Tag Archives: Airbnb

Airbnb’s Gray Market is Collapsing

Pearl River     There were some pieces of the Airbnb business model that had appeal.  Homeowners that were willing to open their own homes to visiting guests seemed like it could build relationships and even, dare I say, community, especially when visiting foreign lands. Our family had that experience staying in Mexico City one Christmas and another time in a rural area of New Zealand, where we were clearly helping an elderly woman hang on to her place while we sat in a hot tub looking at a cow pasture.

Having a source of income for moderate income and working families also benefited not only the struggling homeowner, but brought some income into the community.  I stayed in the basement of a home in the same neighborhood I was working in Milwaukee last year for hardly twenty dollars a night, keeping me off of couches and out of hotels, and providing relief to both nonprofit budgets and a young guy trying to make his mortgage.  Even better, it later turned out that the organizer I was working with knew the guy, and they had worked together in the past.

Unfortunately, most of the Airbnb business model was not as advertised.  The business press talks about their “gray market,” but that’s a kind expression for a series of practices that attacked communities, rather than building them, by ignoring regulations and accelerating gentrification and distorting property values.  The mom-and-pops were replaced by predatory rental practices, owners with multiple properties or “mini-empires,” as the Wall Street Journal called them, and unsustainable developments propped up with the expectation of short-term, hotel-like rentals.  In New Orleans a former meat plant down the street from us was presented as a high-end condo conversion, but in fact the city permitted 72 of the 77 units as allowable short-term rentals.  How is that not a hotel?

Now in the pandemic time, as one resident said, “they must be losing their ass.”  Indeed, and they are not the only ones.  This business model is being bled out by the collapse of tourism.  The Journal reported that,

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.

The math is simply, and it adds up to two-thirds of the properties on Airbnb being a lot more than an extra room offered in a neighbor’s house.  These hosts are hurting, having made “a deal with the Devil,” as one said.

The company is hanging them all out to dry, desperate to save itself even with a smaller footprint.   According to the Washington Post, they are now trying to institute CDC-protocol cleaning procedures, pimped up by a former US Surgeon General as a consultant, and requiring a 24-hour vacancy period between rentals for those who agree, or a freezing the app for a 72-hour break for those hosts who do not follow the new system.

For big hosts desperate to make mortgage, insurance, tax, and other payments to stay alive, the new rules by Airbnb will shatter their calculations.  Expect to see many of them trying to get tenants, sell their properties, or simply going under.

Airbnb will try to save itself with this do-over, but it also offers beleaguered communities a chance to finally take back control of their housing, rental, and hotel markets and bring them into the light, rather than allowing them to be exploited in the dark with Airbnb’s help and support.

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Please enjoy Memphis Rain by The HawtThorns.

Thanks to WAMF.

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Coronavirus is Collapsing the Gentrifying Airbnb Model

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 Nextdoor.com 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.

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Please enjoy Meanwhile in Winnsboro by Sofia

Thanks to WAMF.

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