AirBNB is one of the fastest-growing startups when it comes to expanding internationally.
To get a better idea of their crazy fast growth, AirBNB was founded in California in February
2008.
Just 3 years later, in February 2011, 75% of their business was outside of the US.
In comparison, Facebook needed twice as much time to consolidate their international presence.
No matter where you’re watching this video from, I’m sure you’ve used AirBNB at some
point.
Just in the last decade, the website has registered over 400 million check-ins.
Believe me when I tell you that not many companies can say they’ve changed an entire industry
the way AirBNB has… and in so little time.
In theory, the idea couldn’t be more brilliant.
AirBNB allows everybody to turn a house into a hotel.
Thanks to this, a lot of people are able to travel for way less money.
But not only that!
It has also created a brand new generation of small business owners.
Today, hundreds of people worldwide live off of their earnings from AirBNB.
In fact, according to many studies, AirBNB has created more jobs than it has destroyed.
But wait a minute because not everything is sunshine and rainbows…
If you thought that the AirBNB revolution had no negative consequences… you’d better
think again.
Activists took over Airbnb's headquarters in San Francisco to protest evictions
Exactly!
Throughout the world’s cities, platforms against AirBNB are surfacing.
In fact, we’ll soon see how many cities are banning or restricting AirBNB.
But the question is… why?
Well, people mainly complain for two reasons.
One is that they just don’t wanna have tourists in their neighbourhood.
They complain about the noise and the mess some tourists make.
But the biggest reason is the alleged increase in the rental prices.
And, believe me, this can be a serious problem.
I’m sure many of you already know what I’m talking about.
There’s a global trend: most of the World’s biggest cities are experiencing a rise in
rental prices that just keeps getting higher.
Now Xander is going to give us more information about this.
Of course, Simon, you see… cities like L.A. or San Diego have experienced rent increases
of more than 15%.
The same goes for other cities like Memphis and Reno.
But this isn’t just an American thing!
In Berlin, rents have doubled in just 10 years.
The same is happening in Madrid and Barcelona.
And the question is…
Why?
Why are rents getting so expensive?
Well… it makes sense to believe that AirBNB has something to do with it.
Maybe it’s not the only factor.
But it could be a very important one…
right?
At the end of the day, owners can make much more Money from tourists than from tenants.
According to AirDNA, an analytics website that analyzes tourism rentals, the average
price for a night in Barcelona is 187 euros.
The average occupancy rate is 81%.
With these figures in hand, an owner in this city could make up to 55.000 euros a year.
In Spain, this is a high salary.
In other words, with fewer flats for rent, prices go up.
It’s just supply and demand.
And truth be told… it’s really hard to study this topic.
Why?
Because it’s hard to find reliable data.
In order to prepare this script, we spent literally, more than two months researching.
And, finally, we used two types of sources: academic studies, some of which have data
straight from AirBNB, and AirDNA.
That said, I want to thank YNNON TAL from CEVRO university in Prague for helping us.
I also want to thank AirDNA for providing us all the data we needed.
Maybe some of the numbers we have been using are not extremely accurate but these were
the most precise numbers we could work with.
So Today’s question is…
How much is AirBNB to blame for rent prices going up?
Today we are going to answer this question but, before we do, let’s take a look back
at history.
CITIES AGAINST AIRBNB
Once upon a time, two guys sharing a flat in San Francisco couldn’t pay their rent.
What did they do, then?
Since they had an empty room, they decided to rent it to tourists.
Back then, there was a conference in the city.
So they turned this spare bedroom into a small Bed and Breakfast for the people attending
the conference.
Since the only bed they could offer was an inflatable mattress, they called the website
they eventually created ‘AIRBNB’.
The idea couldn’t have gone any better.
So these guys decided to share their idea with the rest of the world.
Initially the idea was to host tourists at their house for money.
In fact, even today there are a lot of people who can pay their mortgage thanks to putting
a room up on AirBNB.
But the story doesn’t stop here!
As soon as this platform was born, many people realized there was more business to be made
here.
Think about it… if you can make money with a room… what about the entire flat?
This is how an unexpected trend was born: owners renting an entire apartment to tourists!
And make no mistake.
This approach is not in the minority.
According to AirBNB, 56% of the offerings in New York are entire apartments.
In Barcelona, these listings make up 57% and, in Los Angeles, almost 70%.
And you might say… but how is this possible?
You see, managing an AirBNB apartment is a job in itself: you gotta make renovations
to the flat, keep it clean, give the keys to the guests…
If you’re an owner and you don’t have a lot of time…
Don’t worry!
There are also companies that will manage your Airbnb for you for a commission.
Thanks to this, all the cities on this planet have been filled with thousands of AirBNB
apartments.
To get a better idea of just how numerous these listings are, in Barcelona, alone, there
are more than 21,800 AirBNBs.
And you might say… is that really that much?
Well… in 2011, Barcelona had 177,000 houses for rent.
Now, in 2019, there might be more.
But using 2011 as a reference, we could say that around 12% of residential rental houses
are now for tourists.
And this is where the controversy starts.
Barcelona Finds a Way to Control Its Airbnb Market
But we aren’t just talking about Barcelona!
For example, in 2016, Berlin passed a bill that banned AirBNB throughout the entire city.
Basically, in order to host tourists, you had to ask for a licence from the city hall.
And those were highly restricted, with fines as high as 100,000 euros for anyone caught
hosting without one.
In 2018, they softened this legislation.
But rentals are still very limited.
You can have an AirBNB property but, if you wanna have a second property, you have a 90
day limit.
Something similar is happening in Los Angeles, New York and Japan.
