Schadenfraude Alert: Airbnb Mini-Moguls in Meltdown as Bookings Collapse

As we’ve long said, if your business depends on a platform, you don’t have a business. For instance, Amazon sellers have been burned as the giant e-tailer by unwarranted suspensions, manipulating placements to favor Amazon listings, and even mining their data to develop competing Amazon private label offerings. But ambitious Airbnb landlords are now in a special world of hurt. And unlike vendors victimized by Amazon’s relentless predatory practices, it’s hard to work up much sympathy for Airbnb hosts who profited at the expense of their communities and are now facing ruin.

The Wall Street Journal has a detailed story on how the top tier of Airbnb proprietors are crashing and burning. Leveraged speculation will do that. Quite a few bought or leased multiple properties, enticed by the big premiums they could earn over taking in long-term tenants.

One has to wonder why so many saw Airbnb as a risk-free trade. Vacation and corporate travel slowed dramatically during the financial crisis and took a while to come back. The recovery was even slower in what many think of a perma-destinations like Barcelona.1 And even more so than Uber, which depends on drivers not understanding their economics (as in the true cost of using their car), so too did hosts who procured housing for the purpose of listing it on Airbnb seem to be naive that they were signing up for the risks in the deal: high fixed costs with revenues that could evaporate. And did.

The Journal collected the usual mix of illustrative anecdotes and data. It’s not hard to conclude that most multi-property Airbnb landlords are upside down. For instance:

AirDNA estimates that a third of Airbnb’s U.S. listings for entire homes or apartments—excluding shared rooms—are by hosts with a single property. Another third are run by hosts with between two and 24 properties. The remaining third involve hosts with more than 25 properties.

Some of those hosts renting 25-plus properties are managed by startups such as Sonder Corp. and Lyric Hospitality Inc., which pay to rent hundreds of apartments they sublease on Airbnb and elsewhere. Many of those companies have furloughed or laid off staff in recent weeks….

Smaller players have spent hundreds of thousands of dollars each buying homes for short-term rentals. Jennifer Kelleher-Hazlett of Clawson, Mich., spent about $380,000 to buy two Michigan properties in 2018. She said she and her husband cashed out their financial investments and borrowed $100,000 from employers to furnish them.

The 47-year-old expected to net up to $7,000 a month from Airbnb after mortgage payments, supplementing her income as a part-time pharmacist and her husband’s as a schoolteacher. Before the virus struck, the couple was considering buying more homes. Now, they can’t make mortgage payments because no one is booking, she said. “We’re either borrowing more or defaulting.”….

In 2016, they [Jennifer and David Landrum of Atlanta] started a company named Local, renting the 18 apartments they leased and 21 apartments they managed to corporate travelers and film-industry workers. They spent more than $14,000 per apartment to outfit them with rugs, throw pillows, art and chandeliers. They grossed about $1.5 million annually, mostly through Airbnb, Ms. Landrum said.

They spend about $50,000 annually with cleaning services, about $25,000 on an inspector and $30,000 a year on maintenance staff and landscapers, Ms. Landrum said, not to mention spending on furnishings.

When Airbnb began refunding guests March 14, the Landrums had nearly $40,000 in cancellations, she said. The couple has been able to pay only a portion of April rent on the 18 apartments they lease and can’t fulfill their obligations to pay three months’ rent unless bookings resume. They have reduced pay to cleaning staff and others. Adding to the stress, Georgia banned short-term rentals through April…

Florida, Pennsylvania, Vermont and Delaware also have clamped down on short-term rentals, instituting temporary bans on Airbnb properties and similar listings. Local governments including California’s Sonoma County and Myrtle Beach, S.C., have enacted similar restrictions. The measures have made it harder for some Airbnb hosts to fill properties with families looking to quarantine outside their homes or near relatives.

The refunds came about because Airbnb hosts invoked its “extenuating circumstance” clause and provide full refunds for March 14 to May 31 bookings. Hosts normally set their policies for cancellations, with the most stringent providing for a 50% penalty. Most landlords were more generous. Airbnb has since said it will provide 25% of normal cancelled booking fees, which is not much solace for cash-strapped landlords who’d accepted deposits on the assumption they could treat some of it as money good. Note there are some irate comments on Twitter that indicate that not all Airbnb renters have gotten their refunds. Some Airbnb owners complained in the comments on the Journal story that Airbnb had not made good on its promise to pick up part of the cancelled booking refunds. For instance, from Roy Neff:

The “refunds“ they promised, which amount to $.12 on the dollar in the best case, have not been refunded to most hosts.

I have received a $392 refund on over $60,000 in cancellations.

The Journal does cheerily reassure readers that the distress among these mini-moguls won’t hurt property markets, but it will hurt the cleaners and other support personnel:

Though most real-estate economists say there are too few Airbnb properties to ignite a housing crisis, the breakdown of the Airbnb economy could strain lenders, undermine property values and validate some local governments’ long-held suspicions that Airbnb contributed to the affordable-housing crisis.

But there’s clearly a lot of desperation among these landlords, and it’s not hard to imagine that Airbnb properties are concentrated in some areas. And if you read the story, it’s hard not to get annoyed with Airbnb flack Nick Pappas:

“No one anticipated that a global pandemic would require the country to shelter in place, upend the economy,” said Airbnb spokesman Nick Papas. “This is temporary: Travel will bounce back and Airbnb hosts—the vast majority of whom have just one listing—will continue to welcome guests and generate income.”

It takes a lot of gall or a lot of ignorance to peddle a line like that.

One chink of light for some Airbnb landlords: FHFA, which oversees Fannie and Freddie, said investors with mortgages from the agencies could seek forbearance. I have to confess to having missed that the GSEs, which were created to promote homeownership, are now in the business of owning other people’s homes.

Needless to say, Journal readers were not forgiving. For instance:

Dean Winchester

So… these people were investing with money they didn’t have? Sort of like playing the stock market with cash advance from your credit card?

Leonard Rothbart

I feel little sympathy for these people. They’ve leveraged the typical lag between technological innovation & law. Just because it’s technically legal does mean it’s in accordance with the intent of the law.

The intent, with regard to running a hospitality business, is for operators to be obligated to maintain certain standards & to pay to have a registered licensed, business in order for local government to manage the services that administer public commerce regulations for the benefit of the general public.

With regard to the local community, the intent is to have particular areas zoned for particular types of business & activities. This gives private citizens the assurance that if they move into a dwelling because they want to be in a residential neighborhood with the consistency & stability that implies, they won’t wake up some day & find they’re in the midst of an environment filled with transients who have no personal stake in the well-being or livability of the community.

Matt Mills

Good! They take inventory out of market and make housing more unaffordable. Plus who wants to live next to a AirBnB party house.

DJ Lee

Great story…. reminds me of… WeWork.

Classic case of arbitrage gone wrong… People who thought they were smart and making great money suddenly can’t even come up with money to pay a few months rent or mortgage?

