The (Overdue) Collapse of Short Term Rentals
By How Money Works
Short term rentals are a one hundred BILLION dollar [$100,000,000,000] market that have reshaped global tourism, accelerated a nation-wide housing crisis, and created fortunes for early adopters. But now customers, the government, the public AND the hosts themselves are turning their back on a concept that started out as a fun alternative to stuffy hotel chains, but became everything wrong with modern real estate.
The short term rental market took off when Brian Chesky and Joe Gebbia tried to rent out a spare room with an air mattress to attendees of a conference because they realized all of the hotel rooms had been booked out.
They called their service Air Bed And Breakfast which was later shortened to the short stay app that you know and love (or hate) today. Air BNB is now worth more than hotel chains like Hilton and Wyndham combined. The company is by far the largest short term rental company, and it has achieved excellent penetration into markets around the world where other similar peer to peer or network market apps like Uber, Doordash, Lyft and even Amazon have failed to take share away from local competition.
It WAS a good idea, customers loved it for giving them a cheaper alternative to outdated hotels, and hosts liked the opportunity to earn extra income on a spare bedroom or even an entire separate property.
But the four parties that make the short term rental market work, the customers, the hosts, the public and the platforms are all not dealing with four unique problems that are threatening to undo this market and take out a lot of other real estate investments with it.
The first problem lies with the people who it’s hardest to feel sorry for, the hosts.
AirBNB and other short term rental platforms provided a unique opportunity for people to profit off real estate in a totally new way.
The extra income was nice but the added flexibility of a short-term roommate was the biggest appeal to most people. With a short term tenant, any problems are only going to last as long as their short stay. That was the early value proposition of AirBNB, but sharing a spare room and staying with a random person while on holidays only appealed to a certain type of alternative traveller.
Most people who AirBNB are putting up entire properties for guest to use as exclusive accommodation.
Instead of a short-term alternative to a roommate, the market became a short term higher yielding alternative to a conventional long term tenants in an investment property. They fitted doors with keypad locks that could be changed remotely between guests, easily cleanable surfaces, inexpensive but fashionable fittings and preferred properties with minimal landscaping.
All of this cut down on the additional effort hosts needed put in to managing a property.
But like all good thing it didn’t last forever.
AirBNB advertised its platform just as hard to new hosts as it did to guests and investors started buying multiple homes to turn them into AirBNBs.
Their fee was higher, but the higher short term rental price meant owners still came out ahead.
The additional cashflows from higher yielding short term rentals also made it easier to qualify for more home loans because the additional income could be used to pay for the loan on the next property and the next property.
The inevitable result was clear… for little additional effort hosts could make more money from their properties, so the market became oversaturated and host started to struggle to rent out their properties enough to make it worthwhile.
Short term rentals also made long term rentals more expensive so the gap between what someone can make from a short-term rental versus what they could make from a long-term rental is narrowing.
For many hosts it’s no longer worth the additional risk and effort to rent out properties short term, and for others that could only afford their loans because of the higher rent they got from short-term rental yields, they might be forced to sell.
So it’s time to learn How Money Works to find out how short-term rentals got so big, and failed so quickly.
Here’s what others had to say:
I sort of just stopped using it because it just wasn’t a good price most of the time anymore. It’s OK for some one-off unusual rentals or maybe for a big house for a large group, but travelling as a couple for short stays it just costs more than hotels these days for a less reliable experience.
I was done when they told me I had to clean the bathroom, wash the sheets, and mop the floors. And they would still charged me for a cleaning fee. We canceled so fast and just split a hotel instead.
I rented an Airbnb once when I was having surgery in another state, so I booked an apartment for a week to recover. The day before my flight the host cancelled my entire stay, so I had to scramble last minute to find other accommodations. I ended up settling with a hotel because there were no comparable Airbnbs at such short notice, and I couldn’t afford for some random person to cancel on me again. Not to mention, the number of misleading hosts who say you’ll get their entire apartment or house, only for somewhere in the fine print to say that it’s only a bedroom and you’ll actually be sharing with their family and/or other guests makes it too sketchy and unreliable for me to ever use again.
AirBnb died the moment they allowed all of these property management companies to list on their platform. The fees are utterly outrageous and there is always a BOOK of rules, regulations, and chores so thick that you can’t even enjoy your stay. I’m over it.
Worst accommodation experience ever was at an Airbnb which was described as a “luxury” townhouse charging about $400 a night, but had dirty stinky sheets, bugs crawling all over, and full of cheap old furniture and leftover food in the fridge. Owner refused to give even a partial refund and so we moved to a five-star hotel for $50 more per night. Airbnb doesn’t even make any sense anymore.
I had a horrible experience when my Christmas booking in Spain (booked about a year in advance) was suddenly cancelled by the host in October. AirBNB offered $50 (it cost me about 3 times more than the original booking to get accomodation so close to the holiday season. There is no responsibility.
RIP to all the “bros” that took out mortgages and maxed themselves out on debt to buy homes to rent out right before that entire business model dies.
As someone who owns a cleaning company that specializes in short-term rental services. I would chose a decent hotel 9/10 times!! The issue is slum lords who use Arbitrage to acquire properties and the refuse to pay a decent wage to cleaners or put any money into the actual property. It blows my mind that people pay to stay in some of these places.
The worst thing about using AirBNB are the insane and arbitrary “cleaning” fees. They often charge up to $300 for a small place. But for some reason, you still have to clean everything and take out the trash. In LA, $300 gets you two maids for like 4 hours. Those places are never that clean.
It just gets me so upset that the community around me is struggling, Airbnb homes took away homes from the community. I get it some people want to make a bag but, it’s wrong when it literally affects families. I want to buy a home in my town, but I swear I’ve seen “Airbnb ready” so often it’s sickening. It’s a home for people to live in.
As a northern Minnesotan this is an absolute win. Im so sick of being priced out of homes in my area because of short term rentals.
I actually did like the aspect of staying in a bedroom rented out by someone who still lived there. I’ve stayed in some amazing AirBNBs that way – an attic in Roanoke VA, a 17th century farm house in Massachusetts, a converted backyard garage in Petaluma, CA. Those hosts were all excellent folks who gave us great restaurant recommendations and a lovely experience at a reasonable price. But with the prices now reaching hundreds of dollars a night, I’d rather just stay in a Super 8 for $60 and have a place to shower and sleep and bring my own soap.
My simplified read on the whole AB&B thing is that everyone just got greedy. AB&B realized the profits they could make by simply adding fees and fines. And not doing anything to stop the fraudulent damage and repair cost claims against guests. Most of the hosts started jacking up the prices just because they saw home sale and traditional rental prices going up, without adding any actual value into their listings, all while doing little to no services of any kind. Then of course the investment firms started pushing their way into the market when they saw the potential gold rush.
People started by sharing their spare bedroom at home with tourists for some extra cash, then others decided to go all in and bought investment properties with the sole purpose of renting them out short term. And that’s what went wrong with Airbnb, same way it went wrong with Uber and other ride sharing or food delivery services. An idea that was initially focused on getting more out of under-utilised resources in our spare time turned into full on business models, and all of a sudden the individuals have to deal with the usual hurdles that come with running a business, while unable to benefit from the economy of scales that big businesses actually do enjoy. Taking a few passengers along on your way home is convenient for you and cheaper for them; buying a new car and driving passengers around all day, on the other hand, is operating a taxi service for a living and there’s a huge difference.
Talking about a less reliable experience, I would like to share what happened to me this year. I was spending some time in the US this year and wanted to take a day off with my wife. Choose an airbnb for a lot of the reasons cited in the video (having more space, our own kitchen, etc).