Price Determinants of Rental Apartments in Airbnb:

Study of Apartments in Prague

Samal Alina

Iliyas Tleubay

Islambek Safayev
Introduction

Airbnb was founded in 2008 and has been rapidly growing to become one of the

world’s largest marketplaces for accommodations with over 7 million listings worldwide

and around 750 million guests to date (Airbnb, 2020). Airbnb operates through a sharing

economy model, and helps travelers and visitors find an accommodation by connecting

them with local hosts. Users of the platform have a wide range of choices which differ in

a number of factors such as location, number of rooms, presence of appliances,

availability of transportation, and most importantly price. Price is one of the most important

factors for consumer’s decision making, and it affects host profitability. Thus, in a highly

competitive Airbnb market, hosts should exploit effective pricing strategies to maximize

their profits.

It is not straightforward to understand how different aspects influence the price of

an accommodation, and how hosts decide on pricing strategies. It can be assumed that

the price is determined not only by the characteristics of the place, but also by the external

factors such as its rating and reviews on the platform. Therefore, the hedonic pricing

model can be applied to investigate which factors affect the price to a larger extent. This

paper can be very useful for hosts to apply efficient pricing strategies, and for Airbnb to

help hosts decide on the price and prevent inefficient pricing. Moreover, it can also be

helpful for other housing marketplaces which operate through a sharing economy model.

The paper uses official data on Prague Airbnb housing, and uses a regression

analysis to explore how the both internal and external characteristics affect the pricing.
Prague was chosen as one of the most visited places in Europe with a wide range of

accommodation and strong competition.

The remainder of the paper proceeds as follows, we first perform a literature

review, then proceed to data description. In section 4, we introduce our econometric

model with assumption and tests, and in Section 5, we provide results and interpretations.

Finally, we conclude in Section 6.

Literature review

Gibbs (2018) has found that in the Airbnb sharing economy, size and location of

accommodation are important factors in price setting similarly to traditional hospitality

business. Gibbs (2018) also concluded that a number of reviews has a negative impact

on prices. The explanation for this is the assumption that by setting lower prices it is easier

for a host to attract more visitors who consequently leave more reviews. Regarding the

amenities, Gibbs (2018) claims that they have a substantial effect on prices. In his

analysis, he used parking, pool, gym as factors affecting pricing. In this paper, we use the

most frequently encountered amenities in the dataset which are parking, breakfast and

pets.

Ert (2016) has found that hosts’ photos positively affect prices by helping to

establish trustworthy relationships from the beginning. He also identifies non-listing

related data such information about hosts is important for the guests, because in sharing

economy trust is highly appreciated. In this paper, we excluded the variable for availability

of hosts’ profile photos because in the dataset almost every host had one. Regarding the

reviews, Ert (2016) has found that this variable has little variance and has ambiguous
effect which requires a meticulous interpretation. In this paper, we will treat this variable

carefully because we assume that the results can be similar to the above study.

Magno et al. (2018) has studied the factors affecting the price of accommodation

on Airbnb in Verona, Italy. He has found that professional hosts, who manage 2 or more

apartments simultaneously, charge prices which are 5.83% higher than non-professional

hosts. The author explains that professional hosts are able to improve their expertise

more quickly, and therefore apply more efficient pricing strategies (Magno, et al., 2018).

In this paper, we will also analyze the number of listings that hosts have simultaneously

and see what effect it brings in the case of Prague. Moreover, the author finds that the

price of the apartment is positively correlated with its size, and that the number of reviews

negatively affects the price with 0.26% decrease in price with each additional review. It

was found by other authors too, be Magno et al. (2018) explains that guests are aware

that hosts might manipulate the reviews by offering gifts to visitors in exchange for a

positive review.

Wang (2017) also examined price determinants of sharing economy-based

accommodation rental in 33 cities on Airbnb, but his analysis did not include the city that

we analyze. His main findings are that a status of superhost positively affects the price

with 8,73% effect due to the status. However, he found that this effect is stronger in lower-

priced than in higher-priced listings (Wang, 2017). He also analyzes the effect of breakfast

provision and finds that its effect is negative. However, only 9% of hosts in his dataset

offered breakfast, and it might be because these hosts tried to make their offer more

appealing amid lack of other amenities. In our paper, we will also investigate how

superhost status and breakfast provision influence pricing.

Data description

We chose Prague as the city for our analysis because of the following reasons.

Firstly, it is already an established market of Airbnb. Secondly, it has a significant number

of listings compared to the majority of other cities in Europe. Turning to the date of listings,

we intentionally didn’t choose the most recent because COVID-19 outbreak significantly

changed several crucial variables (pricing of accommodation, number of listings,

minimum nights allowed, etc.). As the most recent pre-shock date, we chose listings as

of 29th November 2019, just before the first cases of the new virus in China. Overall,

there were approximately 15,000 listings in Prague, and we decided to eliminate some

irrelevant listings for the sake of focus on our analysis. Firstly, we excluded every other

type of accommodation except apartment. The reason is that analysis would be far more

complicated with inclusion of aparthotels, entire homes, condominiums and others.

