The (Overdue) Collapse Of Short Term Rentals

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My Other Channel: @HowHistoryWorks

Edited By: Andrew Gonzales

Music Courtesy of: Epidemic Sound

Select Footage Courtesy of: Getty Images

All materials in these videos are for educational purposes only and fall within the guidelines of fair use. No copyright infringement intended. This video does not provide investment or financial advice of any kind.

#realestate #airbnb #business

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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It WAS a good idea, customers loved it for giving them a cheaper alternative to outdated hotels, and hosts liked the opportunity to earn extra income on a spare bedroom or even an entire separate property.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.

[Beatricegove]

I predict a housing crash due to people buying homes over asking price, lacking equity if prices decline further. Foreclosure becomes likely if they can't afford the house, and selling won't yield profits. With anticipated layoffs and rising living costs, many individuals may face this situation.

[krombopulos_michael]

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.

[gyurmarajzfilm]

In a nutshell: It went from offering travelers an authentic affordable stay with locals who make some extra cash on a spare room, to overpriced short-term rent filling the pockets of real estate overlords. Creating an artificial housing shortage and pricing out residents from long term rental in the process.

[DTEL]

I recently saw a rental that was $80 for a night, but the host added a $200 "host fee" and a $200 "cleaning fee". I got a hotel for $77 a night that included breakfast and parking. Bye Bye Air BnB.

[zeex]

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

[laydsimba]

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.

[thebigpedro]

Imagine going on vacation, and having not only to clean somebody else's house, but having to pay 30% more for "cleaning fees". And it's still more expensive than a hotel. No thanks.

[Riggsnic_co]

The issue is that either the renter or the owner must in some way pay insurance and property taxes if they want a "permanent roof" with utilities like electricity, gas and water. Because of this, many people—at least in California, where I currently reside—are living in tents. No taxes, rent, mortgages, or insurance. The number of people who tell me they live in their car that I meet amazes me. Its crazy out here!

[PicardoFamily]

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.

[AdmiralMEOW]

I recently looked at Airbnb in Melbourne for a holiday. The difference for a 4* hotel and a airbnb appt was $20 for a 4 day stay with airbnb being cheaper. I went with the hotel because they'll clean my room every day

[madi_oh]

I was the cleaning lady for a few luxury air bnbs this summer. The most expensive unit was over $1500/night. The cleaning fee was $200. I was paid with that fee, except the hosts kept about half for themselves plus about 10% for cleaning supplies. So I made ~$90 every time I cleaned that unit. What the hell was the rest of the cleaning fee for??

[tommyfrank]

I live in a tourist destination. Airbnb and other short term rental apps destroyed the housing market. Homes were bought up for an extreme price and immediately put on Airbnb for vacation rentals. It made it impossible to buy a home or even find an apartment.
As a firefighter in that town, we are fully volunteer. Airbnb put a huge load on the emergency system as the people who own the homes don’t live in the same state, so they would just call 911 when a tenant needed something. Towns finally banned Airbnbs and the effects still are around. Airbnb ruined so many peoples lives and cost tax payers so much money. Screw Airbnb and alternatives.

[TimmyTheNerd]

It's a real problem in the mountains of Colorado. You have these people who are no longer able to afford in the mountain towns that they work in, because people are buy up properties for short term rentals and are even lobbying the government to build more housing. And people go: "Well, more housing means the people who live there all year round will have homes." No, they wont, because those new houses will be bought by people turning them into short term rentals.

[IonVladutu]

It was the cleaning fees that turned me back to hotels. Having to pay a fee and still be required by the host to clean before we left was something got under my skin. And there was one occasion that the fee increased about $100 per guest per night, and that immediately out priced itself over a hotel

[jesseyoung]

Same thing has happened with the taxi industry in Australia. Uber was a major disrupter, but now taxis have raised their game, and are sometimes cheaper, cleaner, and more reliable than Uber.

[FigaroHey]

I remember travelling to Prague and Budapest in the early 1990s. Arrive at the train station and people standing on the platform would ask you if you want a room. You liked the look of them, asked the general area and they pointed it out on a map. You went with them to their house or apartment, looked at the room, said OK, gave them a small fee (by western standards) and you had a clean simple room, usually, breakfast with your host and an interesting experience. Turn it into a business and it all gets ruined.

[dsgcloud]

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.

[weirdnomad]

I used to love AirBnB but their prices started being on par with hotels so I might as well stay in a hotel where I don't have to worry about the hotel being able to rate me and I don't have to clean up thoroughly afterwards.

[burgerkillsyou]

The weird host rules and halfway spying that hosts do killed it for me. On top of a massive cleaning fee and still expect you to clean the house. You always know what you’re going to get with a hotel. Airbnb can be super hit or miss.

[burgerkillsyou]

Airbnb also assumed they could treat their customers like garbage and it wouldn’t affect their business.