Airbnb Gets Disrupted. Hosts, “Super-Hosts” Try to Survive. Apartments in Prime Locations Suddenly Flood Rental Market

Big driver behind soaring rents — the “Airbnb effect” that removed countless properties from global cities’ long-term rental markets — reverses.

By Nick Corbishley, for WOLF STREET:

With many of the world’s most popular tourist destinations locked down, and many flights canceled, making international tourism all but impossible, the world’s biggest disruptor of global tourism, Airbnb, faces a starkly different market reality. As of mid-April, new bookings on the company’s portal had plunged 85% year over year while cancellation rates were around 90%, according to AirDNA, an online rental analytics firm.

Airbnb has warned that its 2020 revenue could come in 50% lower than its 2019 total. This is a company that wasn’t even able to turn a profit when the Good Times were raging.

To try to keep investors on board, management has unleashed a brutal restructuring of the group’s global operations. Last week, it laid off 1,900 workers, around 25% of its global workforce. The San Francisco-based company also rescinded a contract it has with a call center in Barcelona, resulting in the immediate loss of a further 1,000 subcontracted jobs.

One of Airbnb’s biggest rivals, Amsterdam-based Booking.com, is in similar straits. In March, its American parent company, Booking Holdings, posted a first quarter loss of $699 million, down from $765 million a year ago, as bookings plummeted 43%. Also for March it reported a decline of over 100% in room nights, a feat that was made possible by the fact it received more cancellations than new bookings during the month.

“Looking at things a different way, our newly booked room nights, which exclude the impact of cancellations, were down over 60% year-over-year in March and down over 85% in April,” said chief executive Glenn Fogel at last week’s earnings presentation. “This gives you a clear indication of how much our business is currently impacted by this crisis.”

Things are set to get even worse. In April, Booking warned investors the virus crisis would impact the second quarter of 2020 “much more significantly” than the first, though it declined to offer full second-quarter guidance.

The company recently applied for Dutch government support to help pay its 5,500 workers in the Netherlands, which did not go down well with Dutch taxpayers. Like so many other large listed companies, Booking spent $4.5 billion buying back its own stock in 2019, significantly reducing its capital and impairing its ability to weather future storms such as the current one. Now, to tide it over, the company has borrowed $4 billion of emergency funds.

For companies like Airbnb and Booking that can raise such vast sums of money with such apparent ease, this crisis is likely to be painful but not fatal.

But the same cannot be said of many of their professional hosts and so-called “super-hosts”, some of whom took out huge amounts of debt to buy up prime-located properties in order to rent them out, at huge profit, to big-spending overseas tourists. Now, they’re struggling to pay back those debts as their incomes plummet.

Airbnb listings in Paris have “collapsed” since Covid arrived. according to Ian Brossat, the Paris deputy mayor in charge of housing. In the first three weeks of April, Airbnb hosts registered a measly 40 stays with authorities, compared to an average of 1,210 a month last year.

In Spain there are around 220,000 owners of tourist lodgings, 95% of whom are private individuals. They’ve already racked up losses of €448 million due to the coronavirus crisis. Those losses are expected to reach at least €2.9 billion by the end of 2020, according to calculations by the Spanish Federation of Associations of Tourist Housing and Apartments (Fevitur). The worst of the pain will be felt in Catalonia — where annual turnover for owners of tourist lodgings is expected to fall by 85% — followed by Andalusia and the Valencian Community.

A similar trend is unfolding across many of Europe’s most popular tourist destinations, from Amsterdam to London, to Rome.

With no end in sight to the travel restrictions crippling global tourism, Airbnb hosts are scrabbling around for a plan B. In Canada, the company even asked the government to lend a helping hand with tax breaks and other forms of financial support. Some hosts are hoping beyond hope that domestic tourists will pick up some of the slack once national travel restrictions are eased. Others are abandoning the tourist rental business altogether.

Real estate agencies in London are noticing that growing numbers of landlords who used to advertise on short-let platforms are now offering long-term leases as a result of the Coronavirus crisis. A similar phenomenon is happening in Spain where big cities such as Madrid and Barcelona have seen a sudden surge in the number of new upmarket, centrally located flats being advertised on real estate agency websites.

In many cases, the property owners are only after a short-term fix, in the hope that international tourism will pick up early next year. Rather than offering long-term leases of five to seven years, they are offering short leases of up to a year. In Barcelona, where 90% of the city’s tourism is international, “many hosts have entered into this type of leasing to be able to hang on until the beginning of 2021,” says Enrique Alcántara, president of the Barcelona Tourist Apartments Association (Apartur).

However, short leases like these are only legal for people who move temporarily to the city for work, says Janet Sanz, Barcelona’s deputy mayor. As no one is currently allowed to move between Barcelona, which is still in the first phase (phase zero) of lockdown, and other Spanish provinces, let alone reach the city from other countries, most of these rentals are likely to be illegal. According to Sanz, anyone caught bending the rules will be prosecuted.

In some cities, as the glut of rental properties grows, there are already signs that demand for rented property, whether short- or long-term, is slumping. Many expat workers moved back to their native lands before the lockdown began, abandoning their flats and their rents in the process. Others who missed that chance are just waiting to board the next plane out. There are also the millions of homegrown workers who have lost their jobs and have stopped paying rents altogether.

Having entered lockdown slightly later than most other European capitals, London saw an 11% year-on-year rise in the number of homes available to rent in March, as well as a 2.2% fall in prices, according to research from Hamptons International. In other cities, where lockdowns have prevented landlords from even showing their properties for the last two months, it is too early to tell just how big the impact will be.

But the fact that growing numbers of holiday property owners are flooding the long-term rental market with their own properties, at a time that millions of workers have lost their jobs while millions more have upped sticks and headed home, does not bode well for long-lease landlords. Nor does the fact that one of the biggest drivers of soaring rents of the past ten years — the so-called “Airbnb effect,” which has removed millions of properties from global cities’ long-term rental markets — is losing its power.

City mayors and city councils will try to take advantage of its waning power to ensure that vacation rentals return to the traditional rental market. For tenants who’ve had to endure years of soaring rents as wages have generally stagnated, it’s good news at long last, assuming they’ve still got jobs with which to pay the rent. By Nick Corbishley, for WOLF STREET.