Secondly, we excluded all listings, which were provided by hosts without a profile pic.

There are two reasons for that: hosts with profile pics prevailed and there is higher

probability of a reliable verified listing with a host picture. And finally, because of

restrictions of our software package, we randomly generated 1000 listings from the whole

pool of data. All the data were collected from the official Airbnb website.

There were dozens of features in each Airbnb listing, ranging from a short

summary of an offer to cancellation policy. In order to make our analysis as insightful and

precise as possible, we tried to select only the most relevant variables. In order to do that,

we tried to replicate a journey of an average guest. Firstly, he or she chooses the

appropriate part of the city, period of staying and how many people can live in an

apartment. Afterwards, there is a filtration of gathered offers by pricing, room type,

particular characteristics of a housing and a desired set of available amenities. Because

there was a lot of missing and ambiguous data on a size of apartments, we used the

number of bedrooms and bathrooms as characteristics associated with a size of

apartments. Moving to the number of guests allowed, this variable consists of four

different dummy variables: whether the guests allowed equal 1,2,3 or more than 3. We

chose more than 3 guests as the base group because the majority of hosts allow 1,2,3

people to stay in their apartments.

Moving further, there were also a lot of amenities that could be included. From

them, we chose the most frequent ones. Because TV, Internet and heating were present

almost everywhere, we didn’t consider these amenities. Three next most frequent

amenities were chosen as independent variables: available parking, allowance for having

pets with guests and breakfast in a housing.

After choosing an appropriate housing with appropriate characteristics, potential

guests usually investigate host characteristics and reviews of selected housings. Number

of reviews is considered as an important aspect of decision in each sharing economy

model. Basically, people choose things, which are positively recommended by similar

users. Number of reviews is used in the log form because of a wide range from minimum

number of reviews to maximum. There are also five independent variables that are

associated with management characteristics. The first is a dummy variable whether a

housing is instant bookable or not. The next two are about minimum nights: range

between 1-3 and exceeding 3 nights. The fourth variable is again a dummy variable, which

equals 1 if host identity is verified. And lastly, we included another binary variable which

indicates whether a host is a superhost, a term used by Airbnb for the most experienced
and best-serving hosts. We structured all variables into suitable groups and the

information is in the Table 1:

Econometric model, assumptions, and tests

In this paper, the OLS regression model was used to study the factors that affect

the price of Airbnb listings. The co§re equation, which represents this model is:

lnprice = β0 + β1superhost + β2instant_book + β3lnhost_listings + β4min_nights_less4 +

β5lnreviews_number + β6entire_home + β7guests1 + β8guests2 + β9guests3 +

β10bedrooms + β11bathrooms + β12parking + β13breakfast + β14pets + u

In order to check whether dependent variables in the model are correlated with

each other, the preliminary bivariate test was conducted. The correlation matrix is

represented in Table 2. It can be seen from the table that the issue of multicollinearity

was not detected as the highest correlation is less than 0.36, which is considered

acceptable. Also, the variance inflation factor (Table 3) revealed that variables have a

moderate level of correlation. The only exception is that the highest VIFs are observed
for the minimum number of nights, which is not considered as a problem as they are

binary variables with several categories.

Table 2. Correlation matrix

Table 3. Variance Inflation Factor

The last issue with the model was the presence of outliers in the data. There were

detected listings with the minimum nights above 1000, which largely differ from other

listings. It was assumed that hosts mistyped when entering the data. Therefore, it was

decided to drop these listings with outliers.

 In order to test the factors that affect the price of listings, the two-sided hypothesis

was formulated:

Null hypothesis: 𝐻0: 𝛽i=0

Alternative hypothesis: 𝐻1: 𝛽i0,

where i=1,2...,14 indicates the OLS estimator of explanatory variables.

There were several assumptions about the effect of different factors on the price

of Airbnb listings. Firstly, it was assumed that the superhost status positively affects on

price as their special designation allows them to charge higher prices. Also, the number

of host listings may have a negative effect on price. As more listings and more sources

of income they have, it allows them to charge lower prices to attract consumers. The

number of reviews can be positively correlated with the price, as it plays an important role

in shaping a host reputation. Another factors that are correlated to the size of the

apartment, which are the guest capacity, number of bedrooms and bathrooms, are

expected to positively impact the price, as it implies additional spending for hosts. The

presence of amenities like parking, included breakfast and the allowance for pets also

can push hosts to charge a higher price. The dummy variable entire home was expected

to positively correlate with the price, as the private room is significantly smaller than the

entire apartment. And lastly, the requirement of minimum nights can affect the price in a

negative way, as larger number of minimum nights for rental implies the host to be less

concerned.
Results and interpretation

The results for the OLS regression are presented in Table 4. All the values of

regression are reported in the heteroskedasticity-robust form. It can be seen from the

table that the goodness-of-fit measure R-squared is equal to 0.3061, which means that

the model explains about 30% of the variation in Airbnb apartment prices. As the price is

taken in the log form, the coefficients in the table show the percentage change in price

caused by different features.

