Abstract

Urbanization has transformed cities into the economic and social hubs of high-income countries, yet concerns about declining social capital persist. This paper investigates the impact of changes in neighbourhood composition on social capital within London. Leveraging a unique dataset, I show how neighbourhoods with higher short-term renting (Airbnb) penetration experience a reduction in charitable organizations and increased feelings of loneliness. Additionally, this study highlights a rise in anti-social behaviour and complaints against tourists. I explore the roots -- pecuniary and non-pecuniary -- of these reactions. I find that higher Airbnb penetration is associated with a decrease in neighbourhood quality. These negative externalities can be explained by a lack of monitoring by hosts, which is a key difference between short-term renting and traditional hotel accommodations