Luxury retail isn’t what it used to be, from Barcelona to Hong Kong. Read...  Retail Landlords Reel as Big Luxury Brands Threaten to Close Stores if Rents Aren’t Slashed

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  129 comments for “Airbnb Gets Disrupted. Hosts, “Super-Hosts” Try to Survive. Apartments in Prime Locations Suddenly Flood Rental Market

  1. Tim says:

    It’s the last line that will ultimately tell…

    What might possibly happen if these, effectively buy-to-short-term-let landlords, after little or no income for 6-9 months, jingle mail their properties to struggling banks…

    Their properties will either sit on balance sheets or head to auction.

    We’ve seen this before….

    • Educated but Poor Millennial says:

      For the last 4 years, in Zillow website, I saw an increasing trend where banks are putting more and more foreclosed properties for sale in the market, and in the history of those homes, you can easily see that they all are sold in 2006 & 2007, they are unloading faster now. Irony is that now you will see more foreclosed homes for sell in the auction than listed by regular people or Realtors. They are now unloading more since they know that the crash id getting closer and closer,

    • Timothy L. says:

      Or wholesalers buy them cheap before they hit the retail market – listed on the MLS. I haven’t tried my hand at wholesaling in a couple if years but I may give it a shot again.

    • char says:

      Jingle mail is something American. In Europe it is harder to do.

    • intosh says:

      Many of these play the AirBnB market, don’t declare their income and hire people under-the-table to clean/manage the apartments. Now, they are asking for… wait for it…. government for bail out! Some want rent and mortgages cancelled. How about cancelling my income taxes while at it?

      Have fun unwinding your over-leveraged gamble.

      • Ethan in NoVA says:

        Doesn’t AirBNB report their income?

        Neighbors that rented the place next to me rented out their ground floor living room for up to 4 people on AirBNB. Kinda strange heading out to work when the Uber is piling in all the Japenese school girls.

    • RR. says:

      I think your opinion is correct.
      If you are correct, and by chance, they lose control of the Gold
      Game and Physical Gold spikes at the same time as those auctions,
      my daughter and I will be combing through the Bank Holdings on
      the Catalonian Costa Brava. (Or somewhere else that is comparable.)

  2. Phoenix_Ikki says:

    I don’t feel bad about these superhosts or anyone over leverage themselves to buy properties to strictly try to make money off Airbnb rental. Just as the same way these people likely didn’t feel bad about driving up rent prices in neighborhood they probably don’t even belong in and leave working class holding the bag. Ultimately it’s the system at fault to allow Airbnb or Uber to skirt around regulation in the name of profit at the cost of society, however if you’re a Airbnb only landlord then you’re part of the problem and not the solution, you just happen to be further down the ladder to help perpetual this capitalism at all cost model.

    • Tom Stone says:

      AirBNB did not just drive up rental prices, it had a substantial effect on purchase prices and thus home “Values”.
      Perhaps as much as 20% in Western Sonoma County Ca.

      • Patrick says:

        @Tom Stone: High home prices drive the rent prices. The local tenants are driven to compete with tourists for place to stay.

  3. Trinacria says:

    I’ve always been a bit uncomfortable with the word “AIR” as part of the name. Obviously a clue of what was to come. Once this “thing” fully hits, there is going to be a whole lot of “AIR” debt out there in all areas of the economy. Gird those loins!!!

    • Willy Winky says:

      Karma?

      It’s unclear exactly when Airbnb implemented what’s become their most famous growth hack, but there is evidence of the Craigslist platform hack as early as 2010. [6]

      Though the startup worked hard to distinguish themselves from the more impersonal, scam-filled super platform, Craigslist had one thing that Airbnb did not—a massive user base. Airbnb knew through both market research and their own experience that Craigslist was the place where people who wanted something other than the standard hotel experience looked for listings—in other words, Airbnb’s target market.

      In order to tap into this market, Airbnb offered users who listed properties on Airbnb the opportunity to post them to Craigslist as well—despite the fact that there was no sanctioned way from Craigslist to do so.

      https://growthhackers.com/growth-studies/airbnb

      • intosh says:

        It is karma only if these reptiles exploiting the system’s weaknesses (e.g. regulations not moving fast enough and the lack of effective policing) aren’t going to be bailed out. Their failures threatening the whole RE castle of cards is not an impossibility. The Fed’s printers are already warmed up so…

  4. Petunia says:

    A big hotel REIT just defaulted on their hotel loans, $3.2B. They also own a large number of SFR, who are probably not paying rent right now. Oh, well.

  5. Rolf says:

    It was great while it lasted. Those who saved for a rainy day are fine. The other 95%?

    Here in Costa Rica all hotels and the many airbnbs built or bought or rented for airbnb listings are sucking a lot of air now.

  6. gorbachev says:

    There used to be hundreds of tiny booking agents throughout

    America.They charged about 20% to the homes they booked

    for and were profitable. Airbnb charges 3% -wiped them out-

    amid massive losses and massive booking.

    I do think people will travel in big numbers again and use Airbnb

    after being cooped up for so long.Younger people have managed

    this pandemic pretty well and will take the risk.

    If Airbnb raises their fee to say 6% they will be profitable and

    all those apts. will be needed once more.

    • SocalJim says:

      AirBnB, as well as all the other sharing and reuse business models are DEAD. They are worth $0.00. All those Silicon Valley jobs building that stuff are gone forever.

      • Cas127 says:

        “reuse business models are DEAD.”

        See your point, but if the “shared resource” economy (hugely empowered by the coordination/optimization made possible by the internet) is truly damaged, I think the mass of Americans are going to be made worse off.

        In certain industries (autos and housing come to mind) using yield optimizers to determine pricing (so as to maximize revenue by trading off price and sales volume) has become more and more entrenched.

        At bottom, yield optimization maximizes supplier revenue by holding some percentage of supply off mkt – in order to goose sales prices enough to more than offset the sales volume declines.

        I think that trend is responsible for that limited number of industries which have been able to hike prices…in the face of technological advancement and intl competition that should have hiked supply and therefore lowered prices.

        To an extent, the sharing economy brought the power of internet optimization to bear for the consumer…offsetting the supply-withholding power of yield optimizers.

        So I don’t think a disease ridden end of the sharing economy is going to be a good thing for consumers.