I can’t pity them nor do I believe they should be supported by the government where money can be better spent on those that truly needs the support.

Oh, and a gem:

William Palmer

Want to have some fun?
Every time any article mentions a PR type?
In Big Startup Land?
Especially in the Great State of Silicon Valley?
Google the name.
And you’ll probably find a connection to Big Politics.
Especially the last administration.
Nick Papas?
From PR Magazine about the new PR guy for AirBnB:
“Papas came from the Obama administration, where he served as assistant press secretary and communications director for the White House Office of Health Reform. He also held communications roles for former Rep. Rahm Emanuel (D-IL), the California gubernatorial campaign of Phil Angelides, and Sen. Tom Daschle (D-SD).”
And after you Google the name, go back to the article and look at the PR guy’s quotes.
Anything sound familiar?
The difference between the function of being the voice of any politician, and especially their voice of “White House Office of Health Reform” and any “entrepreneurial startup” championed by the great State of Silicon Valley?
Zero.

Some may ride in and try defending Airbnb because you liked it and because it was cheap. Don’t go there. “Because cheap” is just a rationalization for depriving state and local governments of tax revenues, workers of bargaining rights, and in the case of buying stuff from China, exporting the pollution resulting from your consumption. For defenders of neoliberalism, the New York Times is over there.

____

1 I did what turned out to be an austerity tour in Europe in 2009. The Barcelona airport was close to a ghost town.

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99 comments

  1. Ignacio

    This looks poised to end with yet more property concentration in the hands of deep pocket investors like Blackrock and the like that have the extra benefit of asking for bail-outs if needed.

    Reply
    1. paul

      That’s what occurred to me reading the article.
      Just like goldman sachs buying up spanish social housing.
      The 2/3rds feeling the hurt could become the blackrock temporary accommodation arm. I can’t see airbnb or local government doing anything to frustrate them, only the ball ache associated with the management of such assets.
      To use drax the destroyer’s term, they’ll just get smooshed by the well connected behemoth.

      Reply
    2. Larry

      The property concentration likely won’t be due to AirBnB collapsing. It will be untold millions of people out of work with no relief ultimately defaulting on their mortgages. What good is forbearance for a few months when the economy will be in a full on depression? The vultures will swoop in and further crappify the rental experience as we’ve seen with Invitation Homes and other failed large scale land lord schemes.

      The larger benefit of AirBnBs collapse will be to return rental units to overpriced markets like SF, NYC, etc. It is quite clear that the owners of these properties made fat margins when bookings were consistent but have no cash to survive a downturn. They have to default or turn the properties back to the long term rental market.

      Reply
      1. Wukchumni

        1/5th of the homes here were AirBnB short term rentals, and of those, perhaps 20% were owned by people in LA/SF that bought them years ago with the plan to move here eventually, and along came the short term rental biz.

        That leaves about 160 of 1,000 homes in total here, in probable danger of being foreclosed on, as the infestors typically didn’t have deep pockets, and that includes around 80, ‘owned’ by locals who must’ve thought it was the best thing since sliced bread, here in a place where a $10 an hour job is about as good as it gets.

        The real estate market is going to crater really hard, and would’ve done so w/o short term vacation rentals (which didn’t exist in housing bubble part 1) but they add a nice slice to the proceedings, and it isn’t as if the ‘owners’ live there, so no emotional ties that might make them stick it out.

        32 homes are presently being offered for rent on AirBnB, enticing outsiders to do their very own rental redoubt and possibly spread the virus, as for now, money is still more important than community, keeping with the AirBnB theme.

        Reply
          1. howseth

            I’m in Santa Cruz – and was thinking that myself. How many homes stuffed with renters – and owned by people living somewhere else? Are they owned by startups? or mom & pop types who bought their house years ago. Do they continue to benefit from California Prop. 13 property tax law to freeze their taxes – even if renting not living in their long held homes? Still: the rents are too damn high.
            (Meanwhile, my neighborhood in the Coral Street/Harvey West Park section – has seen a large influx of transients in tents – even before the Covid-19 – and now accelerating) there are no startups doing tent AirBnB, I assume?)

            Reply
      2. Colonel Smithers

        Thank you, Gentlemen.

        https://www.mirror.co.uk/news/uk-news/right-to-buy-housing-shame-third-ex-council-1743338 is one example of a vulture. Readers in the UK may recall the landlord’s father. The properties cited in the article are not the only ones in the portfolio.

        Booking.com operates a similar platform to AirBnB. It’s a client of my employer, a firm bailed out by Ignacio and Paul’s Irish relatives a decade ago thanks to Auntie Angela. My employer, which tags itself as “the global hausbank” (sic) structures property investment funds to be, ahem, tax efficient and opaque etc. The properties are often let on Booking.com. The “hausbank” may be involved in many aspects of the property project.

        BlackRock’s UK HQ is literally a stone’s throw from the back / kitchen window of where I usually sit in the City. Its network are already preparing to profit. The firm advises Macron on the “reform” of pensions and the Canadian and European central banks on regulation and their portfolios. A couple of days ago, George Osborne said that more austerity is required after the Covid-19 crisis has passed.

        Two of my former employers, the UK financial services trade bodies, are already active, using not just the Covid-19 crisis, but the climate crisis, too, to water down the post-2008 reforms.

        Reply
        1. Waking Up

          Slightly off topic, but, your mention of Booking.com just raised my blood pressure enough to make this comment. I had plans for late May/June for one of those “once in a lifetime” type vacations. Due to the Corona virus pandemic, the entire trip was cancelled. Every agency and business I dealt with is providing refunds EXCEPT Booking.com. (they refuse to refund the almost $700 multi-night stay at a hotel). Keep in mind, there is absolutely no way I can stay at the hotel booked (in another country) due to the pandemic. Apparently they are fine with a booking fee of almost $700 where the customer receives Zero in service. By the way, I view $700 as a significant amount of money. I would NEVER recommend or book again with booking.com.

          Reply
  2. Bsoder

    I do believe that each citizen has a right to safe and affordable housing. Turning renting and home ownership into yet another racket simply begs the question what are we doing to ourselves and each other. This is yet another something for nothing grift, where anything goes and nothing matters. It is morally degraded. Is there even a notion that some things are sacred. Making money is not only the sole purpose in life, (the making of), but not even consistent with a good life. We have to eat yes, but that is in earning a living. On one level what is required is simply stopping. Takes energy to game the system and it takes energy to pretend your doing one thing while you know your doing another. If you want to own a hotel buy one.

    Reply
    1. Krystyn Podgajski

      Agreed!

      Capitalism has turned the individual into a cancer cell, all trying to grow and grow and grow, with no concern regarding how we affect the cells around us.

      Reply
    2. Wukchumni

      We were at our neighbors for New Years, and talk of short term rentals came up, and luckily none of the houses near us became mock-tels.

      I was talking to a neighbor and mentioned that we’d never do it, and besides what would we do with our 5 cats?

      He mentioned that each of those felines was costing us @ least $10k per in lost income, if we had gone that route instead. We had a good laugh!

