Is Airbnb facing an existential crisis?

Sascha: [00:00:02] From Equity Mates media, this is the dive. I'm your host, Sascha Kelly. What is the deal with Airbnb these days? Booking an Airbnb, you stay home with an exciting sense of discovery, you know, offering a glimpse into someone else's home. And you'd often arrive in the the lovely gifts and things like chocolate and a bottle of wine and maybe a guidebook to the local sights and sounds that fast forward to today. And it seems like we're just drowning in a bunch of rules. You might as well go stay with your parents. No parties. Quiet hours after 10 p.m., laundry duties before departure and stern warnings to meticulously follow instructions or risk facing fines or worse, less than a five star review. But evidence based rules aren't the only challenge that is facing major cities from New York to London. Basically, everywhere in Australia, to be honest, are facing housing shortages and rent increases. And many lawmakers are pointing to Airbnb and other short term rental companies as partially responsible for this. As a result, we've seen New York implement local law at which many supporters of Airbnb believe it could be the end of Airbnb in New York as we know it, and offer a model for other cities to follow. It's Monday, the 18th of September, and today I want to know just how big a risk this New York law is to Airbnb and what other existential crisis is Airbnb facing? To talk about this today, I'm welcoming him back to the dive. It's my colleague here at Equity mates. It's Alf Eddy. Alf, I completely forgot your last name for a second. Alf. Welcome back to the dive. Are you an Airbnb aficionado?

Alf: [00:01:49] Thanks, Sascha. Great to be back. Yeah, I do like using Airbnb every now and then and I guess you've touched on it. That sort of feels like the fun has been slowly sucked out of Airbnb over the past few years. So in 2022 we saw an emergence of bizarre experiences where Airbnb hosts were requesting guests to complete a checklist of tasks before checking out. There was a popular thread on the Airbnb subreddit where guests asked if it was standard practice to be asked to mow the lawn during their stay. 

Sascha: [00:02:20] So weird. Yeah.

Alf: [00:02:22] Mowing the lawn like what's next? Pulling the weeds, scraping the mode of deciding, I think mowing the lawns way over the line. And that was the consensus from the rest of the subreddit community. 

Sascha: [00:02:33] Yeah. So let's zoom in to New York, because that's why we're talking about this today. They've just implemented local law 18. 

Audio Clip: [00:02:39] Thousands of Airbnbs and short term rentals are expected to disappear from rental platforms as New York City begins enforcing tighter restrictions amidst a growing housing shortage. 

Sascha: [00:02:53] To understand the reasoning for this law, can you just give me a bit of an update on how bad the rental crisis is?

Alf: [00:03:00] Yeah, so the rental crisis is particularly acute in New York City. The median rent on new leases in Manhattan, for instance, rose from 30 $400 in March 2019 to more than 40 $400 now. So in Aussie dollars, that's around 1700 dollars per week. The median rent. And even with New York's rental control laws, the amount the typical New York City household spends on rent has steadily increased over the decades. In 2022, it was up 35% year on year. Homelessness in New York continues to rise as well, where 73 out of every 10,000 people like a home. 

Sascha: [00:03:38] Do you have numbers for other big cities in America? I'll have to compare that to yeah. 

Alf: [00:03:43] So 73 for every 10,000 in New York and then in Chicago, 14, Pittsburgh seven and then Houston only five. So it's pretty bad in New York City. 

Sascha: [00:03:52] Yeah, very exacerbated for sure. 

Alf: [00:03:54] Yeah. So the housing crisis itself is bad, but the second order effects of a housing crisis can very quickly turn into an economic crisis. So middle income workers like teachers and nurses are forced out of the city. The departure of families could erode the property tax base and lead to the decline of public schools. As in America, public schools are funded by property tax. So as a result, New York City leaders have taken matters into their own hands. 

Sascha: [00:04:18] So a lot of information that asks what exactly is local law? 18 because I mean, doesn't give a lot away in the name, does it? 

Alf: [00:04:27] No, No, it doesn't. So you may have seen the law mentioned in the headlines. Yeah. So it came into force on the 5th of September. So let me run you through some of the key provisions of it. Some of them may shock you. So first one is a limit on guests. So under the law, no more than two paying guests can stay in a short term rental at a time regardless of the dwelling size or the number of bedrooms. 

Sascha: [00:04:51] Oh, wow. 

Alf: [00:04:52] Yeah. So no, no large group staying at Airbnbs anymore in New York.

Sascha: [00:04:56] No more getting your WhatsApp chat together to get ten friends. It's just what it costs. Make it super cheap. 

Alf: [00:05:01] Just exactly right. Exactly right. Okay. And the second one host presence is required, so hosts must be physically present when the properties are being rented.

Sascha: [00:05:12] Yeah. I think Alf, like I can understand, because this is, I think what Airbnb originated as you know, it used to be a bed BnB when it was about renting out that extra space in your house. But how are you going to exactly make sure a host is there? Like, can I just let you in and then go away? Like, do they have to accompany you the whole time?

Alf: [00:05:34] It's a funny one. Is it On the actual platform you can search by the entire place or just a shared room. So I guess that's going to eliminate an entire category of Airbnb for New York. 

Sascha: [00:05:45] Okay, Alf. I wouldn't say I'm shocked, but I'm certainly surprised by that one. Are there any other changes that are coming through? 

Alf: [00:05:52] Yeah. So the final one I wanted to mention is unlocked Internal doors so hosts and visitors are obligated to leave doors inside the dwelling unlocked, granting occupants access to the entire unit. So the rule effectively eliminates any semblance of privacy within a short term rental. 

Sascha: [00:06:11] That also really surprises me. How on earth are you going to actually make sure that that rule is obeyed? I mean, there's some things that you kind of do want to lock the door for, you know? 