      • MonkeyBusiness says:

        Oh come SocalJim, how are we supposed to keep levitating the housing market without those disruptive jobs? :)

        Also, AirBnb actually posted a public directory of people laid off so that they can get some help quickly, and only about 100 Engineers/Data Scientists in total were laid off. 100 out of 1900 is nothing. It’s obvious that AirBnb thinks that this is only a short term disruption.

      • Engin-ear says:

        The rumors of the death of cost-sharing business models are exagerated.

        Price is an eternal argument for all except top 10% pockets.

        New tech allow such sharings be more and more practical. But of course, if you stretch the model too far, it will become a scam.

    • Willy Winky says:

      Airbnb charges both sides… and I believe the total fees approach 20%

      The rates you see on their site are not what the hosts receive.

      Also if you cancel a booking Airbnb get still get their piece.

    • Prof. Emeritus says:

      If by ‘younger people managed pretty well’ you mean that they only lost a fraction of their wealth then I must disappoint you: it’s an illusion. They only lost so little because they didn’t had anything in the first place to put into cars, Airbnb lofts, stocks or other form of (mal)investment. All they could preserve better is their health. Mind you – I think it’s worth the most, but we are highly unlikely to see millennials spending money like there is no tomorrow. That generation won’t travel to any place they can look at in Google Earth. And you can look at even on the Moon in that software.

  7. Javert Chip says:

    I’m not an international RE legal guru, but I’d be amazed if any of those loans were non-recourse.

    If any indeed are, that’s seems an appropriate target for regulatory action.

    • nick kelly says:

      Suing after a foreclosure is rare: in big business it’s usually in the legalese that the property is the security, in the case of the small landlords at the base of the AirB biz, it’s pointless. The guy has walked because he has no equity. If he’s willing to have a foreclosure on his credit he probably doesn’t have much else.

      In the case of a multi-millionaire it might be worth it to chase other assets, assuming the guy is a dumb mogul who doesn’t know how to protect assets, even if only the 101 method of ‘selling’ to wife.

      A guy who did some sub-divisions on Van Isle wrote a book about it and an experience he had with a major civil engineering outfit in the US. They told him he could get 300 lots out of a property but for X factors only got half that. He spent the next three years in litigation and got judgement. This was in the 80’s crash and the outfit had a few other probs. By the time the developer got his judgement they had skillfully drained the co of any value leaving a shell. He said he’d never sue again if it was up to him.

      • Paulo says:

        Nick,

        I worked for a contractor/owner on Vancouver Island for awhile back in the ’70s. He built his own apartment buildings etc, operated a union company that paid over negotiated rate, and was doing quite well for many many years. He was an excellent employer, top notch. One day, RBC called his loans and took over his properties. He sued, and it took a decade + to achieve his win, but win he did. They had structured his financing with an apparent loophole to force a takeover on their terms. I guess they wanted his success.

        By the time he finished winning in court it almost killed him, and definitely hurt him financially for many many years.

        You drive by his apartment buildings every time you go down Island. I don’t believe he ever got the buildings back, but he did get a huge cash settlement in the end.

        The birds of prey are always out there, circling, waiting for a juicy morsel or a big fat property feast. Woe betide those who forget the rules and leave themselves exposed.

        “The storms come and go, the waves crash overhead, the big fish eat the little fish, and I keep on paddling. (Varys)”

        • Lisa_Hooker says:

          And we should all reflect that a judgement is only a judgement, a piece of paper. It is just the start of the legal process for title ownership. Often starts with going back to court to obtain a writ of replevin.

    • fajensen says:

      In Europe mortgages are normally full recourse loans. You will pay, with your grandchildren sold into slavery, if at all possible :).

      That is not nice, so what professional property people do is to wrap each rental home project in a separate business, letting the business take out the mortgage with the rental home as security (there is a form to fill out). This is quite possible in a happy, rising, market, maybe with some cash down and so on, so the bank is happy with originating the mortgage.

      One can even have a holding company in Denmark owning the sub-units, and screw around with the taxation too (but now you need a lawyer and an accountant and a receptionist for the holding company, all this can of course be “in the cloud”, Denmark is very flexible as long as others are being screwed on the tax)!

      Now, The Quirk is that there are very roughly two kinds of business, Personal and Limited Company.

      There are many valuable incentives for starting a Personal-type business, tax breaks, easier to borrow, less bureaucracy, and so on. Many people starting out begins with Personal type business for all those reasons. Which is totally OK as long as one doesn’t need a lot of financing or takes on a lot of liabilities.

      The downside is that the owner of the Personal business also signs for the debt. Basically, in this setup the business debt becomes full-recourse and falls on the owner!

      With the Limited Company – one just loses the deposit (5000 EUR in DK) and whatever cash was in there when it went bankrupt!

      I would suspect a lot of the AirBnB ‘super-hosts’ went with the Personal Business model and never changed to a Limited Company as they scaled up – these are the good times, yes?

      So personal bankruptcies are all around I think! Not yet, around August-September, would be my crazy-ass guess.

      Must remember to order some Macanudo Cafe cigars for the occasion!

      • Tim says:

        Nah, Hoyo Epicure number 1’s…

        Boxes and boxes and boxes… with nice matches, cedar tapers and a good cutter.

        (although, obviously would never, ahem, in reality recommend that anyone smokes anything.)

  8. David Hall says:

    Retirees are a substantial part of the tourist industry customer base. They may not want the risk of searching for utopia as over 4 million have been infected.

  9. seb says:

    It will be interesting to see what happens in Hawaii. Not just AirBnB but VRBO. I know someone who just purchased their 3rd VRBO property on Maui in 2018. As you can probably guess, they are getting crushed under the weight of their mortgages. Hawaii is none too happy about tourists at this point and tourism from Asia is a huge part of their economy – at least it is on Oahu.

    • Seneca's cliff says:

      My wife grew up on Maui. We live on the mainland now, but she is in touch with her old high school classmates. They are glad to see the tourists gone, and have an active movement called “mai hele mai”. Which means, “don’t come,” in hawaiian. I would not be surprised if the mainland folk come to check on their condo’s or VRBO properties and find them occupied by locals. Then much to their surprise when they go to the Maui County Sheriff to get the locals evicted they will find that he too went to the same high school and has a mai hele mai banner on the wall.