      As you iterated, money isn’t everything and good neighbors are a blessing you really can’t put a price on…

      Reply
    3. Knifecatcher

      There’s another factor that needs to be considered, which is increasing resistance from neighbors and homeowner’s associations.

      I have a piece of property in sort of a hybrid recreational / residental area, located in the Colorado mountains about an hour from Denver. There is a HOA that currently permits short term rentals but multiple owners are now petitioning to change that language. We have 2 houses that are used exclusively as short term rentals advertised on AirBNB / VRBO which has been a point of contention in the past but Corona is really galvanizing the opposition. Not a lot of sympathy for the out of state owners either.

      Neighborhood hostility and rejection of “outsiders” is only likely to increase as the crisis progresses.

      Reply
  3. Mr Magoo

    I could never understand how companies such as Uber, AirBnB and others were celebrated when their basic premise to existence involved breaking the law to some degree.

    Reply
    1. paul

      Get to the opticians, just like your namesake refused.
      Move quickly and break things.
      Look forward through expensively framed,but myopic,glasses.
      Take them off, watch the colour television and relax, the government has got your back.
      The crisis is over, the carnage is to be picked over.

      Reply
    2. rd

      I think there will be very few tears shed by many people. The local permanent people won’t have the party houses o nthe street anymore. Hotels etc. that pay sales taxes will likely rent out a higher percentage of their rooms which will make the local and state governments happy.

      If you want to be successful in real estate in the long run, you either have to have deep pockets for a crisis or be so leveraged that you can just walk away after pocketing cash flow for a few years.

      Reply
    3. Sueliz

      The trick to it is to get other people to take the risk – like AirBnB landlords who take on the mortgage or Uber drivers who take on car payments. Then the Silicon Valley overlords can rake in the cash and when it all crashes let their “partners” take the fall.

      Reply
  4. Tom Stone

    Sonoma County has had a housing shortage for decades and I shed no tears for AirBnB.
    It took thousands of long term rentals off the market here, driving rents trough the roof and when it became popular it also affected home prices significantly.
    I couldn’t figure out why people were paying such big premiums for houses in my area at first, it made no economic sense if they planned to use them for traditional purposes, the bids were suddenly 20-25% higher.
    When I learned that the income was 3 to 5 times higher from short term rentals than long term rentals it made sense.
    Home prices and rents are both priced at the margin, both will be hit hard by this change and anyone who thinks the market here will “recover” in the next few years is delusional.
    We won’t see home price appreciation in real terms again for a long, long time.
    FD, I am a licensed Real Estate Broker.

    Reply
    1. Off The Street

      Biden Sprog, the new service corporation with international reach. Just don’t ask to read the fine print.

      Reply
  5. vlade

    Payment for services not rendered yet, unless contractually non-refundable, is not a recognised revenue. There’s a reason for that.

    But TBH, that’s a minor fry in the world of “let’s lever because it looks like a good idea”. TBH, most of those would not have enough cash to get them through a normal recession, this just speeds the whole thing up a lot.

    But it has advantages – in Prague, another popular AirBnB, the long-term lets collapsed through the floor. And I believe even that won’t save many, as the glut of long-term rental is now such that the shoe is on the other foot, and a lot of the owners will find they have no tenants at all, short or long.

    Reply
  6. David R Smith

    I strongly believe that AirBnB will bounce back before hotels. Hotels are dependent upon their restaurants, bars, and meeting spaces for revenue and their lobbies for ambience, unlike apartment/house rentals. The detailed, costly, and time-consuming regulations being considered for food service and social distancing will not affect AirBnB properties.

    Reply
    1. Krystyn Podgajski

      But will people trust a hotel being more clean more than some random person’s house?

      I know I would feel better staying in a hotel.

      Reply
      1. DJG

        KP: Yep. I noticed from the post that the Landrums aren’t exactly spending lavishly on cleaning and maintenance:

        “They spend about $50,000 annually with cleaning services, about $25,000 on an inspector and $30,000 a year on maintenance staff and landscapers, Ms. Landrum said, not to mention spending on furnishings.”

        For 39 apartments? Even if we subtract the ones that they manage, they still claim to own twenty.

        Those cleaning fees are nothing. The places are likely borderline filthy.

        At least a hotel has staff ready to clean every room every day. The big problem for hotels is going to be the common areas and elevators, basic things like checking in safely and getting to one’s room safely.

        Reply
    2. lyman alpha blob

      It will when cities ban them outright, as many are doing right now. Long term residents in residential neighborhoods want neighbors, not a bunch of transients. That’s why we have hotels in the first place.

      Reply
      1. tegnost

        yes, mr. smith is missing the part where airb’n’b is already being subjected to restrictive regulations
        A lot of carpetbaggers are being turned into bagholders. Tough when a 10%er finds out they are just another mope to the banksters

        Reply
  7. MT_Bill

    One has to wonder about the second and third order effects here. How many home owners not involved with airbnb directly took advantage of the airbnb inflated home prices to refinance or otherwise take out equity? They could find themselves under water as well. And is there any data on how short-term rentals impacted property taxes? If so there could be some calls for tax reassessments and a squeeze on local budgets, right?

    Reply
    1. Michael

      Good points! Even if not underwater, some folks will find their cash out refi to have extinguished nearly all of their equity. Hope they saved some of it.

      Re property taxes, there will be a lot of requests to reduce them by all owners. I’m sure the commercial guys are already filing.

      Reply
  8. Dr. John Carpenter

    To William Palmer’s quoted comment, I would be interested to read an updated Listen Liberal because even when that was published, you were starting to see the cross polination from the Obama administration and gig work/whatever AirBnB is type of stuff. This is one of the things that bothers me most about a possible Biden administration. All those types back in power. No thanks.

    Reply
    1. tongorad

      This is one of the things that bothers me most about a possible Biden administration. All those types back in power. No thanks

      The restoration of the Obama years seems to be what the hysterical TDSers openly desire, at least in my anecdotal social media cohort. If we could just get rid of old meanie Trump and restore the glory of yesteryear. This nostalgia is a profoundly reactionary and conservative perspective that is equal to the crazy that Trumpism – or perhaps more crazy since it thinks itself progressive/woke.
      It’s hard to hold one’s tongue and I have probably lost friendships over this already. I wonder what will it take to remove the scales for the TDSer’s eyes. Can it be done?

      Reply
  9. Marshall Auerback

    Yes, “cheap” travel is going. I wonder whether we should look back to the 1950s when basically only the rich and well-to-do are able to travel. The cheap flights are over because social distancing means that the airlines will never be able to adopt the “flying sardine can” travel strategy again. A lot of budget hotels will go by the wayside. Very bifurcated travel and leisure patterns. Greyhound bus travel boom?

    Reply
    1. vlade

      Will the bus be any less sardines than a plane though? And if you have to play sardines, isn’t it better to play them for a couple of hours than a day or two?

