Let’s note, this does not mean a decimation of the dependent industries, such as the tech sector. Recent research has shown that remote work may boost productivity, which may mean that the sector may move out, while the companies remain, adopting a distributed workforce model. Either way, the face of the city would change, as it already has in New Orleans, where, according to US News “rents have exploded in areas with the highest concentrations of listings … Airbnb rentals have displaced so many locals that many traditionally residential districts ‒ including in working-class black neighborhoods like the Seventh Ward and Treme ‒ now resemble weekday ghost towns.”
The Revenue Potential of Taxing Airbnb Listings
Lastly, what is the city losing from not actively reversing this trend through the means of taxation? According to New York Times, “New York City is Airbnb’s largest domestic market, with more than 50,000 apartment rental listings.” At an average price of $385, according to its own search filter, and average occupancy rate of 47% an Airbnb in New York, if the city applies its hotel tax of 14.75%, the total annual revenue could be close to $.5B. It is also interesting to note that, if rented less than 14 days per year, the Airbnb host also does not pay any income tax, so that alone could be worth 14 x 50,000 x 385 x 24% = $64,680,000 annually for a middle income tax bracket (24%).
It is worth noting that once the tax is set in place, the demand for Airbnb would fall, thus diminishing the revenue from taxation. But then the social value from lower rents would kick in. Depending on the elasticity of demand of Airbnb consumers, the value could range from $.5B in taxes, if the demand is very inelastic, to $28.5B in higher output if the Airbnb users react strongly to the price difference and vacation elsewhere, slowing down rent inflation.
