What Will Become Of Airbnb?

Airbnb is ten years old, and we have a love-hate relationship with the portal. Critics blame Airbnb for desecrating traditional housing supply causing housing crises in cities and towns just about everywhere.

While supporters see the rise of Airbnb as the perfect disruptor of the short-stay accommodation sector, increasing the supply and affordability of short stays prompting people to travel and spend money.

Many businesses and economies have benefited from Airbnb, but the pandemic has changed all that and now the question is, will Airbnb survive COVID-19 and recessionary times?

In this article, we look at the Airbnb hosts and where to next for them and the business.

Airbnb Host Origins

The typical host is no longer the owner-occupier letting out a room in their home for some extra cash to pay bills, it’s professional investors. When Airbnb started in August 2008; the hosts were your ‘Ma and Pa’ homeowners. A spare bedroom or two due to becoming empty-nesters they seized on the opportunity to let their extra rooms to Airbnb guests. The income was small but paid a few bills.

Other Host Types

Over time, more types of Airbnb hosts materialized. The Airbnb professional investor who is not your traditional landlord. These hosts purchase homes and apartments from occupier or property investors and repurposed them for Airbnb guests. Therefore they are operating an accommodation business in much the same way as a hotel or motel.

Another type of Airbnb host is the typical landlord. They too, have found the model attractive. Growth in tourism and Government meddling with tenancy rules has prompted many landlord discussions in our forums on the Airbnb model and how it compares with long term rental accommodation.

Housing Crisis

Housing crises have prompted ongoing changes to tenancy rules and regulations in an effort to provide fairer terms for tenants. Some notable changes have included a tougher rule around evictions, allowing tenants to paint walls and also to have pets. All of which have pushed up costs and Landlords have seen their profit eroded with each new step. Scared landlords have either sold up or gone with the Airbnb model, which can deliver the same or more profit with the same challenges of long term tenancy management.

$12 Billion Wiped Off Value

Airbnb has performed well over the years. In 2017 the company was valued at $30 billion, and it was due to go public in 2020. Some would say they have left it too late. The COVID-19 pandemic has since wiped $12 billion off its value which in May 2002 is $18 billion.

The pandemic lockdowns around the world shut down tourism and travel both international and domestic. Airbnb is not an ‘essential service’ so the company and its hosts have suffered without Government assistance that has been available for most businesses.

Staff Layoffs, Salaries Cut

Airbnb has laid off twenty-five per cent of its staff some 1900 workers. Remaining staff have had salaries reduced by up to 50%, with CEO Brian Chesky not being paid for the next six months.

Hosts Backlash

In this video by CNBC Airbnb hasn’t treated its hosts well with the cancellations of the bookings. Guests have received full refunds while hosts have been left with nothing and they feel ignored by the brand, so they are taking matters into their hands.

The traditional property investors have switched tact and are now renting out their properties on typical tenancies. This, in turn, has increased supply of available accommodation and at least for now squashed the housing crisis as supply is currently meeting demand.

Professional investors are also reviewing their income options with their Airbnb properties. One option is to stay with the portal and hold tight until travel resumes when life gets back to normal. Both domestic and then international tourism will return and so too the need for affordable accommodation.

Some highly-geared investors, i.e. 90% or more loans may be forced to sell up (which would be the least favourable option given property values are dropping and will continue to do so as an economic recession bites hard). The other option is also to rent out the property to long term tenants. How many take this option or sell up will be exciting and it will mean a severely depleted supply of hosts for Airbnb.

Airbnb founder and CEO, Brian Chesky said recently his company made a mistake with hosts, he apologized and said that going forward they will be treated more as ‘partners’. A $250 million fund was created for cancellations during March to May 2020 and while it delivered very little in real assistance to struggling hosts it is an olive branch.

Summary

Since the pandemic mistakes have been made, however, if there is a post-pandemic travel boom, then Airbnb is sure to pick up the pieces and survive. The business is said to be in a better position than its competitors in tourism.

Hotels and motels hotels with the overheads of property upkeep are a significant burden that is sure to see many failing to reopen their doors. Strictly how Airbnb performs post-pandemic is anyone’s guess, but it has received more investment recently and is poised for take-off.