      I see the problem more in the airports, which are, on purpose, crowded (because it forces people into shops and restaurants), and have tons of poeple coming through them.

      Reply
    2. PlutoniumKun

      I would have thought a bus was worse than an airplane, at least air circulation is more tightly controlled and filtered on an aircraft.

      I think for the next few years people will be taking a lot more driving and hiking holidays. It will seriously damage urban tourism, but I think rural tourism in many countries will do very well, as people will want to holiday within a days drive. There may even end up being a shortage of accommodation in many areas.

      A suspect that if the price is right, people will still want to do ‘special’ long haul holidays. Its the frequent flying and weekend breaks which I think will be hit hardest.

      I wonder also about family reunion type holidays. A lot of people fly once a year to their home countries, or to visit far off grandchildren, etc. I think many, if not most, will still take that risk.

      Reply
      1. wilroncanada

        Oh yes, PK. Planes will still fly, probably not as many, under some kind of ppp. The ptb will not call it a ‘subsidy’, but the public will assume much of the liability, as is usual in these things, while the ‘private partners’ will pocket all the loose change.

        Reply
    3. mpalomar

      Wild speculation but with what you describe a likelihood, cheap travel vis a vis airlines kaput; one wonders would or could the now underwater cruise industry be repurposed to original ocean liner detail?
      “The current eastbound record was set by the American ocean liner United States in July 1952: the ship made the crossing in 3 days, 10 hours, 40 minutes.” wikipedia

      I stopped travelling a while ago for various reasons, among them the sardine can experience. Occasionally considered freighter/passenger but always discouraged by a dearth of route destinations etc.

      Never been on a big ship but quick 4 day crossings, New York to London or Rotterdam would be more enticing and perhaps ecological than jet setting; and social distancing perhaps a fighting chance.

      It wouldn’t be inexpensive but perhaps preferable to cigar tube airline seating.

      Reply
      1. juno mas

        Four Days? New York to London? I could outfit a shipping container with provisions and entertainment and likely survive.

        Reply
    4. Yves Smith Post author

      I wouldn’t bet on that.

      Airplane air is filtered. HEPA filters that get 99.7% of the particles.

      So the risk is someone with no mask. American said it will make masks available.

      If customers or regulators make a stink and make masks mandatory, airlines might be a tolerable risk, at least for not horribly long flights. I would still take alcohol to clean my seat area.

      Reply
      1. Shonde

        In today’s Minneapolis Star Tribune, ” JetBlue says passengers must wear masks

        JetBlue will require passengers to wear face coverings starting next week, becoming the first major U.S. airline to compel its customers to cover their noses and mouths since the start of the coronavirus outbreak. The policy covers the duration of a passenger’s flight, from check-in through boarding and deplaning, the airline said. “Wearing a face covering isn’t about protecting yourself, it’s about protecting those around you,” Joanna Geraghty, JetBlue’s president and chief operating officer, said in a statement. “This is the new flying etiquette.”

        Reply
    5. bwilli123

      I can see airline travel recovering once there is a quick and reliable Covid-19 test available. Check in earlier, pass your test and you will be permitted to fly. Otherwise not.
      This doesn’t of course provide any comfort about the safety of your eventual destination. Become infected and it might inconvenience (or given your medical priors) curtail your return.
      Emirates already claim to be doing a pre-flight test, the results of which are available in 10 minutes. How reliable this test is I don’t know.
      https://www.bloomberg.com/news/articles/2020-04-15/emirates-starts-rapid-testing-passengers-for-virus-before-flight

      Reply
      1. PlutoniumKun

        Anecdotally, what people fear most I think is getting quarantined or locked down in their destination. A Covid test won’t solve that problem – what happens if you fail it on your return journey? Your short holiday turns into a 2 week stay in a grimy airport motel.

        People may risk that for ‘special’ trips they’ve always wanted to make, but not for a quick winter break or destination wedding.

        Reply
        1. fajensen

          I am sure that very soon one can buy an insurance for that with the ticket: If stuck then one will be accommodated in a nice hotel for the two weeks (bronze plan) or one is flown back on a special flight in a bunny-suit with separate air supply (gold plan).

          Reply
        2. Keith Newman

          My opinion: a combination of masks, cleaning, testing, vaccination (if effective), and insurance will make air travel viable again, eventually.

          Reply
    6. turtle

      Good points by everyone here. Another factor to consider: climate change.

      Buses are the most carbon-efficient means of transporting large numbers of people over long (land) distances. Only electric cars beat them: https://www.nationalgeographic.com/travel/features/carbon-footprint-transportation-efficiency-graphic/

      Regarding ships, they could also eventually transition back to sailships, another climate-friendlier option.

      So a bus + ship combination for domestic and international travel seems like the way to go anyway from a climate perspective, which will have a side effect of pushing non-affluent, working people to travel closer to home because they don’t have enough vacation. That’s all moot though if the pandemic is not resolved and almost no one wants to get in a sardine can of any kind.

      Reply
      1. Harry

        I’m surprised. How can electric cars be carbon efficient unless you know how the electricity is generated? And since electricity generation is only 60% energy efficient itself (from memory so questionable), would these figures net the losses due to generation and transmission?

        Reply
  10. divadab

    My neighbor owns three Airbnb units. His solution to the lockdown? Rent out the units on a month-to-month basis. All now rented and while cash flow down >50%, he’s weathering the thing and covering his expenses.

    The people who are in trouble are the ones who over-levered to go big and now they will have to make a new plan, if they haven;t already. Airbnb works fine for the people they claim are their hosts – owner-occupiers, small scale and neighborly. They have cushion the levered players do not.

    Reply
  11. lyman alpha blob

    They’ve leveraged the typical lag between technological innovation & law.

    Or they just outright broke the law and got away with it. My city has had an ordinance in place banning short term rental in residential neighborhoods from before Airbnb was even a twinkle in some Silicon Valley grifter’s eye. In the late 90s, some landlord was violating this and renting to vacationers much to the annoyance of their neighbors and it wound up with a legal case going to the state supreme court. They ruled in favor of the city’s existing zoning and forced the landlord to cease and desist. Somehow that didn’t stop the Airbnb’s from coming in years later when nobody was really looking.

    When the city cracked down, one person I know complained that they wouldn’t be able to afford the mortgage if they had to rent long term instead of with Airbnb. And of course one of the main reasons this person had to pay so much for this rental property is because Airbnb allowing people to rent on their platform illegally was driving up home prices everywhere.

    Always nice to see money grubbing grifters hoisted on their own petards.

    Reply
  12. PlutoniumKun

    There are a small number of people I feel sorry for – people who make a little money on the side renting out spare rooms during peak periods, or who want to rent out their property while away on business or holiday. But it seems clear that they are only a minority.

    The damage I think comes down to leverage. If, for example, you compare the otherwise similar Irish and UK markets, in the former ‘buy to let’ type mortgages were pretty much abolished following the last crash. Hence it was much harder for an individual to overspend to buy properties for short term lets. So I suspect the deeper financial damage will be harder in the UK.

