Airbnb, Short-Term Rentals and the Future of Housing

Lily M. Hoffman, Barbara Schmitter Heisler

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000197303
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Propiedad inmobiliaria

How do Airbnb and short-term rentals affect housing and communities? Locating the origins and success of Airbnb in the conditions wrought by the 2008 financial crisis, the authors bring together a diverse body of literature and construct case studies of cities in the US, Australia and Germany to examine the struggles of local authorities to protect their housing and neighborhoods from the increasing professionalization and commercialization of Airbnb.

The book argues that the most disruptive impact of Airbnb and short-term rentals has been on housing and neighborhoods in urban centers where housing markets are stressed. Despite its claims, Airbnb has revealed itself as platform capitalism, incentivizing speculation in residential housing. At the heart of this trajectory is its business model and control over access to data. In a first narrative, the authors discuss how Airbnb has institutionalized short-term rentals, consequently removing long-term rentals, contributing to rising rents and changing neighborhood milieus as visitors replace long-term residents. In a second narrative the authors trace the transformation of short-term rentals into a multibillion-dollar hybrid real estate sector promoting a variety of flexible tenure models. While these models provide more options for owners and investors, they have the potential to undermine housing security and exacerbate housing inequality.

While the overall effects have been similar across countries and cities, depending on housing systems, local response has varied from less restrictive in Australia to increasingly restrictive in the United States and most restrictive in Germany. Although Airbnb has made some concessions, it has not given any city the data needed to efficiently enforce regulations, making for costly externalities. Written in a clear and direct style, this volume will appeal to students and scholars in Urban Studies, Urban Planning, Housing and Tourism Studies.

PART ONE
The American experience

1
THE SHARING ECONOMY, AIRBNB AND THE FINANCIALIZATION OF HOUSING IN THE UNITED STATES

A brief history of the sharing economy

Airbnb, an offshoot of the private equity-fueled tech sector and a poster child of the “sharing” economy, emerged during the first decade of this century. Using information technology to create an online marketplace for goods and services and an economic model that emphasized access over ownership, the sharing economy appeared at a time when the Global Financial Crisis (GFC) of 2008 raised questions about the viability of the market economy and seemed to promise a solution to many of society’s problems.

Historically speaking, providing access or sharing is an old concept. People have always shared goods and services both collectively and individually, whether driven by needs (economic insecurity, lack of access) or ideological motivations (religious, political, communitarian) or some combination of the two. They have bartered, shared or rented land, housing, equipment, clothing and other possessions as well as services using local channels such as cooperatives or simply by word-of-mouth. What was new was the use of sophisticated information technology to create a globally connected online marketplace in which digital platforms matched different groups of users and providers. This exponentially increased the size and scale as well as the ease and security of traditional transactions.

The buzz about the sharing economy started in the tech and business sector, which gave birth to a variety of internet-based businesses. It was popularized by the publication of Botsman and Rogers’ book, What’s Mine is Yours: The Rise of Collaborative Consumption in 2010, and validated in March 2011, when Time magazine placed “sharing” among the top ten ideas that would change the world for the better. If ownership “had just about ruined the country,” then as Time proclaimed in a headline: “Today’s Smart Choice: Don’t Own. Share” (Walsh 2011).

At its debut, cheerleaders promoted an optimistic, even utopian narrative that spoke of “doing good, building social connections, saving the environment, and providing economic benefits to ordinary people” (Schor 2014). Proponents claimed that the sharing economy decentralized production, allocated supply and demand more efficiently, and promoted social interaction and trust by putting owners and users into direct contact. It was “a feel-good story in which technological and economic innovation ushered in a better economic model” (Schor 2014, See also: Hamari et al. 2016, Sundrarajan 2017).

Within a relatively short time, however, a more discerning appraisal of the concept, the model, and the consequences began to appear. As platforms began to serve diverse functions, observers questioned the kinds of transactions that should be included in the sharing economy. Distinguishing sites that utilized assets (Airbnb) from those which offered labor and services (Uber), re-circulated goods (eBay) or performed some combination of these activities (Etsy), several scholars suggested the need to reserve different terms for different functions (Schor and Fitzmaurice 2015), Schor (2017) and Botsman (2015). Some debated the appropriateness of using “sharing” to refer to monetized transactions, pointing out the inherent contradictions in the concept (Kalamar 2013). By the ten year mark, it was becoming obvious that the term “had expanded and morphed” and was being widely applied to businesses without reference to their underlying model (Rinne 2018). Everyone wanted to be included because sharing was a warm, fuzzy concept connoting an anti-consumerist style and socially beneficial objectives.