Table 4. Results of the linear regression

Starting from the features related to the host characteristics, it can be seen that the

status of superhost allows asking for 10% higher prices. The variable is statistically

significant with the p-value of 0.027. The result is not unexpected as this price advantage

can be explained by their huge experience on the market. Moreover, the presence of

instant book feature and larger number of host listings lead to 7% higher prices. Both
variables are statistically significant. These results seem surprising. However, it can be

assumed that if an apartment has a feature of instant book, the following convenience for

guests requires a quick mobilization from its host, which results in a higher price. Turning

to the number of host listings, it can be considered that hosts with multiple properties can

improve expertise more quickly, therefore they charge higher prices. Then, the number

of reviews variable, which is an important feature in consumer decision making, is

statistically significant. The explanation for this could be that hosts with many reviews

have a regular demand for their apartments, so as the opportunity cost of having an empty

apartment is high for them, they charge a lower price. The number of minimum nights

appears to be both economically and statistically insignificant, which seems surprising.

The explanation for this can be the specificity of data, as almost all of the hosts allow for

the minimum nights less than 4.

Looking at the characteristics of the apartment, the variable entire home seems to

be statistically significant with the p-value of 0, and with the OLS coefficient of 0.38, which

means that if the apartment is rent as a whole, and not as a private room, then the price

seems to be 40% higher. This result is quite expected, as there is a huge difference

between a private room and the entire home. Then, the effect of specific amenities like

parking, pets and breakfast appears to be different. It can be observed that the presence

of breakfasts and the permission to keep a pet is statistically insignificant. The explanation

for their insignificance can be the comparatively low costs for having these amenities, so

it doesn’t affect the price. As regards parking, the variable is statistically significant. The

presence of parking allows hosts to charge about 14% higher prices.

 Moving to the characteristics related to the size of the apartment, it can be

observed that hosts that have a place for only 1 guest charge 40% less prices, while

apartments with the place for 2 and 3 guests charge 32% less. All variables are

statistically significant. Also, the additional bedroom raises the price by 17%, while the

additional bathroom raises the price by 9.6%. Both variables are significant. These results

are quite obvious as the increase of living space explains the price increase.

Conclusion

In this paper, we have performed a regression analysis to determine how different

attributes are valued by Airbnb customers, and how they affect the pricing. Our research

has the potential to be helpful for hosts in determining efficient pricing strategies based

on the features of their apartments. We used 14 independent variables, and before

performing a regression, we outlined our expectations. Our hypotheses were largely

supported except for the instant booking feature, number of host listings, minimum nights,

reviews and the presence of specific amenities. The explanations for unexpected results

were reported in the preceding section.

The paper contributes to the study of rental accommodation pricing operating

through the sharing economy model. It reveals some unexpected results which can be

helpful for pricing strategies in the rental accommodation market.

Our research has some limitations. First, we were not able to include data on the

hosts’ time since started operating on the platform because the data was inconveniently

presented, and absent for some of the hosts. Second, we did not include data on location

because of the limited information. If the data is improved in the future, including these

variables will potentially explain more variation in prices. Finally, we used a dataset for
the specific day. Therefore, it does not reflect seasonal factors which can affect a demand

for renting. Using longitudinal data can make the research more comprehensive,

therefore, further research is highly recommended because of its importance for the

participants of this rapidly growing market.

Reference list

About Us, Airbnb Press Room. https://press.airbnb.com/about-us/ (accessed November

11, 2018). Colliers International. Airbnb in Europe: Key cities compared (2018).

Chris Gibbs et al., “Pricing in the sharing economy: a hedonic pricing model applied to

Airbnb listings.” Journal of Travel & Tourism Marketing 35, no. 1 (2017): 46-56. doi:

10.1080/10548408.2017.1308292

Eyal Ert, Aliza Fleischer, and Nathan Magen. "Trust and Reputation in the Sharing

Economy: The Role of Personal Photos on Airbnb." SSRN Electronic Journal (2015).

doi: 10.2139/ssrn.2624181.

Magno, F., Cassia, F., Ugolini, M. "Accommodation prices on Airbnb: effects of host

experience and market demand", The TQM Journal, Vol. 30 no. 5 (2018): 608-620.

doi:10.1108/TQM-12-2017-0164

Wang, D. “Price Determinants of Sharing Economy Based Accommodation Rental: A

Study of Listings from 33 Cities on Airbnb.com” International Journal of Hospitality

Management. no. 62 (2017): 120-131. doi:10.1016.