    Its worth noting that AirBnB is just one chunk of the market. A lot of money has gone into specialist letting properties, often aimed at students, but set out for holiday short lets during the holidays. They economics of those properties has been badly twisted. I believe a lot of private equity money went into that type of investment.

    Its too early yet I think to know the impact on rents. Anecdotally, here in ireland there has been a huge rush of new properties onto the longer term rental market. This is very welcome as there has been a chronic shortage of properties. With luck, it will take rents down very significantly, and so off-set some of the damage to peoples income.

    Reply
    1. Colonel Smithers

      Thank you, PK.

      That is correct.

      AirBnB is just one chunk of the market / platform. Booking.com is another.

      Further to student and tourist lets, the areas on the periphery of the City of London and around the Manchester canals are full of them. Finsbury Square hosts the London campuses of red brick universities from the provinces. Having a London campus enables the university to attract a certain type of “student” who does not want to venture / fears venturing outside the M25 etc., often wealthy and from China, and keep such students away from students who are knuckling down. The campuses are ideal for chillaxing at Spitalfields, Broadgate Circle, Shoreditch and Clerkenwell.

      That’s right about private equity. Some funds are structured by the wealth management arms of my current and previous employers. The Duke of Westminster’s property fund management arm is another.

      Reply
    2. Ignacio

      Yes, I think that short-term renting through AirBnB and others made long term rentals more expensive and this will now be reversed. This is good news.

      Reply
  13. Thuto

    If any Airbnb hosts, not just in the US but worldwide, listened to an interview the CEO gave the other day on Skift, they’re crying themselves to sleep. He basically let on that the company is semi-pivoting to what he called “travel redistribution”, newly minted SV parlance for people who want longer term rentals to go on working sabbaticals outside their primary city of residence. He also conceded that mass tourism will be on the wane post-covid19 so the focus of the company will shift to this travel redistribution story. This is from the CEO, not the PR hired gun so any host would do well to glean the real message from this: i.e if you listed a leveraged property on our platform based on our original thesis of short term rentals, you’re pretty much on your own because we are refocusing the company on a different niche.

    It’s telling also that Airbnb recently raised $2 billion on very punitive terms from PE behemoths and reading between the lines, it may suggest that the market wasn’t buying their recovery plan and had to compensate by extracting punishing terms to dole out the cash. Different stakeholders, both company insiders and outside investors, recognize that there’ll be a (downsizing) resizing of the Airbnb market, but the hosts are being sold on the platitudes peddled by the PR department while the company reconfigures itself to pursue a different path. Guess who’ll be left holding the bag.

    My take is that in the short to medium term post covid 19, mass tourism will be on the wane as the company’s CEO predicts. In a social distancing world International travel especially will revert to being a premium affair because blocking out middle seats will render aviation economics, anchored as they’re on 75% load factors to achieve breakeven on a flight leg, untenable at best and bankrupting at worst. Airbnb built its business on the sand of mass tourism, attracting mostly price sensitive travellers on the hunt for cheap accommodation options, now the winds of change are scattering that sand and the company’s foundation looks wobbly because cut price travellers will possibly be the last to venture outside their own borders. Additionally and Imho, hotels as a regulated industry will also win the hygiene narrative wars that will characterize the hospitality industry post covid (especially if they act as a collective and lobby governments to enact strict cleanliness protocols with local authorities providing oversight). In contrast, platforms like airbnb, who have no ability to police hygiene standards across hundreds of thousands of individual listings, will publish said standards on a website (with a liability shield of course) and hope that hosts implement them. Will this be comforting enough to leery travellers armed with ocd-like attitudes to cleanliness owing to the corona virus? Me thinks not.

    In a nutshell, airbnb faces significant headwinds, especially as a global business and I for one will welcome a much reduced role for short term rentals in the travel market. I sat ringside as my own city of Cape Town saw the world’s third highest house price inflation in 2016 because of the airbnb phenomenon, completely squeezing out locals from the market.

    Reply
    1. Yves Smith Post author

      And another point: hotels will be offering rooms at lower rates for a while. Plus some cheap hotels in my experience have been very good on housekeeping (I like La Quintas).

      Reply
      1. Thuto

        Exactly, discounted rates and visible (to guests) sanitation programs should tide hotels over the first few stages of the recovery as travellers emerge from the shell they retreated into because of the virus.

        Reply
        1. PlutoniumKun

          I have to travel around once a month for work – I was discussing this with my colleagues – we are paid a fixed sum per 24 hours away from the office, so its up to us to decide where we want to stay/eat. Normally most of us would stay in a guesthouse and eat in a local restaurant or pub when doing an overnight as its cheaper and more sociable – just on a casual conversation this week my colleagues were largely unanimous in saying that if they had to do it, they’d now prefer to stay in a more upmarket chain hotel and eat in their rooms for safety/hygiene reasons. The others were saying they’d drive home, even if it meant arriving home at 2am.

          Reply
          1. Thuto

            Precisely PK, and that’s what’s missing from the “reopen the economy” cheerleading. It’s focused on the supply side “let businesses reopen” narrative, with scant attention paid to the very simple fact that the demand side is crippled with fear right now, and will be for a while. No amount of lobbying for the re-opening of guesthouses when guests would rather stay in an upmarket chain hotel will make said guests comfortable enough to patronize said guesthouses with lodging business.

            Reply
        2. fajensen

          Hotels offer long-term stays also. Like the car rentals offering “mini leases” they can be very competitive.

          Reply
    2. PlutoniumKun

      The problem for those companies looking for longer term lets is that ‘home swap’ websites more or less have this market sown up. Quite a lot of people I know use these for family holidays abroad, they either match up people wanting to spend time in each others city/country for whatever reason – if you can’t match up the timing, some allow you to hold credits.

      Reply
      1. Thuto

        With a $2 billion war chest, I’m sure Airbnb believes it can rip apart the threads holding together that sown up market, sort of the next chapter in their disruption story. It wouldn’t surprise me also if some of the professional hosts, the ones with multiple properties and deep pockets to tide them over this period, are being sold on this new vision of the company. Like you say in your earlier comment, it’s the side hustle guys who were using airbnb to make money on the side who are toast (and the overleveraged professional hosts who are the subject of this post).

        Reply
        1. PlutoniumKun

          I’m sure they’ll try it, but its hard to break into something that works so well and is relatively uncommercial. I’ve never used them as it doesn’t suit the way I like to travel, but I’m surprised the number of people I know who use home swaps for their family holidays, although it obviously helps if you have a home in a desirable area for tourists/travellers. For people with fairly large families it’s a very cheap way to have a holiday.

          Reply
  14. Arizona Slim

    The Airbnb house up the street? Empty for the better part of this month. And let’s just say that Tucson’s hot summer isn’t a tourist attraction.

    BTW, it’s supposed to be 104 tomorrow.