      • Just Some Random Guy says:

        LOL.

        How do you say 60% unemployment rate in Hawaiian? Because without those tourists that’s the future of Hawaii.

      • noname says:

        pathetic

      • A Citizen says:

        I don’t want to be there even more than they don’t want me there. A long plane flight to stand around with a bunch of fatties in grass skirts dancing hypocritically for people they secretly despise? Nice picture.

        Come to Florida. Better food, better golf, prettier girls and way nicer people.

    • MCH says:

      Hawaii is literally stuck between a rock and a hard place, all of their economy is built on tourism, and that dependence has grown deeper over the years.

      Now, to have to literally choose between health and economy, it’s the worst of all worlds.

      Worse yet, I think the second largest economic driver in the state is probably the local government. That is gonna get whacked due to the sudden loss of tourist dollars.

      I suppose the potential advantage for the people on Oahu is that they’ll finally pull the plug on that idiotic train they’ve been trying to finish for the last decade

      • char says:

        Tourist yen. Hawaii gets an awful lot of tourist out of Asia.

        Hawaii also has the problem what to choose± Health and Asian tourist or American tourist.

      • LocoMoco says:

        Hawaii’s economy runs on 1)Tourism 2) Military and Federal jobs 3) State and local jobs 4) Agriculture 5) Construction – there’s not much choice in the middle of the Pacific but hopefully one good thing will come out of this for us – a rebalancing of tourism vs agriculture. All those idiotic golf courses could be creating a sustainable food supply instead of us importing 90% of our dietary needs. We don’t need tourism – all it’s given us is low paying jobs with no security and no benefits. We’d all prefer that you go to Florida too just like A Citizen said.

        • LocoMoco says:

          Oh, and I forgot – Tourism gave us those insane rents to go along with the low paying tourist jobs – and Covid-19 – thanks for that too.

    • Just Some Random Guy says:

      seb,

      I think you’re a litt;e confused about how this works. There is no such thing as a VRBO or an AirBNB property. Owners of any property can list it on either VRBO or AirBNB or both. As well as list it on Craiglist, ads in the newspaper (yes those are still a thing), etc. Airbnb is just one of many marketing tools to rent out properties. There’s no exclusivity between it and hosts. Think of it like Uber and Lyft with many drivers using both platforms while driving the same car and switching between platforms by driver. Someone who owns property X can rent it out one week using VRBO, then the next week using AirBnb, then the week after that using an ad on Craigslist and so on.

      • Just Some Random Guy says:

        Should say switching between platforms by fare (not by driver).

      • David G LA says:

        Airbnb is (was?) in the process of building its own hotels.

        • MC01 says:

          Airbnb pulled a slick one with those “condo-hotels”, as they were nicknamed.
          Airbnb won’t own nor manage them but will provide their brand and “consultation on interior design”, whatever that means since these buildings will feature “unfurnished apartments”.
          Neither will the developers, as the plan is to sell units inside these buildings to third parties to list them on Airbnb: prices are all over the place, from $350,000 in Nashville to $1.2 million in Miami.
          Technically speaking these units should come with a rental license included but since the first will be completed in 2021 we’ll just have to wait and see.

  10. Jon W says:

    2.2% price fall in London!! I wonder how they worked that out. In the part of zone 1 where I live the market is flooded with Airbnb (it’s shocking to realise how many flats were being used for this, since legally you’re only supposed to do it for 3 months of a year). If they want to rent it, cuts are closer to 25%. If they want to have it sit on Rightmove with all the other ones piling up then sure, 2.2% it is.

    Having said that interest rates are rock bottom and holding costs are very low in London so they’ll probably be able to hang in there for a while yet.

    • Tim says:

      6-9 months?

    • jon says:

      Just wait for 6 months or so.
      In 6 months either things would go back to normal or it’d be blood bath on the street.

      This time housing stock in desirable cities have another dimension/domino: STR aka Short Term Rental. It can bring the whole comps down

      • Richard H Caldwell says:

        I will ever so joyfully dance on AirBnB’s and booking.com’s graves, should I be so fortunate, as a hotel owner, to have an opportunity to do so. Schadenfreude served very cold, please…

  11. Stuart says:

    Economic depression, rent strikes, no tourism, local markets to be flooded with former short term rentals becoming normal apartment rentals again, I sure would hate to be a parasite, I mean landlord right now.

    • Beardawg says:

      Stuart

      Some of us are Mom n Pop landlords who treat tenants with respect. I am not sure what makes a person who worked hard all their life in order to procure rental properties a parasite ?

      • Yertippin says:

        While not speaking for Stuart, the problem is that the “I worked hard for mine” crowd is doing the heavy lifting for the top. They have to work tirelessly to hold on to that little bit of the dream. This supports the narrative that enables the jumbo parasites to hold on to a MASSIVE portion of the dream thereby denying many other “hard working” people any part of the dream whatsoever. So, if many people are pleased that the poo might get the landlords ankles wet this time, you shouldn’t be surprised. Pitting the lesser of us against each other isn’t a strategy, it’s a reliably effective religion for the money printers. Good landlords should look at where the problem really lies, which is above them.

      • Joe in LA says:

        Rental owners derive their income from the fact that renters are priced out of the housing market. So, at bottom, it’s just about capital using its location advantage to squeeze dollars out of people who are actually making things and providing services. Almost nothing new is created by the rentier.

        It’s almost completely extractive from the productive economy. So, sorry, from a capitalist perspective, it is a parasitic activity.

        • MCH says:

          You can make that same argument about a whole lot of activities… a few that comes to mind, banks, insurance companies, lots of law firms, although I would say that the act of maintaining the upkeep on a rental unit is not something you would call parasitic…

        • roddy6667 says:

          Are you AOC?

        • Just Looking says:

          It’s not parasitic at all in most cases. Moms and Pops, and I know many in the Bay Area, provide homes for people living in this area but choosing not to buy for many reasons. Most that I have rented to are in the area for short term work transfers of 2-4 years and don’t want to buy even though they have more than enough money to do so. They all make a lot more than I ever did and are very much appreciative of my clean and well maintained home.

        • Phil says:

          “You can make that same argument about a whole lot of activities… a few that comes to mind, banks, insurance companies, lots of law firms, ”

          Yes you could say that… in fact many of us do.

