Is Airbnb perpetuating the rental crisis?

On December 9 last year, Airbnb went public at a valuation in the ballpark of $47 billion in one of the most hotly anticipated IPOs of the year. It marked dizzying new heights for the sharing economy which, on the backs of companies like Airbnb and Uber, has taken the world by storm in recent years. [i]

So, what is the sharing economy? The sharing economy is a somewhat ambiguous term that broadly refers to the short-term sharing of goods, property, or services between peers often facilitated through an online platform. [ii] While most of these ideas are marketing as a harmless way to make some extra cash, we are now seeing how some – such as Airbnb – are having tangible negative impacts on wider society.

In the past decade, Airbnb has caused a monumental shift in consumer tastes and preferences on holiday and travel. The platform now has over 5.6 million active listings, with many holidaymakers preferring the authenticity of its product in comparison to traditional hotels and equivalents. [iii] The popularity of Airbnb has risen dramatically to the point where it is becoming more and more difficult for renters to find any available lease, let alone an affordable one. This has been most prevalent in regional towns and particularly tourist hotspots, such as Byron, the Gold Coast, and the Surf Coast, where rental vacancy rates have hit 0.3%, 0.2% and 0.0% respectively. [iv]  COVID exacerbated the issue by further increasing the demand for regional homes, as city workers chose to make the most of work-from-home by seeking a coastal or tree change.

Many of the affected towns rely on tourism as a major industry, which means that many would-be renters are employed in lower income jobs, such as in hospitality or retail. This puts them at a disadvantage in the rental market against city-changers who are likely to have relatively higher purchasing power and has placed a housing squeeze on the local and backpacker populace. Furthermore, many hospitality businesses have reported to be more understaffed than ever in recent times, and it is likely that the rental crisis has contributed to this. [v] As workers are unable to afford to live near these towns, they have no choice but to move elsewhere. This decreases the supply of labour available and is likely affecting both the stress level of the local workforce and the bottom line of these already thinly stretched businesses.

It is important to understand why this shift to Airbnb occurred in the first place. In these tourist hotspots, there are incredible demand spikes throughout holiday periods and on weekends, with an armada of tourists seeking out short-term accommodation. Most of these visitors flock from the larger urban centres of the country, and as such are willing to spend big to have an enjoyable holiday, and thus bring a much higher willingness to pay than long term renters. As Airbnb offers flexible pricing, this allows property owners to take advantage of a demand-based pricing strategy to maximise their returns. In comparison, long term rentals agree upon a fixed rent that remains flat throughout the duration of the rental period. Additionally, the sharing economy tagline is losing its shine as Airbnb becomes more professionalised, with it now being common for management companies to run a portfolio of entire house and apartment listings. [vi] Given that flexibility is the flavour of the month for our generation and returns can be superior, it is no wonder that the uptake of Airbnb has been as fervent as it has.

This trend has seen many long-term rental landlords convert to a short-term rental strategy. As the supply of long-term rentals fall, an increase in the housing costs paid by renters is likely to follow. A study conducted by Harvard Business Review found that for every 1% increase in Airbnb listings in the US there is a corresponding 0.018% increase in rents and a 0.026% increase in house prices. [vii] While this may sound small, it is worth noting the impact this has at the higher growth rates that Airbnb is posting.

This issue is certainly not endogenous to Australia, and we have already seen some cities try to enact solutions. Paris and Barcelona both require hosts to obtain a permit before listing, and there are short-term rental period limits in New York, London, and San Francisco. [viii] These are tough to regulate however, and it remains to be seen whether they will alleviate the burn felt by renters across the world. While this crisis has reached fever pitch in recent years, there are no signs of impending changes to policy. Airbnb still aim to reach 1 billion annual guests by 2028. [ix] While it is still unclear as to how this one will shake out, one can be certain that the new kid on the block won’t go down without a fight.