    Reply
      1. newcatty

        Ha, we live north of Tucson, and TG, Phoenix. Our state has no stringent regulations on the ABnB or vacation rental business. It has caused considerable conflict with many neighborhoods in all towns and cities. It isn’t just the hosts who turn their eyes away from loud and party houses, it is in the transient nature of close by people ,who are unknown, to be staying in a neighboring house , etc. We were upset and, frankly felt disrespected, by a young PMC class couple, with two kids, who bought a three story house next door and glibly happen to leave out, after introductions, that they were going to “host” their downstairs “suite” as an ABnB. Hmmm…we wondered why they had so many” visitors”. Spouse found out by chance when a customer pointed out that he was staying at the ABnB next door. OH!

        With the virus causing the so called lock down and travel taking its hit; We have not noticed strange cars arriving at the “motel”. Silver lining. Our town has plenty of actual motels and hotels. They are regulated, contribute to local and state revenues and are obviously what they are designed to be. No one needs to be surprised by having their neighborhood high jacked by “entrepreneurs ” as many in AZ elites’ circles call the owners and hosts. Also, like noted, it has helped raise long term rents and housing costs. A nearby destination town, noted for its surreal beauty and location, has actually asked people to not visit. They have long time year-round residents who are in forefront of resisting the whole town being just an investor’s paradise for gritters at the expense of neighborhoods. This is from a town known as a tourist mecca. I support the hotel and motel businesses. If we ever travel again, I will gladly stay at one that I have confidence in its management, cleanliness and, yes, safer role in the communities.

        Reply
    1. Clive

      Ditto in Northern Ireland. I had an invite to stay there before Christmas to see a very very distant relative who I kept in touch with as a child at my mother’s insistence (it was her cousin but I think it was a half-cousin rather than a full one, I never got to the nub of the relationship… they found me on LinkedIn, of all things, and didn’t know my mother had died nearly 10 years ago and suddenly wanted to research the messy and incomplete family tree… but I digress) and I couldn’t beleive there was an AirBnB market there when looking for something better than the rather limited choice of hotels. I mean, Northern Ireland? I know there’s the Titanic Quarter. But you’d have to really enjoy being rained on and Game of Thrones location hunts.

      Still, it takes all sorts I suppose. I’d rather hit the mean streets of Tucson and try to fry an egg on my head.

      Anyhow, Northern Ireland’s, ah-hem, niche market for AirBnB seems to be likewise dead but owners after AirBnB-like yields on a normal rental basis https://twitter.com/newsmulg/status/1255469978901504002?s=20 — but that can’t last forever as there’s a lot less demand from people who are wanting to sign up to a six month tenancy agreement (lease in US-speak) and owners can’t charge the kind of short-term AirBnB premium when requiring a long-term commitment. Which shows they aren’t, as business people, the sharpest knives in the draw.

      Reply
  15. Brita

    In grad school I considered renting a spare room out to generate some much needed income. I gave up without ever hosting anyone, as airbnb made it impossible to rent out only occasionally. They push you to allow instant bookings on an open calendar and threatens to remove or bury your listings if you insist upon approving prospective renters. All their PR spin about homeowners making ends meet by renting out their basement is a lie—they demand you to turn properties into hotels.

    Reply
    1. lyman alpha blob

      That is interesting to know. My problem is with the whole house rentals, not with those renting out a spare room once in a while. I hadn’t realized they made it so difficult to do. Sounds like they may want to revisit that policy if they’d like to prolong the company’s existence, because whole house rentals were on the way out before coronavirus anyway as municipalities cracked down.

      I don’t see how they survive as a niche lodging company anyway. The huge amounts of VC money that was thrown their way wasn’t so they could produce a “niche” business.

      Reply
  16. ChristopherJ

    Cairns and Port Douglas here where there are plenty of units and, usually, in bound tourists.

    Can confirm a lot of new listings for long term rentals in the house and unit sector and prices have dropped significantly.

    Funny how a lot of these new listings have designer furnishings, coffee machines, tvs and so on…

    Anything to defer a sale into a crashing market

    Reply
  17. phichibe

    “Some may ride in and try defending Airbnb because you liked it and because it was cheap. Don’t go there. “Because cheap” is just a rationalization for depriving state and local governments of tax revenues, workers of bargaining rights, and in the case of buying stuff from China, exporting the pollution resulting from your consumption. For defenders of neoliberalism, the New York Times is over there.”

    This is an example of why I still come to NC!

    P

    Reply
    1. Kurtismayfield

      The owners have access to credit.. they are all upper middle class or have equity.. so that is the same old story… the story will take another turn when they all have to sell at a loss..

      Reply
  18. David

    (Rubs hands together). It’s worth pointing out, of course, that Airbnb is only part of a much wider picture, all of which is getting hit. Consider: if you are a couple of USians hoping for a cheap romantic holiday in Paris staying on the Ile St Louis (where one in four apartments is let short-term) you require a whole series of things to go right that we normally don’t even think of. No visas or medical pre-checks, medical passports etc; regular air travel under bearable conditions (ie no worse than now); flights at an acceptable price; no health checks before boarding, no intrusive contact tracing software to install, no medical examinations on arrival, no quarantine in case of ambiguous results, sterilised airport terminals, distancing from other travellers, clean and sterilised public transport systems, absolute assurance that your chic apartment has been thoroughly sterilised after the Chinese couple from Wuhan who left that morning, no security problems because half of the apartments in your building are empty, because no-one wants them, no long waits for medical clearance before entering the Louvre (small groups at a time only, please) ….and so on.
    What people don’t realise, I think, is the this is not a single shock, but a new world, where the return of the virus or the appearance of new ones, is going to be a threat which is present all the time. Mass tourism, so far as I can see, is now effectively dead because the economics don’t work any more. Airbnb is collateral damage.

    Reply
  19. K teh

    MMT finances the ghetto from which best practice emerges, and peer pressure -the lowest form of human thought- spreads the disease.

    Startups are allowed to short the system until they have built what the system wants.

    Which is worse, those who work for the fascists and don’t know it or those who profess to be liberals.

    Reply
  20. Cuibono

    I jusy dont think cheap travel is over…
    You got the under 40 crowd who will go come hell or high water (disposable incomr might be hindrance)
    And something like PAPRs for everyone might emerge.

    Or a vaccine

    Reply
  21. Kirk Seidenbecker

    Unearned income is the classical economic term coined by J.S. Mill applied specifically to landlords who ‘made money in their sleep.’ The problem isn’t the small mom ‘n’ pop joints, it’s that communities/tax policy allow distortionary land value speculation to happen in the first place. Taxing site values (which the community creates in the first place), meanwhile untaxing consumption and production, would go a long way in avoiding the distortionary outcomes we see today; getting it politically accomplished is another story. Today, 80% of bank loans are on real estate, a hundred years ago it was less than 30%, an indication of how parasitic deregulated finance has become. At least 2/3 of Airbnb’s ‘owners’ are absentee.

    https://www.aeaweb.org/conference/2018/preliminary/paper/3GEQGF49

    http://www.wealthandwant.com/docs/Gaffney_StRPOL15LE.html

    Reply
  22. EMtz

    I live in a city in Central México that was the darling of the travel magazines for years. This papered over the fact that 60% of the people here live hand-to-mouth, many working in the informal economy, some living in homes with dirt floors and no hot water. There is a thin layer at the top of extremely wealthy expats who’ve built enormous haciendas for themselves as well as chilangos (people from México City) who own lavish second homes here. The rest of us fall somewhere in-between. But the realtors and developers are the ones who run this place. Or at least they were.