Alf: [00:06:25] Yes, I know. Yeah, it is a good question. So hosts that fail to comply can face fines between 100 and $1,000 for a first time violation. However, if a host repeatedly violates the rules, they can be looking at fines of up to $5,000. B, You mentioned this, Sascha. It's interesting because this is what Airbnb was originally just a way to share an extra room and monetise that free space. One could argue the fact that it's become the de facto hotel system now does warrant some regulation, just like hotels have as well. I will note, though, Law 18 applies only to properties rented for less than 30 days. 

Sascha: [00:07:02] Okay, so you said that this is only common place on the 5th of September, but have we seen any impact to date on Airbnb? 

Alf: [00:07:10] So there has been an immediate impact. Short term, Airbnb is available in New York City, have dropped by 70% after the law was enforced. But having said that, there could still be thousands of Airbnbs that are unregistered, so it's hard to know the actual impact of the law. 

Sascha: [00:07:26] Okay, let's take a little pause here. But after the break, I want to zoom out from New York and look at similar efforts around the world, because they're definitely not alone in their efforts to regulate short term rentals. And then I want to ask you the ultimate question. Is this the end of Airbnb? Welcome back to the Dive. Today we're talking about the new restrictions on Airbnb. I'll just before the break, you unpacked the new regulations in New York with the new legislation, local law 18. But as I said, this isn't just an isolated story. This is a global trend. It's happening all over the world. Can you take me through some of the other examples? [00:08:16][50.2]

Alf: [00:08:17] So some other examples In the US, in Dallas, short term rentals are restricted to specific neighbourhoods to mitigate disruptive parties in Memphis. Licenses are now required for short term rentals and in San Francisco there are limits on the number of days someone can list their entire residence on Airbnb, so it is widespread. 

Sascha: [00:08:37] You started in the U.S. What are we seeing globally? 

Alf: [00:08:40] So I've got three examples here. In May 2023, the popular Malaysian island of Penang banned Airbnb style accommodation in a bid to kerb anti-social tourist behaviour. We've got Italy, so Italian tourist hub Florence banned vacation rentals. Airbnb is in the city's historic centre at the start of June and then in France. Hosts in Paris can only rent out this space for a maximum of 120 days of the year. So a third of the year. 

Sascha: [00:09:07] Okay. So how has the company responded? I've always been really impressed with the CEO of Airbnb, but it seems like he's battling it on all fronts at the moment, to be honest. 

Alf: [00:09:18] So Airbnb has tried to fight against a new law suing New York City, but its efforts have been unsuccessful so far. Airbnb's global policy director, Theo Gudinski, has expressed concern about the impact on tourism and local residents who rely on home sharing to make ends meet. 

Audio Clip: [00:09:35] As much as we can, like saving our money and all of those things, because I know we can't rely on short term rentals to help pay our mortgage and our expenses. So it's pretty scary.

Alf: [00:09:48] While Airbnb has expressed a desire to work with the city on more reasonable home sharing rules, the future still remains uncertain. So the new law is poised to make short term rentals less appealing to many visitors to New York City, which could potentially impact the city's accessibility, especially when hotel rooms are small and costly. But despite facing regulatory challenges in various cities, the company reported significant growth in the second quarter of 2023, demonstrating its resilience in navigating these hurdles.

Sascha: [00:10:19] The other side of the coin is that, like New York City, is just a drop in the Airbnb ocean of listings. I mean, they've literally got the rest of the world to play with and they do other things as well, like events and, you know, experiences. They're not just a space listing now, are they? 

Alf: [00:10:39] Yeah. Although New Yorkers tend to be a bit myopic in their view of the world and not realise that the world does exist outside of New York. That is the case with the company. It is a bit of a drop in the ocean, as you said. So there are 7 million listings on Airbnb worldwide. That was in 2022 and there are 100,000 cities with active listings on Airbnb. So that's massive. So there are 40,000 Airbnb days in New York City and that equates to just half a percent of all listings on Airbnb. And then if we look at New York City's contribution to the companies $8.4 billion of annual revenue, it's just 1%. 

Sascha: [00:11:16] 1%. Wow. Okay. So no offence to all of our New York based listeners, but that does put things into perspective, doesn't it? So I guess the ultimate question, are we starting to see the end of the golden age of Airbnb? 

Alf: [00:11:33] So I think it's safe to say, for starters, Airbnb isn't going anywhere. It is entrenched as a global leader in short term stays and the brand it has built and the network effects it enjoys will be hard to disrupt. But the question is whether we're going to see a slower growing, more heavily regulated Airbnb. And I think based on what we've talked about today, the answer is yes. So whether you agree with the argument or not, Airbnb is seen as a contributor to the rental crisis around the world, and that means more regulation and slower supply growth of new listings on the platform is the most likely outcome. 

Sascha: [00:12:07] Yeah, I think any time that a company has basically become a verb for something, you know, well, it's just Airbnb, be it, you've kind of really built your brand to a position that's pretty impressive. 

Alf: [00:12:21] Absolutely. I just still can't believe some hosts asked their guests to move that long.

Sascha: [00:12:27] Would you do it even if they took a discount off the price? 

Alf: [00:12:31] That's an immediate one star review for me. Immediate, not mind long.

Sascha: [00:12:35] All right. Well, on that note, let's leave it there for today. I'm going to ask you for a favour. Please give us a five star review on whatever podcast player you'll use, iTunes, Spotify, or whichever one you are listening to us on right now. Every single review helps us. Get in front of more years, climb the charts, make more of an impact. We're a small, independent media company. Makes a massive difference to us. Thank you so much for joining me on the Dive today. 

Alf: [00:13:04] Thanks, Sascha.

Sascha: [00:13:05] Until next time.