Yes, you heard that right, Japan has put a national limit on all of its AirBNB listings.
And now you might wonder… is AirBNB really influencing rents in the cities?
The answer is… obviously yes!
But that’s not the real question.
The real question is…
How much is it affecting the rental prices?
And this is where we enter the beautiful world of nuance.
You see, the most serious study that we have on this topic was conducted by the University
of California in 2018.
They researched AirBNB’s impact in the city of Boston.
Here’s their conclusion.
we show that a 1% increase in Airbnb listings is causally associated with a 0.018% increase
in rental rates (…)While these effects may seem very small, consider that Airbnb’s
year-over-year average growth is about 44%.
The study focused on Boston, but let’s extrapolate those numbers to Barcelona.
Again, this is not going to give us an accurate figure at all.
But, it should, at least, help us get an approximation.
Using the data from AirDNA, we know that the flat offerings for tourists in this city has
increased by 22% since 2016.
This means that AirBNB has contributed to a 0.44% increase.
Nevertheless, rents in Barcelona have raised by 11% in this same period.
How is this possible?
How is it possible that AirBNB has such a small effect on rental rates?
Let’s check it out now!
AIRBNB’S BIGGEST MYTH
While we did the research for this video, we called a friend who owned an AirBNB in
Malaga, a very touristy city in Spain.
He makes an average of 5000 euros a month.
This is a pretty decent salary for Spain.
So everybody might think AirBNB is a pretty solid business, right?
Why not start doing it yourself?
Yeah!
Do it!
Be Rich like our Spanish friend!!!
Well… not so fast, cowboy!
Things are not that easy!
Imagine you have a flat in NYC and you rent it out on AirBNB.
Everybody wants to spend New Years Eve in Times Square so, in December, you’ll make
a good chunk of money.
But hey!
Then you have January and February and the city is empty.
Don’t worry!
You’ll compensate for it with summer earnings, right?
Summer is a big time for tourism everywhere!
And yes, this is true.
But wait a minute!
Because you aren’t the only one who came up with that idea.
In summer everybody is putting their flats on AirBNB.
For example, in February 2017, New York had 8,500 listings.
In December, those went up to 19,000.
Later, in February 2018, it went down again.
Do you see what we see?
AirBNB’s main strength is, at the same time, its biggest weakness… there are no entry
barriers.
Everybody can start a Business here!
And this explains news like this.
Airbnb hosts are having a hard time gouging guests for the Super Bowl
In this case, we’re talking about the 2016 SUPERBOWL, which was celebrated in Santa Clara,
California.
All of a sudden, thousands of football fans were willing to pay whatever in order to spend
a night in the city.
Hotels were full.
So thousands of owners decided to list their flats for tourists.
Just a weekend could be enough to make a month’s salary… who wouldn’t do this, right?
But that was the thing… everybody did it.
So supply saturated the demand.
And prices went down.
This explains why, despite the way things look, prices have been stabilizing since 2017.
OF course, there is seasonality a different times of the year.
But July 2017 was not so different from July 2018 or July 2019.
Yes, yes, yes… having a hotel can be a hell of a business.
But tourists are not infinite.
So if you were thinking of jumping into the AirBNB bubble…
I have bad news for you: the golden times are already over.
At least, in the cities where we had access to data: Los Angeles, New York and Barcelona.
Does this mean that you can’t make money on AirBNB anymore?
Of course not!
And if you had nightmares about cities full of AirBNB listings and no more flats for rent…
you can sleep soundly.
It doesn’t seem like this is going to happen anytime soon.
But wait a minute because there’s something else!
If you look at these maps, there’s something you might notice.
Yes, there are AirBNB listings in all the neighbourhoods.
For example, on this map of New York you can see how all of Manhattan is covered in offerings.
But Queens and the Bronx are almost empty.
And this is not all!
Do you see how there are two types of balls on the map?
You have the purple ones and the blue ones.
The purple ones are entire listings and blue ones are individual rooms.
If you pay attention, you’ll see a clear pattern.
The further we get from the center, the less purple and the more blue there is.
So yes, in the most touristy areas, which are also the most expensive, owners would
rather rent for tourists.
But the further you get from those areas, the more often people use AirBNB to get some
extra income.
So that being said… where does AirBNB have the biggest impact?
Of course, not in the middle income or poor areas!
AirBNB has the biggest impact on the rent prices of the most expensive neighbourhoods.
And this explains news like this.
Neighbours of SANT ANTONI, in Barcelona, have been complaining about tourism for years.
In order to illustrate this point, a civil platform has created a ‘MAP OF SHAME’
that signals some of the tourist-hosting flats in the neighbourhood.
In this case, SANT ANTONI is a hood in the centre of Barcelona.If AirBNB has a general
impact of 0.4% on the rental price, perhaps the figure is higher here.
So in conclusion, there are many reasons to doubt that AirBNB has such a huge impact on
rental prices.
Of course, there are many other externalities we could discuss.
But rent increases are not one of them.
But the question that we still haven’t answered is… if not AirBNB… what is driving rent
increases in the world’s biggest cities?
We will answer this question in a future video.
If you don’t want to miss it or any other posts, subscribe to VisualPolitik and hit
that bell button.
Meanwhile, I’ll leave you that question here…
Why are rental prices getting so expensive?
How can we solve this issue?
Please, leave your answer in the comment section below, and when we publish the video on that
topic, you can check if your answer is similar to ours.
Also, don’t forget to visit our friends from RECONSIDERMEDIA.COM, the podcast that
provided the vocals in this episode that were not mine.
If you liked this video, give us a thumbs up and, as always, I’ll see you next time.