Coronavirus is Collapsing the Gentrifying Airbnb Model

Ideas and Issues

New Orleans         Airbnb is in trouble.  The Wall Street Journal reports that “bookings last week were down year-on-year around 95% in Asia, 75% in Europe – the company’s biggest market – and 50% in the US…”  They added that a “report last week by Airbnb-analytics firm AirDNA also showed bookings tanking in big cities world-wide.”  The coming weeks are expected to be worse.  The company claims it has a couple billion dollars in reserve so they hoping to weather the storm.

So much for the company writ large, I’m most interested in the fact that their entire business model is based on individual operators from the smallest homeowners trying to make it to super-host players and companies with multiple units.  I’m even more interested in the spillover impact on the role of Airbnb properties in gentrifying neighborhoods where they have pushed property values up, played a role in dislocating working families, and moved some historic and hot neighborhoods into transient tourism zones.

Let me say it this way.  When I’m walking my dog, I see a lot of other dog walkers, runners, walkers, and the like, but one thing is missing now…fewer rolling suitcases and gaggles of people waiting outside for their Uber or Lyft drivers.  Mi companera saw an item on the site she monitors where an Airbnb operator offered a short-term rental to any service worker desperate for housing for $200 or $300 per month.  These are clear signs.

The house on the corner of our block is run by a Boston-based company with Airbnb listings in Boston, New Orleans, and New York City.  They were already squeezed by local regulations that limited the number of nights and put more pressure on the need for owners to be in residence, rather than being unlicensed bed-and-breakfasts or mini-hotel chains with dispersed locations.  These folks have to be in some amount of trouble.  The place down the street has been dark for almost two weeks with a garbage can blocking the gate entrance.  News sources have carried tales of woe from some multiple unit operators in Hong Kong and other Asian cities who were individual entrepreneurs, and they are hurting, and some won’t make it if problems persist.

Individual homeowners who managed to swing a mortgage, perhaps a bit past their income, based on an assumption of being able to Airbnb could be in big trouble.  The moratorium on evictions by foreclosure in the US and some other countries might not make the strivers personally homeless, if they are really living there, but they are still responsible for the mortgage payments, and the bills will come due.  As Airbnb has become more difficult for individual homeowners to manage by arbitrarily lowering the price for rentals to increase activity in neighborhoods and raising or lowering operators based on whether the company manages their rentals or the individual, margins had already narrowed.  Some moved to leased rentals and got out of the Airbnb system. For others part of what too often has become the gentrifying gaggle, there’s a reckoning in store.

In these gentrified neighborhoods, there’s a bigger accounting coming.  In a recession with declining tourism, tighter income, rising unemployment, and falling paychecks, properties in such neighborhoods are going to inevitably see a decrease in valuation putting some of the high flyers underwater again as the real estate market tries to also keep up with the virus aftershocks.  Some will feel the pain, but some neighborhoods may be able to survive the gentrifying onslaught better with Airbnb, its operators, and customers being forced to step back for a minute as well, and that’s not a bad thing.


Please enjoy Meanwhile in Winnsboro by Sofia

Thanks to WAMF.