As it entered the mainstream in 2013 and 2014 and the number of studies multiplied, the sharing economy was subject to increasing criticism directed at its relationship with and effects on the market economy. Several platforms quickly become “unicorns” – start-ups valued at more than $ 1 billion by private investors who funded their growth – leading some to argue that these successful for-profit platforms had “co-opted what began as a progressive, socially transformative idea” (Schor 2014, 10). Airbnb fit this description; it was a recipient of venture capital funding and followed the venture capital business model which encouraged start-ups to “grow aggressively – faster than the competition, faster than regulators” (Griffith 2019).

While some saw an inherent paradox – that the sharing economy was part of the capitalist economy while claiming to be an alternative (Richardson 2015) – others went further. Relabeling the sharing economy “platform capitalism,” Srnicek located it squarely within the evolution of capitalism and argued that it was the “only business model adequate to the digital age” (2017). Like all forms of capitalism, platform capitalism tends toward monopolistic positions and needs to continuously expand extraction and control into new areas. According to Srnicek, the sharing economy model is “the most hyped-up type of platform;” it is a “lean” platform and thus “the most unsustainable.”

Critics also pointed to the sharing economy’s “dark side” (Malhotra and Van Alstyne 2014). Instead of a path to sustainability, greater economic opportunity and a decentralized and more equitable economy, they noted the emergence of unregulated market places reinforced by a neoliberal paradigm, new forms of inequality and exploitation, and the emergence of a new precariat (Martin 2016; Murillo et al. 2017; Morozov 2013; Caldararo 2014; Scholz and Schneider 2016; Standing 2011).

This was only the beginning. Although it is not yet certain to what extent the platform-based economy or specific platforms will be reined in, these companies have currently become targets of widespread criticism. In the US and Europe, scrutiny has moved beyond media and academia to legislative bodies and courts where the issues range from concerns about data privacy and content, to labor exploitation and anti-trust violations.

Airbnb’s evolving model – from tourism disruptor to housing disruptor

Airbnb is a case in point. Frequently cited as the prototype of the sharing economy as well as a major commercial and financial success, Airbnb’s trajectory illustrates both the initial rhetoric of the sharing economy as well as the subsequent criticism of these technologically enabled platforms. Its iconic “origins” story, described in the Introduction, is of two roommates paying a high rent in San Francisco’s tight housing, who decide to rent out the floor of their San Francisco apartment and advertise online; thus, Airbnb was born.

Legitimation is central to this story for although homesharing was not new, it had negative connotations for both users and hosts. Airbnb’s promotion of alternative accommodations as a more authentic, experiential type of travel proved to be inspired marketing. It removed the rooming house stigma and made short-term rentals (STRs) fashionable, even sexy, for potential travelers. To overcome the “classic urban challenges of mass anonymity and a lack of strong social bonds” and to foster trust in sharing private space with strangers, Airbnb’s website and app provided users with tools to rate their experiences (Davidson and Infranca 2018).

Viewed by the travel and tourism industry as a “disruptor,” an innovation that upsets existing markets and arrangements, Airbnb has changed travel permanently and, many say, for the better. The company’s slogan – “Book rooms with locals rather than hotels” – has appealed to visitors looking for alternatives to hotels and for more authentic travel experiences. It has made travel less expensive, more family friendly, and as Airbnb has claimed, it has made cities “bigger,” expanding the tourist locale beyond a central hotel district to a diverse number of neighborhoods, many of them places without traditional hotels (Clampet 2014). For many travelers this relaxed localized style has itself become an inducement to further travel (Thompson 2018).

But to date, Airbnb continues to evolve, expanding and diversifying beyond its homesharing origins to compete directly with major full-service online travel platforms, such as Expedia and Booking.com. Within a decade, the company has grown from offering shared rooms to offering a wide range of accommodations – vacation rental homes, timeshares, luxury villas, traditional bed-and-breakfasts, boutique hotels and even treehouses. It also offers local tours and experiences.

