Airbnb started as some quaint fun in 2007. Roommates Brian Chesky and Joe Gebbia had the idea to make some quick cash by inflating an air mattress in their living room and hiring it out as a bed and breakfast. Hence the name Airbnb. Although back in those days it was initially known as air bed and breakfast.
Since those early days, the Airbnb, or the short stay concept, has exploded. It’s gone from its initial idea of a host renting a private room and meeting new people, just like a traditional bed and breakfast, to something of a quasi-hotel service. Except there’s no host onsite and the guest has the run of an entire house or apartment.
The data scraped from Airbnb listings in Australia suggests entire house/apartment listings are 70% of listings in the major cities and can be 80-90% of listings in regional areas.
This tilt towards entire houses/apartments has fueled concerns, both in Australia and overseas, that short stay accommodation is contributing to housing shortages and pushing up the price of rents. There are other concerns around anti-social behaviours and dangers in mostly unregulated and unmonitored accommodation. Pushback has come from Airbnb and short stay advocates (who often have their finger in the pie as hosts) arguing on the tourism and economic benefits, often with studies commissioned by short stay companies.
This isn’t to say short stay accommodation is new. Second homes, shacks, lake cottages, and beach houses have always been rented over summer, but the global nature of listing services has turned it into a year-round enterprise that’s gone beyond ad hoc. Suddenly there was 20,000 dedicated listings in some cities. Zoning isn’t exactly a new thing, and in many jurisdictions short stays have been operating in a grey area. It caught regulators with their pants down.
This is what sharing economy tech platforms such as Airbnb and Uber count on. Once they appear, they assume no one will know how to react to them and the resulting inertia will work in their favour. As the concept grows, each layer of government will point their fingers at the other, absolving themselves of any responsibility. People then assume it must be legal. Tech platforms then start to lobby, demanding the rules to be defined in their favour.
Lately, the rulings haven’t been going in favour of the short stays. In many jurisdictions the legislative changes have been ramping up against short stays. Two of the bigger hits have come in the US & Canada.
Earlier this year New York banned short stays under 30 days, unless the owner was present. This timeframe was picked because if a guest stays over 30 days in a New York residence, they become a long-term tenant and then must be legally evicted. A headache no short stay host one wants to deal with. Airbnb listings in New York dropped more than 80% after the ban. Some have gone underground, but that means no third-party regulating payments or disputes, which increases the risk. Other US jurisdictions have started increasing taxes and permit fees, with Colorado drafting legislation to tax short stays at the 27.9% lodging rate, rather than the current 6.77% residential rate for stays under 30 days.
Some Canadian cities previously had rules where short stays had to be registered with the cities and they would be capped at a maximum of 180 days a year. Airbnb claimed the restrictions didn’t work because they didn’t alleviate the housing shortage. In truth, the rules didn’t work because the same cities also admitted they didn’t have the ability to enforce them! Hosts didn’t bother to get a permit and keen-eyed internet sleuths would compile evidence of properties being available year-round, flouting the rules without penalty.
But British Columbia came down hard on short stays in October. Planning to ban them in cities with over 10,000 people, unless they were the host’s principal residence. BC also planned to back up the legislation with fines of $3,000 a day and an enforcement team, so it wasn’t left to people on the internet to point out hosts were breaking the rules. In November, the Canadian Federal Government announced new rules on the taxation of short stays: no more deduction of expenses.
In both New York and British Columbia, the loudest complaints have come from hosts who’d essentially set up amateur hotel businesses. “I’ll have to sell my properties!”, “how could you do this to us?” “this is communism!” etc etc. These people were borrowing hundreds of thousands of dollars to operate in a grey area, then complained it was the rule changes that did them dirty. As noted earlier, zoning isn’t a new thing.
We certainly understand the initial appeal. Short stays would make money a lot faster than buying and letting a long-term rental, but there are no question marks hovering over an investor’s ability to let out a rental property over the long term.
This gets back to being able to recognise and rationalise risk. Legislative risk is real and omnipotent. Some short stay hosts didn’t see it, but others definitely understood the potential risk. Many around the world have either run for local councils or strata boards in the attempt to head off restrictions. They argued on the freedom to do as they choose with their property, along with the tourism and economic benefits.
Arguing on the tourism and economic benefits was always a double-edged sword. The more popular short stays became, the greater the risk they became to themselves. Consider the dynamic. If long term accommodation becomes scarce and rents massively increase due to short stays in small tourist destinations or city cores, it undermines the ability of those areas to offer tourist or essential services because those workers can’t afford to live there.
The freedom argument is an interesting one. We have clients with short stays, we have clients who’ve pondered short stays, and clients affected by short stays. With the first two, it’s certainly not our suggestion. The only advice would be to ensure the property also works financially as long-term accommodation. With the last one, it’s a little different. When you’re directly affected by short stays, the freedom to enjoy the amenity of your own property becomes a bigger factor.
Such clients have short stays in their street. They see a lot more parties than they used to, and eventually they had to gate their property. Some international tourists like to have a “look around” the street. This includes visiting backyards. Sometimes they want to get a better selfie taking in our client’s view, several went so far as to walk up on our client’s deck! It’s this type of stuff that also increases the risks to short stays. Residents can get frustrated seeing itinerants regularly coming and going in their street or building.
Australia has so far been described as a light touch on Airbnb, whether that changes we don’t know, but as noted legislative risk is omnipotent.
Australia appears determined to run a large immigration program at the same time it doesn’t build enough houses. Sensing a push back, the government has started making noise about needing immigrants in construction to build homes. This collides with the reality that people don’t necessarily immigrate to Australia to work in construction, while unions are pressuring the government to ensure tradespeople are excluded from fast-track visas. Two things that won’t expedite housing construction.
If you want to run a large immigration program and you can’t build enough houses, you’ll have to start looking around for things that can be sacrificed. Residential accommodation being moved from the long-term to short-term pool may be a potential target.
The risks continue to stack up.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.
With thanks to FYG Planners for this article