        • cb says:

          @ Just looking –
          Mom & Pops? sounds qaint. How did Mom & Pop acquire these rentals? How do they benefit?

          A one bedroom in San Francisco rents for $3500 per month. A two befroom for $4500. A comparable two bedroom condo might sell for $1,200,000. Wouldn’t make sense to buy it for a rental, but if you bought it some time ago, it sure makes good sense. To pay that $4500 per month, it takes about $70,000 of pre-tax earnings. So to cover the rent the breadwinner better be a hell of a producer. So yes, that breadwinner might be a lot more productive as a wage earner than Mom and Pop ever was. But timing might be on Mom & Pops side. They bought early and rode one of the FED bubbles. Mr. Breadwinner – He just gets to keep producing and paying Mom & Pop.

          So while Mom & Pop walked a mile through the snow and “worked hard”, breadwinner gets to keep shoveling through an avalanche, hope he keeps his job and figure out how to achieve the American dream.

      • otishertz says:

        If they benefit from the rise in rent rates and charge their tenants more because AirBnB drove up rents I’d call them complicit with or at least dependent on AirBnB for their rent justification.

        AirBnB motel backyard operators took on big corporate types of leverage and made a run at taking over the business of their local hotels and motels. Hopefully,, the superhosts insulated themselves through corporate ownership or they will cry. Either way, their greed is amusing but it is not my problem.

        If a substantial amount of them cry loud enough they might get free money. I’d hate that with a passion.

      • RR. says:

        In parallel to your comment, last year we used AirBNB several
        times across Switzerland and Italy. We met wonderful owners,
        stayed in a 500 year old Swiss Farmhouse deep in the mountains,
        and had a complete floor to ourselves in an older villa in the
        “Old Money” district near Turin. We met people we would love
        to have as friends, not people I would deem as “Parasites”.
        I wish you good luck in these “Most Interesting Times”.

    • 2banana says:

      You really think people who provide a service to folks who don’t want to buy a house, can’t afford a house or don’t want to take care of a house as a parasite?

      Well, God bless you for never having to be in such a situation and/or having the means to never be in that situation.

      “I sure would hate to be a parasite, I mean landlord right now.”

      • No Expert says:

        If the tenant is paying the mortgage via the landlord, its the tenant providing housing to the landlord not the other way round. Landlord just ends up with the asset. No tears for rentiers.

        • MCH says:

          I would argue that the landlord at some point would have had to put in the down payment that the tenant could not have afforded, or he would’ve bought himself.

          Now you might say, that’s a matter of choice. And I’d agree, renting is a matter of choice, as is ownership, both have its advantages and disadvantages. For example, if the house of the renter burns down, he is not on the hook for the rebuild or anything like it, he packs up and leaves, his material possession (outside the of the sentimental) is probably not a significant part of his worth, unless he happened to have a big pile of cash that was destroyed along with the house. The landlord is stuck with the problem, I think that’s a big advantage any renter has. Yes, it’s a rare event, but it still happens.

          And for those who hadn’t noticed, the current US president has decidedly tilted the field against homeowners, especially in the coastal states.

    • MCH says:

      yeah, I suppose the alternative is government run apartment blocks that can be rented at a reasonable cost?

      Just saying…

    • Top-GUN says:

      I worked my butt off, saved and scrimped all my life and retired with 10 fully paid for single family residences. I’m a dam good landlord with long term tenants that love living in my properties….
      Parasites are all the lazy bums that waste their money and make stupid personal decisions all their life, then want me to subsidize them…food stamps, free health care, Obama phones,, you name it….

      • weinerdog43 says:

        Nope. You’re still a parasite.

      • BaritoneWoman says:

        You lost me at “Obama phones”.

      • Ethan in NoVA says:

        If you had whatever your job was today, could you buy the same houses today (pre-covid)

      • cb says:

        Top-GUN said: “I worked my butt off, saved and scrimped all my life and retired with 10 fully paid for single family residences.”
        __________________________________

        Wow! Sounds liked you really had a tough life. Living through all that hardship and only managing to piece together 10 houses. Sounds like a horrific road on the way to being a 1 percenter, or 10 percenter, or whatever.

  12. SocalJim says:

    “Apartments in Prime Locations Suddenly Flood Rental Market” … those apartments in SF, NYC, and all the other urban areas are not prime anymore. Those junk because living there will expose you to COVID.

    The prime locations are single families with space that are not to far away from cities. Bidding wars are happening on prime single family rentals. No bid for the urban apartment experience.

    • Old Engineer says:

      I really think you are right about the desirability of SFDs. Adding to that will be the need to have the ability to convert a garage or add onto to put the parents in. Except for the most seriously ill, people are going to want to avoid nursing homes. That is going to have a big effect on finances as well.

    • Trinacria says:

      well, I must agree with Jim on this one.

      • noname says:

        “living there will expose you to COVID”

        living there will expose you earlier to COVID.

    • MCH says:

      You know, the funny thing is in a place like SF, where there are an overabundance of luxury condos, the supply and demand equations will shift because of this. The city might just be able to raise taxes enough to buy whole building cheaply, and then turn them into desirable subsidized housing. It could help the city with its long term housing problems.

      The other thing is, I think this is going to put paid to the Treasure Island development project, because seriously, at that point, who’d want to live in a landfill surrounded by cities.

  13. FinePrintGuy says:

    The corporate and investor overlords at Airbnb and Booking.com must be patting themselves on the back. Just think: they took no risk and let others do the dirty work of developing hotel rooms. Their caution is paying off, the market is down, and they can just wave good-bye to all these underwater ‘hosts’. There will be a fresh crop of super hosts on the other side of this crisis. All they have to do now is right size their G&A expenses by laying off the dead weight and feather the nest with fresh cash. Bravo…

  14. Clete says:

    Conversely/Anecdotally: We have a mountain place (East Coast division) that’s within a few hours of Atlanta, Charlotte, the Triangle, etc. that we live in for the summer and VRBO for the winter ski season. We’re actually wondering if we’ll be busier than usual in Jan/Feb ’21 because you can get here in the car instead of flying to Colorado or Utah.

  15. Jon says:

    I have a good friend who is AirBnB superHost in LV. He worked up the number for a 250K propery in LV with mortgages and all expenses around 2.5K/month and with AirBnB, I’d get around 5K. So a profit of about 2.5K/month which is a pretty good RoI.