    Over the past 3 years, airbnb rentals took over much of Centro, driving rents up with a spillover effect even in poorer parts of the city as people were forced to move outward. Developers raced to build luxury “communities” around the periphery aimed at wealthy expat retirees and upscale short term tourist renters. Expensive clothing and antique shops replaced family tortillerias and the like, driving up commercial property values and rents. The city stupidly encouraged this, relying almost solely on tourism as its source of income.

    Airbnb was the coup de grâce in a process where greed has distorted the economy of this city beyond recognition. In a few short years, more than 10% of Centro was turned over to short term rentals. The poor became poorer. Water is running out. Forget trying to park anywhere. Or breathe clean air. It has been a struggle for many simply to be able to afford to live here.

    For better or worse, the bottom started falling out of all this about 18 months ago when a turf war broke out between two cartels. The homicide rate in one year went from 18 to 109. Extortion skyrocketed, driving out more small businesses. Home invasions rose as did assaults, carjackings and armed robbery. Vacations, weddings and conventions were cancelled. In just one year, property values fell by 50%. Airbnb operators defaulted. Hotels and restaurants went out of business. Those giant developments stood like half-built mausoleums.

    Now, with Covid-19, the streets are completely empty. Stores, spas and restaurants are starting to put up “permanently closed” signs and are liquidating their assets. The contribution of those fancy airbnbs to all of this will be a good 10% of homes in Centro left standing empty with no one to buy or rent them because the cartels still will be at work long after this virus has done its work.

    In the end, the “best city in the world” will have been transformed into the poster child for predatory capitalism. And it didn’t take long at all.

    Reply
  23. Harry Shearer

    In the residential half of the French Quarter, the early AirBnB wave swept through, raising property values while starting to “harvest” the community-facing businesses–short-termers only wanted daiquiris and T-shirts. After a major if belated community outcry, the city banned STRs in most of the Quarter. For-sale signs immediately sprouted, and the adjacent neighborhoods–Treme and the Faubourg Marigny–immediately experienced an influx of STR “hosts”. That word is ironically chosen, for they are actually parasites, offering that which their very success destroys–the opportunity to “live among the locals”. Meanwhile, those who work in other businesses catering to tourists can’t find an affordable place in which to live in the city.
    There is a karmic quality to the “disruptors” being disrupted.

    Reply
  24. Oh

    “For defenders of neoliberalism, the New York Times is over there.”

    Well said!

    The NYT is the most phony paper and pretends to be progressive. I stopped trying to read their articles a long time ago.

    Reply
  25. Rtah100

    I have the rare impression of the NC commentariat sharpening their pitchforks rather than their minds on this topic.

    1) the whole tone of the comments is weird from a UK perspective. A Englishman’s home is no longer his castle but it is certainly his asset. He can fill it with a Romanian hookers or leave it to rot (both popular minority pastimes) and, short of outright illegality, the local council and other powers can only intervene in the most extreme circumstances. It is very rare to find any restriction in the UK on freehold or long leasehold land on short term letting. Some new builds in rural areas have planning prohibitions on use for holiday homes imposed as part of the permission (to attempt to solve the rural housing crisis). There was also a London-wide limitation Of 30 days letting but that was imposed more to protect the hotel trade by stifling competition.

    Perhaps it is a land of the free blind spot but why should anybody have the right to tell you how to use your property if it is freehold and why is it any of your business if your neighbour lets their basement to tourists?

    2) holiday homes fulfil a vital function. I love hotels but since we had children, my wife dreads them. She fears we are annoying the other guests and is tense the whole time. So we only stay in self catering places. It is *much* easier, especially with passing food fads, disrupted sleeping habits etc. Plus you get more space – UK hotels rarely have family rooms, true suites are extortionate and the usual workaround of adjacent rooms can be awkward, where do you all sit if not going down to the lobbies or restaurant…? And outside big cities, there is not much choice, especially in the countryside.

    3) I will declare my hand as a holiday home owner. It is part of the diversified farm we run. We let three units. We get guests in high season (Easter-October, Christmas). They are either having a country holiday or, often, attending a local family event. They are nearly always families, often with grandparents in tow. Occasionally we get groups of friends come for the local fishing or gardens. These summer tourists are the difference between breakeven and profit for the local pubs and shops and attractions.

    Two of the units used to be long lets but the increasing regulation and low rental prices locally makes it uneconomic given the nature of the properties. These days you are required to have electrical checks, energy performance certificates and other make-work boondoggles (the wiring was done to spec by qualified electricians, why does it need constant checking? how can a listed period cottage hope to be a passivhaus when it is built on totally different principles: no dampcourse, no thermal foundation slab, no air tightness; only heating is electric storage heaters and open fires etc). The holiday guests will pay a premium for the shabby chic and none of these regs apply (a whole bunch of regs do, cat 5 fire retardant beds etc). Plus one tenant was a nightmare to our neighbours and unlike Airbnb transients didn’t leave for ten years – be careful what you wish for! We said never again….

    4) the comments largely overlook that homeaway, Airbnb etc are squeezing their “hosts” all the time. Small operators like us are put on a hamster wheel, of accepting automatic bookings lest they be demoted. We refuse – we are not going to take anybody as a guest without vetting them. The £300 deposit nowhere near covers the damage a feckless guest can cause. We had a flood (mice, not guests) that cost £20k to fix in a small 2bed cottage.

    Homeaway used to be the good guys charging a fixed listing fee and enabling traditional operators to go online in one package including payment systems. Then Expedia bought it and turned it into Airbnb, with a commission model (10% service fees) and an opaque listing algorithm that drives the hamster wheel with fear and uncertainty. They still charge the listing fee though! Our guests are gouged by the platforms charging service fees, for no service. We do all the servicing!

    They got greedier lately and fired their payment provider. Their new in-house system takes the guest money at booking but no longer sends it to hosts until checkin! How is low season survivable without the winter payments for Sumer holidays? We see bookings start on Boxing Day! I think Homeaway will lose hosts fast. The silver lining is that coronavirus refunds come out of their pocket as they are sitting on the money….

    It is clear to me that the listings sites “pivoted” in the last five years to run an asset-light urban aparthotel business where mug owners provided inventory at their real estate risk and local rules on lettings were ignored. It is a long time since they enabled homestays or traditional beach or country villa rentals. Ironically, this market will come back first, if owners have convincing cleaning procedures. I am not sure Airbnb etc will be around to see it.

