Happy Saturday, folks!

We hope you survived Halloween without too many tricks, or at the very least, indulged in a satisfactory amount of candy 🍬

Today, we'll discuss the collapse of the short-term rental market, and more, in just 4 minutes to read.

— Weronika

QUOTE OF THE DAY

“Build something 100 people love, not something 1 million people kind of like.”

— Brian Chesky

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READER RESPONSE

Last week, we asked readers: How do you celebrate Halloween, and what's your costume choice (if any) this year?

Here are a few responses:

• "My neighbors come over, and we sit on my front porch and watch the kids go through the neighborhood trick-or-treating.” — Brad, Atlanta, GA
  

• "I celebrate Halloween with my kids. Therefore, a witch, Princess, and Dracula.” — Michael, Toronto, Canada
  

• "I'll either be Blanche Dubois (again) or an undercover cop, drink wine with some friends, and enjoy the many Trick or Treaters knocking at my door.” — Anne Marie, Glenside, PA

Answer this week’s question: If you had $10,000 to spare, would you use it for investing/saving, paying bills, self-development, or spending on something fun like a vacation?

SHORT-TERM RENTALS COLLAPSE

Feel at home

For years, many leisure and business travelers worldwide have preferred the convenience of hotels, where they don't have to worry about breakfast, dinner, access to facilities like the gym, pool, conference rooms, spa, parking, and numerous other amenities.

But some individuals eventually reached a point where they've had too much. Among all these options, what they truly desire is more privacy, a more affordable place to stay, and the comfort of feeling at home while being away.

This is where companies like Airbnb spotted a niche and a growing demand, bringing to life the concept of short-term rentals and reshaping global tourism.

Currently, the short-term rental market is valued at approximately $100 billion, which is not surprising considering that regardless of your travel destination, you can now choose these cozy accommodations.

Some even offer a home-like experience complete with your kitchen, a space to spend time with your entire family, and multiple bedrooms to accommodate travel companions - all that in a convenient location and a fair price.

And, for those who seek more luxurious amenities, there are upscale apartments, spacious terraces, in-house spas, and exclusive private gyms - the options are limitless.

Airbnb’s success

While the concept was admirable—providing an alternative to large, overpriced, overcrowded hotels—it stemmed from practicality. 

Back in 2008, Brian Chesky and Joe Gebbia founded Airbnb, initially named Air Bed & Breakfast, out of necessity to cover the rent for an empty bedroom they had. How did that happen?

They learned about a large design conference in San Francisco and realized that all the local hotels were fully booked. They quickly recognized an opportunity to provide accommodation for conference participants in need by offering three mattresses and a room to stay in.

It proved to be a lucrative idea, as during the weekend of the conference, they managed to earn $1000. 

That's how they gradually started turning the Air Bed & Breakfast concept into a reality, forging partnerships with the right individuals, such as Michael Siebel, the managing director of Y Combinator, a startup accelerator, and a co-founder of the streaming platform Twitch, who played a key role in expanding their business.

As the demand for affordable and convenient accommodations soared, it's no surprise that the company emerged as the world's largest short-term rental platform, estimated to be worth $77.93 billion. 

This valuation surpasses the combined worth of Hilton ($12.04 billion) and Wyndham ($6.15 billion). Its success is mainly attributed to its scalability and exceptional global market presence.

Operating and expanding an online platform demanded a team of proficient designers, web developers, and marketing experts, yet it could all be accomplished remotely, right from your bedroom.

All this was achieved while reaching millions of users online and expanding the network of hosts and customers across numerous countries.

Notably, unlike many other companies, such as Amazon, Uber, Doordash, and Lyft, which struggled to surpass local challengers’’ market share, Airbnb has established itself as a solid competitor in local markets worldwide in the short-term rental industry.

While Airbnb was already popular before the pandemic, with major cities boasting thousands of listings, such as London with over 59,000, Paris with over 38,000, New York with over 35,000, and Rio De Janeiro with over 30,000, the pandemic presented challenges for travelers worldwide.

But Airbnb has bounced back post-pandemic by increasing the number of stays booked on the platform.

As of March 2022, there were 6 million active listings on Airbnb, a stark contrast to the mere 300 thousand listings in 2013, showcasing a twenty-fold growth in just nine years.

Still, while the short-term rental market has provided a new experience for travelers and brought wealth to early adopters, it has faced some obstacles, causing hosts and customers to start doubting the concept.

Is it going to collapse?

Short-term rental platforms offer homeowners a unique opportunity to profit from their properties by attracting folks willing to pay more, sometimes three times as much per night as long-term renters. This offered an alternative to dealing with messy and unreliable roommates.

Airbnb facilitated payments, a rating system ensured good behavior, and complaints could be lodged for dissatisfactory experiences or damage. But this living arrangement suited only a specific type of person.

For property owners, short-term rentals became a more lucrative option than long-term tenants, potentially doubling rental income even after accounting for Airbnb fees and cleaning costs.

Many hosts recognized this financial opportunity, expanding their property portfolios, transitioning to full-time property management, or utilizing external property management services. The increased income from short-term rentals also eased qualifying for additional home loans, enabling portfolio expansion.

Examining the company's recent performance, as of Q3 in 2022, they have achieved significant milestones. 

They recorded 99.7 million bookings, with year-over-year revenue reaching 2.9 billion, a 29% increase, and net income at 1.2 billion, up by 46% compared to the previous year. Additionally, the shift towards remote work has benefited the company, leading to longer stays in Airbnb units by younger customers.

Yet, it seems that nothing good lasts forever. With the short-term rental boom and over 4 million Airbnb hosts, the market quickly became oversaturated, leading property owners to struggle with renting their properties.

As the price gap between short-term and long-term rentals narrowed, many short-term hosts reconsidered their commitment. 

Airbnb's pricing often matched upscale hotel rates, prompting travelers to choose hotels or forego returning to Airbnb options.

The issue of excessive housing costs in numerous cities has exacerbated the challenges for hosts, thanks to recent legislation. 

In some areas, hosts face additional taxes for operating unregistered hotels, or there are newly imposed policies restricting the number of short-term rentals they can offer. 

Furthermore, in some cities, short-term rentals have been banned entirely unless hosts obtain specific hotel licenses, discouraging hosts from complying with the intricate regulatory requirements.

For some hosts, this challenging landscape means it’s time to get out of the short-term rental game.

Dive deeper

Learn more about the struggles Airbnb hosts and customers face by watching this video by How Money Works.

WHAT ELSE WE’RE INTO

📺 WATCH: Could Poland become the next Germany?

🎧 LISTEN: Roaming the Warren Buffett landscape with Mary Buffett and Sean Seah

📖 READ: Big landlords are colluding to raise rents, D.C. lawsuit alleges

See you next time!

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