    He owns few STR aka Short Term Rental Properties in LV and has done pretty good so far.

    I can see a lot of neighborhood/cities/community has been decimated by these STRs as STRs decreases the rental inventory and thus make rent for 6-pack Joe un-affordable.

    I really hope all these come back to normal so that people can again start to afford homes to live in , not as an investment

  16. 2banana says:

    Madness. Sheer, utter madness.

    Taxpayer bailouts for a company that never made any money, never will make any money, loses vast sums of money every quarter and used investor speculation raised funds to buy back its own stock.

    “One of Airbnb’s biggest rivals, Amsterdam-based Booking.com, is in similar straits. In March, its American parent company, Booking Holdings, posted a first quarter loss of $699 million, down from $765 million a year ago, as bookings plummeted 43%.”

    “The company recently applied for Dutch government support to help pay its 5,500 workers in the Netherlands, which did not go down well with Dutch taxpayers. Like so many other large listed companies, Booking spent $4.5 billion buying back its own stock in 2019”

  17. Willy Winky says:

    I’ve been monitoring Queenstown… the economy is nearly 100% dependent on tourism, and normally there are very slim pickings for long term rentals because most people dump onto Airbnb (usually there are under 15 properties for rent long term at any given time)

    There are now a whopping 170. I check that regularly and the inventory is not getting absorbed

    https://www.realestate.co.nz/residential/rental/central-otago-lakes-district/queenstown

    One might expect a race to the bottom on rents but nope – the rental rates have not dropped that much. Why? Because the owners cannot drop the asking rents – they either get something close to their asking rent or they will not be able to service the mortgage (and other expenses)

    If payments are say 6k per month for the mortgage only, and you can only get 3k in rent where do you get the extra 3k from? Where do you get the cash for rates, electricity etc… when your income is now 0?

    The business plans for most of these properties involved x amount of income from short term rentals.

    Many of the owners will have taken a hit in their primary sources of income as well.

    Even if international flights resume (that is many months away), tourist numbers will remain subdued — meanwhile there are loads of hotels that are sitting empty and they WILL race to the bottom on rates to fight for the few tourists that come.

    Two big properties were just completed and getting ready to open pre Covid…. Anyone operating an Airbnb will need to compete with the glut of empty hotel rooms on price… good luck with that.

    An additional problem is that there have been 10,000+ applicants for government benefits in QT (total population 40k – assume around half are kids so roughly have the town will be on govt support).

    Most of the properties on Airbnb are relatively flash ($800k to 1.5M)…. people on benefits cannot afford $3000+ per month in rent. That is why the 170 rentals on that site are just sitting there … week after week.

    As for dumping onto the market there are a whopping 522 for sale (again that’s far more than the norm… ) https://www.realestate.co.nz/residential/sale?by=highest-price&lct=d300&ql=20

    I am not seeing any fire sales. Yet. Give it a while… banks are extending interest only loans which is helping – but at some point owners will capitulate and defaults will be epic.

    And the property market will almost certainly implode.

    Even if prices went to 10 cents on the dollar I would be reluctant to wade in … the oversupply is monumental and it will take many years for the tourist numbers to come back … there will be no V…. I expect the recovery to resemble an EKG on a person in a coma … with a few bumps up when someone slams to the door….

    This will be playing out around the world.

    • Jon W says:

      The NZ govt cannot afford a crisis of confidence in the property market. It would lead to failure of all the banks and they would be forced to bail them out. This would be massively expensive and the ensuing depression while the rest of the world also struggles would be epic.

      IMHO they will support distressed owners and speculators. Especially with an election in September.

      RBNZ has already said it will go negative. If you have a mortgage at 0.5%, income subsidies from govt, rates holidays etc, etc you can hold on for a long time.

      NZ property is a religion. It will crash one day but not until a lot more absurdity has occurred. Same applies to many other countries, but NZ is unique in that property speculation is the only game in town.

      • No Expert says:

        Yep NZ economy sometimes referred to as a housing market with a couple bits stuck on. If we hit 30% unemployment (not sure it will get that bad, but hypothetically) surely the already over inflated housing market wont stand up under that?

      • otishertz says:

        Same as most popular locales that relied on the consumer e.conomy. In the US it’s 70% consumer e.conomy. Those folks in the 70% are likely to delay their next vacation. Tourist locations are boring and homogenized anyway. I expect next year’s vacations will be close to home or not happen at all.

    • qt says:

      3k is still better than 0k LOL

      The free market doesn’t give a damn about what they owe

      • Willy Winky says:

        They can ask 3k. But they will not get it.

        As mentioned the long term rentals have flatlined at around 170 for weeks now. There is no demand.

        Even in good times the vast majority of people working in Queenstown were on working holidays i.e. they are university graduates from overseas who spend 6 months or perhaps a year working in the tourism and F&B industries.

        They gravitate to Queenstown because it’s a nice place with loads of outdoor activities and a vibrant party scene.

        But it is a very expensive place to live and kiwis generally are not interested in bunking in dorms or sharing a house with 20 people (our electrician tells us that is common) and paying roughly 20% more for everything.

        Salaries are not higher at roughly NZD18 per hour than the rest of NZ (and tipping is not a thing in NZ).

        There are not a whole lot of jobs outside of trades that pay above minimum wage in this town.

        There never was a market for anywhere the number of long term rentals that are available now.

        Actually there is not a market for any sort of rentals in QT because the holiday scheme workers are mostly gone — and half the remaining people are on benefits.

        I suspect there will be an outflow of people from the town as people come to grips with the fact that a V recovery is not in the cards.

        Welfare dollars go a lot further in other parts of the country….

        Those units on that site were built specifically to cater to tourists. There are no tourists, there never was demand at those prices levels for long term rentals, and there will be far less demand going forward.

        Queenstown is heading into a perfect storm.

    • Greg Hamilton says:

      Willy,
      Thanks for the update on New Zealand. I’ve always wanted to travel and perhaps stay there, especially since many billionaires were building bunkers there. (What do they know that I don’t?)

      Judging from all the landlords and hotel owners commenting on this site, it seems many people here are more well off than I imagined. Kudos to all of you. I hope many will have sympathy for the ones living hand to mouth who have lost their jobs. This is not going to be pleasant. Good luck to everyone!

