A Blog by Jonathan Low


Apr 25, 2020

Why the Pandemic Could Put An End To Professional Airbnb Hosting

Despite its sharing economy rhetoric, the reality is that as many as half or more of Airbnb listings in big, popular cities and tourist destinations are owned by entrepreneurs for whom this is a professional enterprise.

The problem is that many of them are highly leveraged, having borrowed to buy or lease multiple properties which they fix up to rent via Airbnb. With no rent-paying guests, there is no income to pay loans and mortgages, meaning Airbnb may shrink when people start traveling again. JL

James Temperton reports in Wired:

New bookings on Airbnb are down 85%; cancellation rates are 90%. Revenue generated by Airbnb’s platform in March was down 25% year-on-year. Airbnb maintains it’s “powered by local hosts”, but the reality is, in many markets, including the entire United States, “professional” hosts outnumber those listing to earn extra cash. "Professional” hosts could face financial ruin as their business model, a ponzi scheme built off Airbnb, turns to dust. Many take out loans to secure a number of properties. With no guests, there’s nobody to pay the rent, leaving Airbnb entrepreneurs open to huge financial liabilities.
Brian Chesky is no stranger to big lifts. The 38-year-old former bodybuilder and Airbnb CEO has, in the space of 11 years, hauled his property rental dream from a single air mattress to a multi-billion dollar startup success story. But as hosts rage and debt piles up, the huge weight of the coronavirus pandemic might be too much for Chesky to bear.
The numbers are devastating. According to AirDNA, an online rental analytics firm, new bookings on Airbnb are down 85 per cent; cancellation rates are close to 90 per cent. Revenue generated by Airbnb’s platform in March was down 25 per cent year-on-year, wiping out $1 billion in bookings. With much of the world still on lockdown, those numbers are unlikely to pick up anytime soon. For some, Airbnb’s folly is a potential fortune. In Prague, officials are using the pandemic to try and regain control over the burgeoning short-term rental market that has decimated the supply of housing available to local residents. Other cities may soon follow suit.
Hosts are calling it the Airbnb apocalypse. But it’s more akin to an enema. Airbnb maintains that it’s “powered by local hosts”, but the reality is quite different. Yes, there are many hosts on Airbnb who live in the properties they list on the platform. But, in many markets, including the entire of the United States, the number of “professional” hosts seemingly outnumbers those listing on Airbnb to earn a bit of extra cash from their cosy spare room. According GlobalData, an analytics firm, Airbnb could lose a “significant portion” of its host community as a result of the pandemic. These “professional” hosts, the scourge of local residents and housing officials, could soon be flushed out of Airbnb in their thousands.
This was meant to be Airbnb’s year. The year when the company, which was recently valued at between $50bn and $70bn, went public. It is now worth less than $30bn. Even before coronavirus, Airbnb was struggling to turn scale into profits. The company lost $674 million last year as costs soared to $5.3bn. Behind these numbers are Airbnb’s hosts, who range from retiree holiday home owners to investors with vast but flimsy rental empires. While the former will lament the loss of a reliable secondary income, the latter now face financial ruin as their business model – a sort of ponzi scheme built off the back of Airbnb’s market-busting rental yields – turns to dust in the grip of coronavirus.

To understand the scale of the crisis you need to understand that Airbnb isn’t a holiday rental company, it’s a hotel chain. In fact, it’s the world’s biggest. Airbnb’s global inventory of seven million listings – that’s listings, not individual rooms – makes it bigger than the top-ten hotel chains combined, which have 5.48m guestrooms. In many markets, as many as half of the listings on Airbnb are advertised by hosts with at least one other listing. Less mom and pop operation and more Mom & Pop Property Investments Limited. As the world went into lockdown, some of these hosts pivoted to advertising deep-cleaned, coronavirus-proof bunkers – much to the chagrin of public health officials.
Data from AirDNA shows that of the 1.1 million Airbnb listings in the US, some 600,000 are from hosts that have at least two other listings. Around 600,000 of those 1.1 million listings are also available for more than six months of the year. Both are key indicators of properties that are more akin to hotel rooms than sharing economy holiday rentals. Many of those listings are also rent-to-rent properties, run by companies or individuals who take out loans to secure a number of properties on a long term basis knowing that they can get substantially higher rates by subletting them through Airbnb, Booking.com and other online platforms.
The business model has created a rental arbitrage boom, especially in cities popular with tourists such as London, Paris and Barcelona. In YouTube videos and at expensively-priced private events, Airbnb entrepreneurs extol the virtues of this get-rich-quick scheme. The only problem? With no guests, there’s nobody to pay the rent. And that leaves Airbnb entrepreneurs open to huge financial liabilities. “There’s a possibility that this business model – of master leasing properties, furnishing them and relisting them on Airbnb – is not going to be attractive for people now they understand how volatile this environment can be,” says Scott Shatford, CEO of AirDNA. “There will still be people chasing yield. But will they get back into the one bedroom apartments in London or New York? Probably not.”
Take London as an example. In March, there were more than 87,000 Airbnb listings across the UK’s capital city according to analytics platform Inside Airbnb. Of those, 43,112 – almost half – were listed by hosts with at least one other listing. Some of these could be separate rooms in the same apartment, or multiple apartments in the same building. Or they could be precarious ghost hotels made up of dozens of apartments spread out across the city, all built on the precarious notion that the sun would never set on the Airbnb empire. Yet the impact of the coronavirus pandemic was more akin to the sun being ripped from the sky than a lazy, gradual sunset. “People who were leasing apartments to put them on Airbnb in major metropolitan markets – those businesses are decimated and most of those companies will be out of business if not now then in the next few months,” says Shatford.
To understand the scale of the problem, just look at what happens as the number of listings per host goes up. In London alone, there are 2,919 Airbnb hosts with between three and five listings, accounting for 10,318 listings across the city, or 12 per cent of Airbnb’s total inventory. At the higher end of the scale, there are 645 hosts with ten or more listings. Combined, these hosts are responsible for 16,758 Airbnb rentals in London.

