A little about the Airbnb Story
Many people predicted that Airbnb would go bankrupt a year ago. It was dubbed the “Airbnbust” on Reddit and Twitter, now called X. And the rumor was that the short-term home rental platform’s occupancy rates had plummeted like a rock. No one wanted to stay at an Airbnb any longer.
However, a year later, its stock is up 14%. Everything turned out to be a rumor. But Airbnb CEO Brian Chesky said a few days ago that the company is fundamentally dysfunctional. So, what exactly is going on?
From The Beginning
Brian Chesky and Joe Gebbia were two poor youngsters attempting to pay their rent in San Francisco in 2007. That’s when they realized there was a design conference in town, and all the hotels were completely booked.
Attendees were having difficulty finding a place to stay. As a result, they simply chose to lease out air mattresses in their flat under the name “Air Bed and Breakfast.” That was the platform’s original premise or foundation. You could rent out a spare room in your city residence if you had one. The charges would be lower than those of a hotel. You’d make a lot of money.
And the visitor might be able to spend time with a local who might provide useful city advice. It felt comfortable and relaxed. It was well received by users. Investors gradually embraced it. Hosts who rented out their flats were ecstatic about the additional cash they were making.
However, this outpour of affection, particularly from the hosts, is what finally led to the “Airbnbbust” story. What exactly do we mean?
It was just an oversupply issue. During the epidemic, many individuals purchased a second house. Interest rates were at a decadal low, and loans were plentiful. As a result, some believed there was a chance to buy a house and offer it on Airbnb and make some additional money.
For example, in September 2022, the number of short-term rental listings in the United States increased to 1.38 million. This is a 23% increase over the same period last year. Suddenly, the quantity of postings increased, and there appeared to be a significant decline in overall demand for some hosts.
In the recent past
The fact was that users were suddenly spoiled with choice. They had other properties to consider before making a selection. Naturally, some properties lagged behind.
According to some analysts, many of the hotels that experienced a drop in occupancy were in rural areas and seaside communities, which were quite popular during the epidemic when people sought to get away from the crowds. However, when tourism changed back to city getaways, those Airbnbs began to enjoy increased occupancy levels.
Owing of its popularity, a whole new breed of homebuyers emerged. Those looking for rapid rental revenue. Or, more precisely, “the short-term rental speculator.” These folks felt that there was no price too high to pay to acquire a property that could be advertised on Airbnb.
However, when they began purchasing houses, it resulted in significant increases in real estate prices across the United States. By December 2022, just 10% of new homes will cost less than $300,000, compared to around 40% in December 2019.
According to one study, doubling the number of Airbnbs in the area would increase the sale price of New York City residences by 6-9%. Not only that, but the Airbnb phenomenon reduced the quantity of residences available for long-term rentals in the market. This increased rental expenses for folks who did not own homes.
Soaring real estate prices and escalating rental rates were a double whammy. Cities are taking note of this threat.
New York is now toughening up on a provision that requires homeowners to live on the premises if they rent out their room for fewer than 30 days. Officials want these Airbnbs to register, and because the majority of them do not, over 15,000 properties have been removed from the marketplace.
Florence, one of the most famous tourist attractions in Italy, has prohibited new short-term rentals on platforms such as Airbnb in order to free up more properties for residents. In addition, if Airbnb hosts earn money from short-term rentals, they must pay a monthly tax in Vienna, Austria’s capital.
Conclusion
The Airbnb team is already working to improve user price transparency. However, they have no influence over how the host decides to price the property. Furthermore, according to Bloomberg, “Chesky walks a delicate tightrope as he tries to motivate profit-hungry hosts by encouraging (some of) them to shrink their margins.”
Yes, as individuals acquire more costly properties, they strive to get more out of their Airbnb rentals. They notice a surge in demand and want to make hay while the sun shines. However, as prices skyrocket, they flee. They seek alternatives and return to the motels. The industry that Airbnb was attempting to disrupt. And this will harm the platform.
He wants to restore Airbnb’s original promise of amazing listings, excellent customer service, and, most significantly, low prices.