  18. lenert says:

    So this falcon couldn’t hear the falconer?

  19. Seneca's cliff says:

    Many of the new houses in trendy parts of Portland have AirBnb units built in to the first floor, or in a seperate unit behind the house. Most of the folks buying these houses ($650,000 to $950.00) can only afford the mortgage with the additional income from the rental unit, and that was in the good times. I expect all these folks will be taken to the woodshed over the next 6 months.

  20. Mike says:

    Earlier this year we went for a short vacation in Florida and while we were down there we checked out a few retirement properties in West Palm, Stuart, and Fort Pierce. Zillow sends me emails automatically each week and the price cuts are increasingly showing up on the listings. The Zillow price guesstimate for one year is already showing down 2.5% in West Palm. Talking about AirBnB even my wife’s hairdresser had an “investment” managed property in Orlando, FL. I wonder how that’s working out with Disney World closed down.

  21. ian says:

    Share buy backs should be made illegal. It’s a tax dodging scam which ultimately destroys shareholder value.

    • Stevie says:

      And in fact, from the 1930’s until the Reagan era stock buybacks were illegal, being considered stock manipulation. That this coincided with increasingly egregious upper management stock based compensation was no accident.

      • Michael Fiorillo says:

        It’s a form of Control Fraud, where those who control/manage the company loot it.

        Boeing, which shifted from being a company that specialized in aviation to financial engineering, and destroyed itself in the process, is a prime example.

  22. Otishertz says:

    “In Spain there are around 220,000 owners of tourist lodgings.”

    That’s a lot of under regulated and under taxed supply of short term rentals. Could be called “gypsy rentals,” when compared to hotels and motels just like Uber and Lyft are gypsy cabs.

    I see dark clouds.

  23. Willy Winky says:

    I was having a look at Airbnb financials recently wondering why they were losing so much money…. and note that ‘security’ costs were now a big thing.

    Google Airbnb scams and you can see why they were concerned — and spending so much money to address these issues.

    I’d expect those security concerns are going to take a back seat when faced with a sea of red ink.

    If anything, with the economy drilled into the ground the scammers will be back in force — and in bigger numbers (lost your IT job – be an Airbnb scammer….) and the platform will be under massive, endless assaults.

    Brian and the former billionaire (on paper) owners of the site will not likely have the cash to hire mercenaries to fight the invaders going forward.

    Just another big puff of wind to add to the hurricane that is hitting Airbnb.

  24. A says:

    Leveraging up with mortgage debt to buy homes for Airbnb listing looked like the biggest bubble since Bitcoin before this. And a global pandemic is the worst possible way to burst the bubble. There’s going to be a lot of blood on the streets.

  25. WES says:

    The solution to this problem is very simple.

    The government can give them interest only loans at zero interest rates.

  26. Tom29 says:

    When I park the excavation equipment in January…..I’ll have to check on extending my stay in the panhandle fishing. I see the house I rent had some cancellations.

    Yes Jim, wuhan flight to the countryside
    Currently has us buried in work.

    We will see how long it holds up.
    Surrounded by blue states determined to go full ccp. They want rural, down sized, and a surprising amount that will now be doing home schooling.

    A new hybrid amish. Not sure they could handle horse and buggy.

  27. The Original Colorado Kid says:

    I live near Aspen. The local FB swap for rentals for long-term has been nuts for years – very little available at astronomical prices. Now I’m seeing lots of furnished places on the market for 3-6 months or longer. You know these are all previous short-term rentals.

    Here’s one example with an Airbnb link (I didn’t include) of someone still living pre-Covid:

    2 Bedroom 2 Bath core of town
    This 2 Bedroom 2 Bath is on S Monarch St. Completely remodeled last summer, I am looking for a long term tenant, 6 or 12 month lease.
    w/d no smoking, assigned covered parking, exterior storage closet.
    In the winter you can ski right to the back door and walk out to 1a. This was 1900 a night over Xmas, average nightly cost is around 845. I’m renting long term for $7500

    Comments:
    * Great deal Matt. Ill give you ninety thousand dollars to rent it for a year

    * Well good luck. What a sign of excess. 7500 dollar condos for rent during the worst economic crisis in modern history.

  28. Just Some Random Guy says:

    I hope to pick up a cheap foreclosed ex-AirBnb beach home next year.

  29. Danno says:

    As a tenant, we will have a word about the length of the lease we sign now..funny how things change yet landlords want to just create a 1 year lease until “business gets back to normal.”

    Such a typical ignorant point of view…..buyers rule now….

  30. SocalJim says:

    I would bet that mortgages on condos, paired housing, apartments, and townhouses that populate the urban core of so many cities will be very difficult to obtain. That will take down the price of those properties. Mortgage products will push people to single family.

  31. Cobalt Programmer says:

    (Not related to Airbnb but general one)
    I expected the opening date of memorial day weekend-June 1st. Anthony Fauci is wavering hands about the opening date. He is even saying the total 80K+ deaths may be higher. I recently read like 70+ people died in a NJ veteran home. Now, Yahoo Finance added a ticker for COVID 19 infection and deaths (global and US separately.) Only difference is they color red for the increase. Adding to these death, economic fallout (malls, homes, business and job loss) are also disturbing. My extreme fear is habit formation. Once people accustom to a habit, they will keep doing it. Not shopping, hoarding money, stay indoors, and suspicion will form a habit. Even if everything opens, after a couple of months, people might not go out as they used to. Project “lets eat grandpa” is now turning in to “lets starve grandson”.

    • MC01 says:

      People have to start paying some attention to Italy: folks, we are what you should look at, not Asia. Korea’s game of Whac-A-Mole is heroic but ultimately futile, Japan’s bluff has been called and China continues her monstrous game of deception with the rest of the world.

