Free Market

Are We Experiencing an Airbnbust?

Last month, a concerned Airbnb host asked a question to fellow hosts on Facebook. “Has anyone else seen a huge decrease in bookings over the last 3 to 4 months? We went from 50% occupancy to literally 0% the last two months. I’m just curious if this is something only going on with my property or if other people are seeing similar things.”

This single question, aided by a tweet that has since gone viral, has opened a national conversation about short-term vacation rentals. Guests are complaining that they are getting more expensive to rent and excessive cleaning and service fees are becoming the norm. Hosts are learning that providing lodging to vacationers can be hard, bookings are unpredictable, and (in some cases) there is more money to be made by offering their property to long-term renters.

As a result, there is speculation that the short-term rental industry may be struggling and an “Airbnbust” is upon us. In reality, as reported in a thoughtful piece by Jim Dalrymple at Inman, total bookings are actually up for the industry nationwide.

So, what does this mean for hosts who are experiencing a drop in bookings? Are they overcharging? Are their photos bad? Perhaps, but even if an individual host’s prices are fair and their rental is immaculate, their bookings can still drop for one simple reason — they are competing with more hosts for the same vacationers.

We see that as more and more people start constructing and fixing up homes to market them to short-term renters, the less lucrative doing so becomes. In other words, in a free market, most of the problems associated with short-term rentals are self-correcting. When fees and prices are too high, hosts too nosy, and the experience too poor, bookings for those units will drop. When there are too many short-term rentals in a given area, the properties will convert to long-term rentals.

For areas with abnormally high vacation demand and percentage of homes used as short-term rentals (in many cases spurred by government spending on tourism advertisements), the free market also offers a solution. Local zoning should be relaxed to legalize the competition to short-term rentals — traditional hotels.

For this free market solution to work, it will require letting hotels build taller than three or five stories (a common restriction) or to expand the areas hotels may be built beyond the tiny (already developed) commercial zones. The economies of scale that a large, well-run hotel can leverage will drive lodging prices down across the board. In short, the sooner you allow for as many hotels to be built that the market demands, the sooner you hasten the short-term to long-term rental conversion.

Lastly, the conversation about short-term rentals frequently ignores an important aspect. Many people love vacations and visiting family, and some people have the need to travel for business or health care. We need a place to stay when we do so. This is not a new or modern phenomenon. In fact, travelers have stayed in people’s primary or secondary properties in exchange for money for centuries. What’s modern are the apps we use to arrange such rentals and the zoning laws that criminalize the otherwise peaceful activity.