Is Airbnb in trouble? Revenue drop raises housing market crash fears
A potential revenue crisis looms for Airbnb, the renowned platform that enables property owners to rent out their spaces to travellers, signaling trouble in the real estate market.
Recent data comparing Airbnb profits in the US in May 2022 and May 2023 reveals a significant decline in revenues for the San Francisco-based company, with cities like Phoenix, Arizona, and Austin, Texas experiencing a nearly 50 per cent drop. These figures indicate that Airbnb may be facing a developing crisis.
This alarming decrease in revenues raises concerns about a possible housing market crash, evoking memories of the infamous 2008 subprime crisis, which caused a severe economic recession in the United States.
Understanding the issue
- Homeowners who rely on rental income to cover their mortgage payments may face difficulties due to a reduced number of renters.
- The decline in Airbnb revenues, coupled with homeowners' dependence on rental income, could potentially force them to sell their properties, in turn potentially leading to a housing market crash.
- Post-pandemic travel has slowed down, resulting in fewer people utilizing short-term rentals like Airbnb.
- During a period of low interest rates and high demand for short-term rentals, there has been an increase in the supply of Airbnb rentals, with more individuals listing their properties for short-term renting on platforms like Airbnb.
- The combination of increased supply and decreased demand can create market pressure.
According to Nick Gerli, CEO of Reventure Consulting, individuals who purchased homes when interest rates were lower may be able to retain their properties as their monthly expenses are relatively lower.
However, those with higher monthly expenses may be compelled to sell their properties.
Preference for hotels over Airbnb
Post-pandemic, there has been a shift in preference towards luxury, boutique, and lifestyle hotels over traditional Airbnbs.
- Hotels offer standardised amenities, quality control, and established protocols, providing guests with a reliable and predictable experience.
- Hotels often provide a range of on-site facilities and services, including restaurants, bars, gyms, spas, and concierge services, enhancing the overall guest experience.
- Well-defined cleaning standards and regular housekeeping services ensure a clean and well-maintained environment for guests.
- Many hotels offer loyalty programs that allow guests to earn points and enjoy perks such as discounted rates, room upgrades, and additional amenities, incentivizing guests to choose hotels for their stays.
Also Read: Why has Airbnb sued the city of New York?
Airbnb's extra fees
One significant factor that has influenced people to choose hotels over Airbnb is the excessive service and cleaning charges imposed by Airbnb.
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Guests have complained about additional fees for services, cleaning, and taxes, which significantly surpass the initially advertised amount.
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Instances of guests being charged an extra $180 (INR 12,000) for cleaning and $80 (INR 6,000) during checkout have been reported.
- Guests were also asked to pay additional fees of $5 (INR 410) per person for towels, $25 (INR 2,000) for using one of the robes, $50 (INR 4,000) to access the pool, and cleaning fees of up to $500 (INR 40,000).
- Bookings made on Airbnb were considered misleading, as there was a substantial disparity between the booking amount and the amount displayed during checkout.
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Phoenix Airbnb experienced a significant setback during the busiest weekend of the Super Bowl in February 2023, when the owner of 95 properties had to reduce prices from $1,200 (INR 98,000) to $500 (INR 41,000) after only half of the properties were booked.
All these factors have tarnished the image of Airbnb, potentially leading to a market crash.
Also Read: Trolled for hidden cleaning fees, Airbnb will now tell you upfront how much you're paying