      Even before an end of the lockdown was announced we were clearly told we would see a long tail of isolated cases and highly localized clusters for months. So far this has proven correct.
      We have also noticed new cases do not go down in a nice straight line like China and the OMS/WHO wanted us to believe. They seesaw lower and regularly you get these big spikes nobody understands. The biggest spike we have seen so far happened roughly four weeks into the hard lockdown and we are still trying to make sense out of this as those infected were overwhelmingly elders who had long completely isolated themselves, not quarantine-breaking frat boys. In short no “second waves” because the virus is sticking around for a bit: the silver lining is it should help keeping people on their toes.
      Finally, and this is a recent development, new cases appear to be mild in nature, to the point home quarantine is now the norm and not the exception. Shockingly enough over half of these new mild cases appear to originate from nursing homes whose patients are now being tested methodically regardless of symptoms.
      Unfortunately the worst affected areas will also see a lot of long-term patients who will remain hospitalized or even be moved to the ICU as their health conditions degrade in spite of being declared virus-free: again the tail of deaths will be very long.

      For the economic part, we will see.
      So far I haven’t seen any habit formation: in fact yesterday the road was full of elderly gentlemen cycling. It will do them far more good than staying locked up at home. Theoretically on Monday most retailers should start re-opening (only a few like hardware stores, nurseries etc have re-opened so far) and hairdressers, barbershops, restaurants etc should reopen over the next few weeks as well.
      Germany is strongly pushing to re-open internal EU borders in June and that should help manufacturing and especially logistics a bit. Supply chains are slowly coming back online but we are still on the high seas.

    • Engin-ear says:

      It would take 18 months to form a habit.
      A 18-months lockdown would have nasty mental effects indeed.

      “Fortunately” the real economy will not survive such lockdown, so mental health risks are low.

  32. Bobber says:

    This take of bailing out the RE industry is ridiculous. Any Airbnb superhost can sell a property right now to get cash flow. They’d probably have a gain on the sale, even if they dropped the price to 95% of market to unload it.

    They should help themselves before begging for government help. This is what gives government a bad name.

    • MC01 says:

      But the big problem is right now there’s zero market for those Airbnb properties, especially in the most crowded markets (Barcelona, Florence etc). Nobody is buying, and nobody is going to buy for some time: there’s simply too much uncertainty around. This is not the stock market where I can just click the sell button and get rid of my equities in the blink of an eye if I am ready to take whatever price the market is offering.

      There’s also the matter of how much of a loss these Airbnb hosts are going to take. Most of them bought in the last 6 years or so, amid soaring real estate prices everywhere, and cities like Barcelona and Florence have always been expensive to start with: it’s a classic case of retail investors jumping on the boat late when prices are already sky-high. Getting rid of the properties will require some sort of deal with the creditors (banks of both the ordinary and shadow kind): getting 25% of the loan in cash right now and extinguish the mortgage is much preferable to a bankruptcy in this environment.

      Finally… government are starting to learn to thread very carefully. Most of them are dealing with explosive social situations that require careful defusing and the last thing they need is throw fuel on that fire by bailing out people commonly see as tax dodgers and real estate speculators. Somebody will do that most likely, but most other governments won’t offer any more help than standard emergency debtor relief.

  33. Sit23 says:

    Red Flag. Booking Holdings spent $4.5billion on share buybacks. Who did they buy from? My 50c is betting they bought them from all the top execs and directors who have been given shares as part of their package in the past. Who financed the $4.5 billion? My 50c is betting it was from commission salesman who got rather a good commission for investing other people’s money in Booking Holdings. So a few people are enriched, a few do rather well, and the poor sods who are still shareholders in this debtridden lemon do rather badly.

  34. Jay Q says:

    Great discussion herein. Learned a lot from both sides.

    First-rate blog, Wolf

  35. Shawn says:

    A Coronavirus vaccine is about 1 to 2 years away and it then, it will be in such short supply that only a few people will get a hold of it. I feel it is unlikely tourism will recover from this until a vaccine is widely available.

    • Engin-ear says:

      Not sure. With all lack of understanding of this virus, it would take 1-5 years of constant research to build such a vaccin.

      But guess what? If covid19 doesnt return this fall, the vaccin development will be put on hold without any final product.

    • Jdog says:

      I believe tourism for this coming summer will be really poor. This is going to impact tourist towns pretty severally.
      Hotel taxes bring a lot of income in for local governments.

      • Engin-ear says:

        EVERYTHING will be poor this summer, except stocks, of course.

        But tourism is about spending discretionary money by bored people – bored to death in modern low risk life (for many, not for everyone).

        So tourism is a kind of mental health spending – makes a lot of sens.

        • John Brown says:

          Stocks will have their day, soon. Total disconnect from reality. If it weren’t for the Fed pumping we be way down.

          What everyone has forgot has nothing to do with Covid. Bond yields inverted March 2019. That means around August 2020 everything is going to hell. Prepare for it. Yield inversions have never been wrong and nobody seems to remember that this occurred.

  36. Nicko says:

    Local economies are imploding and poverty rates are rising. It seems to me, a sudden drop in local property prices in cities is nothing but a good thing for regular people.

  37. Frank says:

    Anecdotally I overheard a group of middle aged people in my local town square, (breaking the social distancing rules), talking about their cancelled summer holidays, and agreeing between themselves that for the next two years they would take stay cations, and see how the covid situation worked out.

  38. Pavel says:

    Slightly off-topic but still real estate related: I am locked-down next to a prestigious university campus in an Eastern US city. I was present when all the students (~6000) were given one weekend around March 12 to pack up and clear out of the dorms.

    Apart from the devastating effect on the little college community (bookstore, coffee shops, bars etc, all closed), the local apartment rental market has of course collapsed. There are numerous 10-15 story apartment buildings that are normally 50% or more filled with students, plus lots of 3-storey brownstones that are normally let to students. Lord knows what will happen to the property owners if the campus doesn’t open up again in September.

    • Michael Fiorillo says:

      While once-unionized factory towns hollowed out – and started voting R instead of D – as a result of deindustrialization, outsourcing and neoliberal trade deals, college towns and those with regional hospitals held up well.

      That’s over now, and many second and third-tier colleges without substantial endowments will disappear in the next few years. Perhaps thendorms can be re-purposed for permananent housing.

      Struggle and precarity will jump up the economic food chain, and will no longer be limited to the poor and working class. Or perhaps I should say, the poor and working classes will have millions of new conscripts.

  39. John Brown says:

    Good. I hope they all lose their holdings and more.

    Have plenty of friends that took out loans, lying to the banks that they are residing in them, when they are not. Then turn around and rent them on AirBNB and others, while bragging for the past 4 years to me how easy the was.

    Hope they lose everything.

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