What's Wrong With Airbnb?

In the past decade a new wave of Silicon Valley start-ups have exploded into prominence, becoming part of our daily lives. Along with companies like Uber and Netflix, Airbnb is one of the top influencers in this new generation of businesses. But not all is as rosy as it seems...




The concept of Airbnb is very simple.

Source: Busbud.com

People can put their homes, apartments, lofts, spare rooms, even garages up for rent, and anyone can book them on a nightly basis. With over 2 million listings across more than 191 countries, the expansion of Airbnb has been incredible. The popularity is due to a number of reasons- not least of which are the facts that using Airbnb is incredibly easy, and, on average, a cheaper option than alternatives like booking a hotel room. It also gives people going on holiday or with spare rooms a chance to make an extra buck.

So, on the face of it, there do not seem to be any significant issues with the concept. However, the scale of Airbnb has meant that it has had rather significant implications on the property markets in which it operates. Put short- Airbnb is contributing to the economic cleansing happening in city centres throughout the world.

Economic cleansing is perhaps a rather emotive term to use, but this is, in essence, what has been happening, as landlords have sought to take advantage of the more lucrative short-term let market that it offers.

To realise the impact of Airbnb, some rough context of the property market is necessary. You've got two types of property rentals: short-term lets, and long-term lets. Long-term lets are usually taken out by people for whom the property becomes their home, whereas short-term lets are more common for vacationers. Here's the thing: short-term lets, due to their short nature, are more lucrative for landlords than long-term lets. But they come with the risk, that they are not guaranteed- while a long-term renter will mean you have someone always occupying your property and paying rent, relying on short-term rentals could leave you as a landlord with dry periods.

But in comes Airbnb, making it easier than ever for people to find short-term lets wherever they are going. The result of this is that fewer travellers choose to stay in hotels*, instead opting what may be a cheaper, or more unique Airbnb rental. So demand for short-term lets is increased- meaning landlords face less risk of facing that dry period in between short-term lets.

Seeing this risk reduced leads to many landlords deciding to pursue lucrative short-term lets- this means that many landlords will have to evict their existing long-term tenants. So, this happening on a large scale means that many people will be left looking for housing in city centres, but there will be fewer properties to choose from- because many landlords may have converted theirs into short-term exclusives. So, in a city there will be more demand for housing, but less supply.

There are significant housing crises in many of today's
major cities. 

Whenever there is more demand and less supply, prices rise. People become desperate to find housing, and the landlords still renting long-term know this- so they can jack their prices up and still find a renter. This results in significant numbers of poorer people (and even people who'd be considered well-off elsewhere) being forced to leave their area in search of affordable housing.

Most demand for Airbnb lets, and generally the most expensive/desirable areas of a city are in the centre- so this is where people are being forced out, 'cleansed', from. London, for example, is an example of a city where such 'economic cleansing' has taken place, due to a severe lack of affordable housing. Since 2011, London rents have increased by a staggering 48%, compared to incomes rising by just 11%. New York City and San Francisco face similar troubles, with housing in city centre areas becoming increasingly out of reach for those not on 6 (or in many cases even 7) figure salaries.  Of course, Airbnb is not solely to blame for this- foreign investment and failed government policies are both arguably more responsible- but amazingly, the success of this one company has had the power to exacerbate these crises that exist.

The problems caused by such a crisis are wide-reaching: homelessness, work issues and strain on infrastructure (for example, trains) are just a few.

This problem is why many cities seem to be waging war against Airbnb, using their weapon of regulation. For example, it is illegal in New York City to rent out a full apartment for fewer than 30 days**. While such regulation was previously battled against tooth and nail by Airbnb, it seems to have taken on a different tune just this month; dropping the lawsuit it took against NYC regulators, and even agreeing to abide by similar regulations in London and Amsterdam.

* Recent study by Zervas, Proserpio and Byers in USA concluded in their study of Texan demand for hotels that Airbnb's entrance into the market "has had a quantifiable negative impact on local hotel revenue". Click here to view the study.

** No doubt, it's important to remember there is a high possibility that such regulations are also being lobbied for by the hotel industry- just a thought.

The Aftermath of Brexit: The Pursuit of Liberation

James Rosanwo takes a look at whether the outcome of Brexit has yet been as calamitous as many had expected. 

A couple of months ago, the United Kingdom decided to leave the European Union- and the immediate impact was near catastrophic. The pound dropped as much as 2.2 percent to $1.3, a 31-year low. From then on, many feared the worst was yet to come. The threats of total economic crisis and recession lingered in the air like a sour breath, as individuals panicked, from investors to home buyers. The whole market was in a state of disbelief and incredulity. However, it is beginning to seem that, just maybe, the prophecies of an economic apocalypse were not as well founded as we initially thought.

Before the EU referendum, the British finance ministry warned that a vote to leave the EU would make it harder and more expensive for new home owners to request for loans, forcing the country into a “DIY recession” and driving down equity prices.

However, nearly half of mortgage borrowers look set to gain from the Bank of England’s interest rate cut on August 4^th, while British equity markets have risen.

Unexpectedly, the British economy has recovered well from the momentary Brexit calamity. Due to the fall of the British pound, it has become much cheaper for wealthy tourists to shop in the UK, boosting retail sales. Grocers enjoyed a 0.3% rise in sales in the 12 weeks to 14 August, the best performance since March. The manufacturing sector and the building industry have also shown signs of improved growth. Persimmon, Britain’s biggest house builder, said customers were flocking back to view new build homes.

Nonetheless, many, including myself, maintain the view that it is still considerably early to determine the real effects of Brexit, simply because Article 50 has not yet been triggered- and hence the UK and EU are still occupied with negotiations on a post-Brexit deal.

However, what is still even more alarming is the fact that the British government is yet to provide a clear plan as to how they intend to extricate Great Britain from the EU. Theresa May, the new British Prime Minister, recently rejected the option of a further parliamentary vote. This strongly reiterated her stubborn intent to lead Britain out of the European Union. Despite several warnings from many EU countries, the PM has maintained the view that Great Britain can get exactly what they want: retain free access to the Single Market, while restricting Free Movement.

During the Brexit campaign, one of the only suggestions by the Leave side that inferred some sort of clarity and outline for a post-Brexit Britain was the possibility that the UK could adopt either the Norwegian or Swiss model to regulate and encourage trading with the EU. However, Mrs May recently ruled out other existing models and expects an entirely new model unique to Britain alone.

The public were also promised that the NHS would receive an increased funding of £100 million from the previously allocated EU budget and that Britain could also most likely adopt an Australian style points based immigration system to try and limit immigration; however the PM recently dismissed both notions, explaining that a points-system would simply not be rigorous enough.

Ultimately, Mrs May’s continuous divergence from the Leave campaign’s manifesto has done nothing but add further ambiguity and uncertainty into the future of post-Brexit Britain.

Presently, the future of our great nation perhaps does not seem as doomed as once thought. However, the pursuit for liberation, while illuminating, can be treacherous.  One thing we have learnt from previous economic crises is that calamity has no expiry date.