Airbnb’s British Invasion Faces Potential Backlash
Government rules could temper recent growth in short-term rental supply
By Laura Forman
Wall Street Journal
Updated July 1, 2022 6:33 am ET
The business prospects of Airbnb ABNB 2.62%? wax and wane with the law of supply and demand, but also sometimes just the law.
Nights and experiences booked on the platform reached new highs in the first quarter, but shares of the home-stay company are down nearly 46% this year compared with the S&P 500’s loss of 21%. A broader tech selloff has been precipitated in part by investor fears that big pandemic winners are seeing demand moderate as we move back toward life as usual. Bears worry that Airbnb faces a different problem: Demand growth will require the right balance of hosts.
Politics could darken the landscape. This past week, the U.K. government said it would be conducting a review of short-term tourism rentals in England toward informing appropriate policy options. The government lists benefits that short-term rentals have brought to its tourism industry, such as green tourism and enhanced variety, but also suggests potential negative impacts on housing supply and home prices. Scottish, Welsh and Northern Irish authorities have taken separate regulatory steps already.
A 2020 report by macroeconomics research consulting firm Capital Economics showed London listings quadrupled on Airbnb between 2015 and 2019. More than 16% of adults in the U.K. had rented out all or part of their property on a short-term basis over the preceding two years and many landlords shifted from long- to short-term rentals to avoid regulations and to gain flexibility, according to the report.
While data from AirDNA show the U.K. accounted for less than 6% of Airbnb’s global active listings as of May, RBC analyst Brad Erickson wrote this past week that the government’s review of the industry could lead to taxes on short-term rentals or limits to short-term rental capacity in select areas. These actions would make it harder and more expensive to bring new short-term rental supply to market, he wrote. Minister of State for Housing Stuart Andrew said the U.K. government is already authorizing up to double the council taxes in some areas “to tackle the issue of second and empty homes.”
In a blog post responding to the news, Airbnb said there is a big difference between buy-to-let speculators and hosts who occasionally share their homes on Airbnb to afford the rising cost of living. As such, the company said it welcomes regulation and has itself been working toward more rules for the industry, such as limiting how often hosts in London can share their homes.
Still, Airbnb promoted its listings in an April press release as a way for Brits to offset inflation to some degree. That release cited the typical income of a U.K. host as about £6,000 annually in 2021—nearly double what it reported in 2018—or about two months’ pay for the median British household. Added taxes would counteract at least some of that financial benefit to hosts.
Other countries could consider upping short-term rental regulation. In the U.S., which AirDNA shows accounts for more than 20% of Airbnb’s active listings, housing inventory is low and investors have been snatching up much of what becomes available. Redfin data show real-estate investors bought a record 18.4% of the homes that were sold in the U.S. in the fourth quarter of 2021, including more than 30% of homes sold in such cities as Charlotte, N.C., and Atlanta during that period.
Airbnb has been especially lucrative for hosts of late, but that could be moderating. Average daily rates were up 37% in the first quarter from the same period in 2019 and up 5% year-over-year—a dynamic that the company’s own guidance suggests should ease to some degree in coming quarters. A recent note from BTIG shows weakening Similarweb traffic trends in June for online travel agents, including Airbnb. Analyst Jake Fuller points to that data as a potential early warning sign that travel isn’t immune to mounting economic pressure.
Airbnb would argue that, during a recession, more people have the need to monetize their homes, which could conceivably bolster their host supply. But there could be more lucrative solutions for second homeowners: The Wall Street Journal reported this past week that Americans are seeing bidding wars over available long-term rentals as record high prices and rising mortgage rates have priced out even many wealthy consumers from buying their desired homes. The median asking rent exceeded $2,000 in the U.S. for the first time in May, according to Redfin, having risen 15% over the past year.
All that suggests the value proposition to hosts of short-term rentals could change more broadly, even absent any new regulation.
The market moves faster than politicians sometimes.
Airbnb’s British Invasion Faces Potential Backlash - WSJ |
