Airbnb Faces $400 Million In Lost Bookings Due To London Crackdown

Like the unexpected impact of returns in the early days of ecommerce, the growing cost of regulatory compliance may be affecting the on demand business model. JL

Leslie Hook reports in the Financial Times:

Airbnb will miss out on more than $400m worth of bookings in London this year as it enforces its new 90-night limit for hosts there, according to data that underpins the growing cost of regulatory compliance.
Airbnb will miss out on more than $400m worth of bookings in London this year as it enforces its new 90-night limit for hosts there, according to data that underpins the growing cost of regulatory compliance for the high-profile Silicon Valley start-up.The research on the cost to Airbnb from new regulations enforcing the annual limit on short-term rentals in London, its second-largest market, draws on data from AllTheRooms, an accommodation search engine, and analysis by the FT. Airbnb has recently had to make regulatory concessions in markets around the world.The tougher regulatory stance comes as a separate FT investigation reveals that around one-third of the saving that Airbnb can offer travellers over hotel accommodation comes from tax advantages related to its business model.Airbnb’s beneficial tax position is particularly pronounced in London because the UK imposes relatively high rates of property tax on businesses and value added tax on hotel stays, but allows generous tax exemptions for homeowners renting out rooms and for small businesses.  Authorities in many cities have complained that Airbnb turns a blind eye to rule-violators, and have raised concerns that the popularity of Airbnb has reduced the supply of long-term rentals and disturbed the peace of residential buildings.In London, nearly half of the nights booked on Airbnb in 2016 would be jeopardised by the 90-day limit, according to the data collected by AllTheRooms. That means Airbnb’s bookings this year could be a third lower than they would have been without the limit. Some travellers will just shift to other Airbnb rooms instead, but most will shift off the platform altogether, it is estimated. As of this year, Airbnb will block London hosts from renting out whole homes for more than 90 days, which had already been technically illegal but was not enforced, unless they have a permit from their local council. This stands in contrast to the approach taken by rivals such as HomeAway and Booking.com, which do not enforce the 90-day limit on the grounds that it is solely the hosts’ responsibility.AllTheRooms estimates that Airbnb’s London bookings were previously on track to rise from about $600m in 2016 to $1.24bn in 2017. However, as the new rule goes into effect, next year’s bookings will instead be around $812m, the group estimates. Airbnb charges a service fee of around 13 per cent of each booking, implying that the company’s London revenues for next year would be just over $100m. Airbnb disputed the findings of the research, saying that more travellers would shift to other Airbnb rooms. “Availability in London is not an issue,” said an Airbnb spokesman. “We are confident that there is a large range of unique homes for guests to choose.”However, this is less true in the most popular tourist areas of London, where the Airbnb offerings tend to be dominated by professional listings with year-round availability.Airbnb declined to say how many listings would be affected by the change, but did say that the majority of hosts would be unaffected. Airbnb’s recent compliance moves have cost it in other cities as well. In New York City, Airbnb has taken down 7 per cent of its listings as it seeks to curb commercial activity on the platform, according to a press release last month. Over the past year, regulators in Berlin banned short-term rentals of entire homes; Barcelona, one of Airbnb’s top markets, has slapped the company with several fines and New York state has introduced strict penalties to prevent Airbnb-style short stays in apartments. In some cities where the company is locked in dispute with regulators, Airbnb has started to police its hosts more closely, a move it had previously fiercely resisted. In New York and San Francisco, Airbnb recently blocked new hosts from listing more than one unit each, which may help prevent the types of commercial hotel operations that have been the target of public criticism. In every case, these moves have a chilling effect on Airbnb’s business as they potentially reduce its supply of accommodation.