Look behind these numbers and you get a glimpse of the real issue: tens of thousands of rental bills and mortgages that need paying and, potentially, no income with which to do so. An Airbnb spokesperson says that “the vast majority of hosts” on its platform share their own homes. The data suggests otherwise, but Airbnb’s refusal to open up its platform to scrutiny makes studying it akin to observing a black hole – you know it’s there, but only because you can see the effect it has on the universe around it. But as coronavirus lockdowns came into force, the Airbnb effect became more visible than ever before. In cities across the world, long-term rental websites have been flooded with identikit one and two-bedroom apartments, replete with bedrooms adorned with neatly-folded towels and prominently-displayed Nespresso coffee machines.
According to GlobalData, a growing number of Airbnb hosts are deleting their listings and moving their properties to month-to-month platforms that are less lucrative but potentially more reliable. Homads, a monthly rental listings startup, saw a 500 per cent month-on-month increase in site visits in mid-March. Kopa, which also specialises in monthly rentals, has seen a tenfold increase in hosts and listings on its platform. “Airbnb’s business model has been exposed in recent times,” says Ralph Hollister, an associate analyst at GlobalData. He points to problems with Airbnb listings that “defy local laws and regulations” and argues that shifting these properties to longer-term rental platforms, where they can be of use to local residents, would help to undo some the damage Airbnb has done in many cities. “The company still can be a success, as long as it embraces the idea that it may have to be smaller in scale in the short to medium term.” That issue of scale is a common growing pain for Silicon Valley startups. For Airbnb, the only way to continue growing was to add more listings, a substantial percentage of which are run as professional operations.
The coronavirus pandemic has accelerated change at many companies, and Airbnb is unlikely to be an exception. Before coronavirus brought the world to a standstill, this was also meant to be the year when Airbnb conducted a comprehensive review of every single listing on its platform. The aim? To make sure all listings and hosts are being presented honestly and accurately. As the coronavirus pandemic has shown, Airbnb’s reliance on trust – that hosts aren’t, say, turning entire buildings in London into de facto, unregulated hotels and scamming guests – is becoming a liability.
That tension between Airbnb and its hosts has been brought kicking and screaming into the spotlight by the pandemic. “Although it may not have felt like it, we are partners,” Chesky wrote on March 30 in an open letter to Airbnb hosts. “When your business suffers, our business suffers.” Much of the rage directed at Airbnb by its hosts stems from the company’s decision to allow guests to cancel bookings with a check-in date between March 14 and May 31 without penalty. Unlike traditional hotels, which take payment on arrival, Airbnb collects the bulk of the reservation before guests check-in. That money has now vanished, giving hosts – especially those with multiple listings they do not own – a major financial headache.

To tide itself over, Airbnb has raised $1bn in funding – reportedly with a hefty interest rate of more than ten per cent – and a further $1bn in senior debt. For hosts, Airbnb points to a $250m fund to support with cancellations caused by the pandemic. Members of the Superhost club, which gives Airbnb hosts “more visibility, earning potential, and exclusive rewards”, also have access to a $17m fund to help with mortgage costs.
There is, amongst the chaos, a hint of change. Airbnb has subtly changed its offering, with its homepage now prominently promoting “monthly stays” over weekend getaways. Shatford says the emphasis on longer rentals is akin to putting a “bandaid on the bloodbath in the short term rental industry”. If analyst predictions of scores of hosts going bankrupt or abandoning Airbnb altogether are on the right track, then the bloodbath could have a positive outcome: an Airbnb that is more about spare rooms and real homes and less about high-yield investment opportunities.
Last month, in a video message to hosts, Chesky returned to a familiar theme: community. “When [people] do get out of their homes they’re going to want to explore the world and they’re going to stay in communities with you.” But, for Chesky, the key question is this: who is this amorphous you? It’s a question brought into sharp relief as “professionalised” Airbnb hosts have lashed out at their paymasters for a sudden and devastating loss of income. Call it a much-needed enema, call it the removal of a burdensome weight, but the coronavirus pandemic might just force the creation of a trimmer, better Airbnb.


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