    Reply
    1. Yves Smith Post author

      Did you read the article? You are again violating our comments policies by not having done so.

      1. Even though some UK and Irish readers piped up about local condition, this post is about the US.

      2. The post was about people who bought housed or entered into leases for the purpose of making a turn on Airbnb, not renting their primary residences.

      Reply
      1. rtah100

        I wrote a long reply but my laptop battery is unreliable and died on me (beware the one who calls himself Lenovo x390 Yoga!).

        In brief, I did read the article. It was in the WSJ and so about the US but you specifically averted to Barcelona in the post. I didn’t think the article was classified NOFORN for comments! :-)

        It is interesting to see Airbnb was driven by a small number of large interests, leveraging up in classic FIRE economy style, and not Joe Sixpack renting his room or holiday home out. Obviously none of the professional Airbnb’s cared to look at the hotel industry trend over the past twenty years, from property ownership to property management contracts….

        But I also read the comments and I was responding more to these.

        1) To UK eyes, the US emphasis on collective property rights rather than individual rights is a surprise and a puzzle. In the UK there are extensive planning controls on what you can build but minimal controls on its subsequent use within its planning category (which, apart from some niche uses like petrol stations and industry, are very broad – domestic and non-domestic basically). I have previously read here that in the US homeowners are told by associations that they cannot hang out laundry, turn their lawn over to permaculture / xerophytic plants etc. The only controls in the UK like that iwould be imposed by landlords on short-term tenants. We take it for granted that it is not our business how our neighbours use their house, provided they do not contravene hard norms like environmental health, nuisance or criminal law.

        2) The pre-Airbnb short term rental industry served valuable purposes and almost nobody in the comments was standing up for these. The impression of rampant Nimbysm was unusual for NC, which is usually full of people able to stand in another’s shoes when they consider an issue. Many people would not be able to visit family or take small children on holiday cost-effectively or without stress if it wasn’t for holiday homes – and they provide the margin that makes year-round living possible in rural communities (extra money in the shops and pubs, staffing seasonal attractions etc.).

        3) Lost in the schadenfreude was the point that these original holiday home businesses are also victims of Airbnb’s bubble. That historic short term rental market, of owners with 100% equity in their property renting out lodgings of their summer / winter place, served for family holiday and reunions. It was a fragmented market and the listing sites that brought these operators online have been consolidated and radically changed by the Airbnb model. Expedia bought Homeaway and killed the listing model (but not the listing fees, hah!) in favour of taking a 10% vig on every transaction. The property owners have gone from being independent businessmen to precarious servants of the algorithm. It may be a story about capital rather than labour (in fact, that’s what makes it interesting – the plight of small businesses rather than the corporates in neoliberal/fascist economies) but it is yet another example of the gig economy destroying everything it touches in favour of an atomised, transactional, short-term, winner-takes-all model.

        Reply
    2. periol

      A Englishman’s home is no longer his castle but it is certainly his asset. He can fill it with a Romanian hookers or leave it to rot (both popular minority pastimes) and, short of outright illegality, the local council and other powers can only intervene in the most extreme circumstances. It is very rare to find any restriction in the UK on freehold or long leasehold land on short term letting. Some new builds in rural areas have planning prohibitions on use for holiday homes imposed as part of the permission (to attempt to solve the rural housing crisis). There was also a London-wide limitation Of 30 days letting but that was imposed more to protect the hotel trade by stifling competition.

      This is all well and good, but it relies upon a basic social and cultural understanding that has been slowly eroded away over a long period of time, especially in the UK. What used to be the “commons” is now private property, and while you speak to a basic understanding that people are free to do as they wish with their property, such ideas do not take into account largish corps or richish people who flout every loophole and buy up depressed assets en masse on the cheap (or not) and then turn them into short-term rentals, thereby starving the area of long-term residences and driving up local housing prices. This is happening in both the UK and the US, though the prevalence is obviously higher in the US, since we thrive on this predatory nonsense.

      Reply
      1. rtah100

        It’s a function of near-zero interest rates. The yields on holiday letting done properly are rubbish. You only make money if you (i) are letting your second home place (and you’re not really making money, you’re just defraying the full cost of ownership and probably not accounting for depreciation properly to boot) or (ii) you’ve doing it at sufficient scale that you can hire a full-time manager or take that role yourself on site.

        For example, where we are, in the Devonian cow-belt, you’d need 30-40 beds (arranged as a mix of 2-beds to 10-beds: small properties rent more easily but large ones command a premium) and onsite amenities (pool etc.) to make that work. Smaller operations like ours are caught in the middle. The expenses are big: cleaning contractors and linen hire, repairs and maintenance, listing fees, finance (we took a mortgage to diversify the farm), insurance (period properties and holiday letting both jack up the premiums and they still don’t cover interruption for pandemics!). That $50k cleaning bill on 36 properties is laughable. That’s $1,250 p.a. per unit. I pay £6.5k in cleaning and linen on three units, call it $7.5k total or $2.5k each, and that is for properties that are only let seasonally, not year round. They are either cutting corners on the hours or using illegal labour / paying cash under the table.

        The dumb money coming into Airbnb saw an arbitrage between steady as she goes lease / mortgage payments and “hot money” short-term rentals. Rather like the Thai baht crisis of the late 90’s, when the hot money dries up it all goes wrong. With luck, the shakeout will be good, for rebalancing the urban housing market and reducing competition in the traditional holiday home market.

        Reply
  26. Rtah100

    Ps – Clive, I need to stand up for Norn Iron. It is stunning, it would not have been my holiday of choice to head north rather than south to the sun but we go every year to the in-laws. Donegal (Ulster if not NI) is like Cornwall fifty years ago, empty and wild and some of the finest Famous Five type islands and beaches for family holidays. Fermanagh has fantastic lakes and hotels (G20 was held there, must be good pillows!). Everywhere there is really interesting geology (caves, glaciation, lakes, the Causeway), history (Celtic burial sites, island compounds, stately homes) and botany (orchids, forests, all sorts).

    Yes the weather is a bit soft – last summer was remarkable, no rain all fortnight – but it is a match for my native Devon and Cornwall despite being cooler and even wetter. And the people are lovely, polite and always friendly to strangers. And then there is Maud’s ice cream shops….

    Reply
  27. Not my real name

    As a long time Airbnb host, I see this as a good thing. We rent out our guest room, mostly to people visiting the local Ivy League University. It provided us with a nice supplemental income, but we had no illusion that we no longer had to work.
    Our guests are charged the same tax as people staying in hotels, collected by Airbnb and remitted directly to the state. Our city regulates STRs, except specifically those where the host is in the same unit as the guests, in response to several party houses. Weeding out the rentiers can only be good for us in the mid term.
    OTOH, will any guests want to stay in the same house as us? Will the University keep up its flow of conferences, guest lecturers, etc?
    Oh well, it was nice while it lasted. We met some wonderful guests, and only about 1 in a hundred I never want to see again.

    Reply

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