Moreover, Airbnb has been moving beyond the tourism industry to real estate and has put forward plans to expand from the digital economy to production and ownership (Wilson 2018). According to Srnicek (2017), this evolution is inevitable because lean digital platforms such as Airbnb, which minimize the costs of ownership, are less viable in the long run unless they broaden their activities and acquire assets. An early venture was Airbnb’s Friendly Buildings program (2016) which provided a way for landlords, property managers and homeowners’ associations to manage hosting in multifamily buildings. Airbnb then partnered with Newgard Development Group to co-brand luxury rental apartments with hotel-style amenities such as front desks and concierge – Niido Powered by Airbnb. Announcing this project in 2017, Airbnb’s Chris Lehane, noted that Niido was “designed in part to help tenants afford the rising costs of rent” (Quackenbush 2017). Niido will be followed by similar new developments under the rubric Natiivo, in Austin, Texas, and Miami, Florida. Since these condo buildings will be licensed as hotels, owner/investors can rent the units on Airbnb all year long and “not worry about any municipal limitations on homesharing placed on traditional residences” (Sisson 2019). In 2018, Airbnb announced plans to design affordable housing to accommodate STRs. According to Joe Gebbia, one of the founders, the Backyard Initiative “is not just about housing but about rethinking the home” (Wilson 2018). This suggests that “the company that disrupted hotels wants to do the same for housing” (Riquier 2018).¹

This trajectory raises the question of whether it is appropriate to view Airbnb’s impact on the housing market as some sort of unforeseen or unanticipated consequence. Writing in the Atlantic Monthly, Derek Thompson said: “The platform is unwittingly producing a subsidy of tourists paid for by nonparticipating urban dwellers who bear the cost of higher rental prices” (2018). Alternately, we suggest that Airbnb’s impact on housing could have been anticipated from the start by looking at its business model.

Airbnb’s business model and housing

What does Airbnb’s business model have to say about housing? Like much of the sharing economy, the Airbnb business model makes money on the use of other people’s assets, namely residential space. It treats the home as a financial asset to market STRs, extracting a share of the profit from hosts and visitors in return for providing an easy-to-use payment system and access to a global marketplace.

While the home has always been a financial asset and, used as collateral, a potential source of capital that can be leveraged by incurring debt as with a second mortgage or home equity loan, the Airbnb model allows residents to generate revenue without incurring debt. The model also differs because it applies to renters as well as homeowners. Moreover, the institutionalization of the STRs as a new revenue source and an attractive business opportunity has reinforced the exchange value of housing.

Adopting the rhetoric of the sharing economy, Airbnb’s business model is based on motivating people to monetize their “underutilized” assets – rooms, apartments, houses – for the temporary use of visitors. Assuming these assets are spare rooms, or houses and apartments unused when the owner is on vacation, Airbnb proposes to put this excess or idle capacity to use. As Frenken and Schor (2017) point out, the meaning of underutilization is key to the controversy about homesharing platforms because STRs are not necessarily owner-occupied or even the primary residence of the host. For example, if a person buys a second home or apartment as an investment, with the sole purpose of renting it out to visitors, this property cannot be classified as underutilized; it then becomes a commercial lodging site.

Beyond the fiction of underutilization, housing differs from other assets, such as cars or tools. As a place of habitation, it is universally perceived to be a necessity or a human right, not an indulgence. Housing is also relatively fixed, represents a large investment of time and money, and cannot be quickly replaced. For these reasons, housing is typically subject to numerous protective regulations that apply to its utilization, safety and construction.

At the same time, housing stock is also flexible in that one can switch from owner-occupied to renter-occupied and from long-term to short-term rental depending upon local laws and regulations. Herein lies the threat that homesharing platforms and STRs pose to the residential housing market. As we will discuss in more detail in the following chapters, multi-unit hosts and commercialized sites have become an ever growing segment of Airbnb’s listings and profit, suggesting that a significant share of housing stock has shifted from the residential to the more lucrative short-term market as individual and corporate investors park their capital in residential housing. Given the inherently flexible nature of housing, the new and more lucrative short-term rental market lures owners and investors and promotes speculation to the detriment of residential housing.

Since profit and growth depend on an ever-increasing supply of hosts and listings which must be managed and serviced, commercialization and professionalization are part and parcel of the business model. The need for more hosts and listings, as noted earlier, has led Airbnb to partner with multi-family real estate owners, developers and property managers. It has also lured investors and created a professionalized ecosystem.

The Airbnb model also benefits from the tech industry’s well-known freedom from regulation. Drawing upon Section 230 of the 1996 Communications Decency Act, which gave the digital economy a free pass in accor...