Am I the only one thinking the sharing economy is over even post-#coronavirus? Will people really want to share homes, cars, scooters?— EquivalencyAxis (@EquivalencyAxis) April 2, 2020
Well, I finally decided to see what was being written about Airbnb. Now I have to admit I've never used Airbnb (either as a renter or property owner). So yes, I don't get the intrigue of Airbnb, but let me do a little exploration anyways.
Wired (April 22) wrote:
According to AirDNA, an online rental analytics firm, new bookings on Airbnb are down 85 per cent; cancellation rates are close to 90 per cent. Revenue generated by Airbnb’s platform in March was down 25 per cent year-on-year, wiping out $1 billion in bookings. With much of the world still on lockdown, those numbers are unlikely to pick up anytime soon.
So yeah, we're looking at down 90% in April?
. . . This was meant to be Airbnb’s year. The year when the company, which was recently valued at between $50bn and $70bn, went public. It is now worth less than $30bn. Even before coronavirus, Airbnb was struggling to turn scale into profits. The company lost $674 million last year as costs soared to $5.3bn.
. . . Data from AirDNA shows that of the 1.1 million Airbnb listings in the US, some 600,000 are from hosts that have at least two other listings.
So if 600,000 US hosts have at least two listing, that means they are listing at least 1.2 million units. Yet, there are only 1.1 million listings in the US. I'm guessing that a number of these hosts list properties in Mexico and Canada? Honestly, I can't totally get how the above statistics make sense, but maybe they do.
Unfortunately, I don't have access to the Wall Street Journal, but Zerohedge took some quotes from an article that interviewed Airbnb hosts:
"That sum would provide little relief to hosts such as Jennifer and David Landrum of Atlanta. In 2016, they started a company named Local, renting the 18 apartments they leased and 21 apartments they managed to corporate travelers and film-industry workers. They spent more than $14,000 per apartment to outfit them with rugs, throw pillows, art and chandeliers. They grossed about $1.5 million annually, mostly through Airbnb, Ms. Landrum said.
. . . When Airbnb began refunding guests March 14, the Landrums had nearly $40,000 in cancellations, she said. The couple has been able to pay only a portion of April rent on the 18 apartments they lease and can't fulfill their obligations to pay three months' rent unless bookings resume. They have reduced pay to cleaning staff and others. Adding to the stress, Georgia banned short-term rentals through April.
Now who wants to believe these were FIRE investors? Yes, it is unfortunate that these individuals are getting hit so hard due to an unexpected pandemic, but let's admit that individuals such as these would eventually have gotten hit hard during the next recession. I suspect their FIRE strategy had a flaw (it was built on debt).
Money explores what might happen in the larger real estate market should these superhosts start to liquidate their holdings:
“Airbnb is a fantastic tool for those who travel often, but unfortunately, that’s not happening right now,” said [Austin Hankwitz, a Nashville native and financial analyst]. “This lack of travel and tourism is already causing Airbnb hosts to slash their prices by more than 80% in some cities. If this goes on for much longer, a lot of these cash-strapped hosts will be forced to sell their properties. This flood of new properties for sale might cause home prices to drop sharply in a short period of time. Add to this scenario baby boomers that are considering downsizing to pull equity out of their current homes to aid their retirement funds, and you have a recipe for disaster.”
To compensate hosts, Airbnb has set aside $250 million to help pay for coronavirus-related guest cancellations under their Extenuating Circumstances policy. Hosts will receive 25% of what they would normally receive through the policy, and payments will be issued this month . . . However, the Superhost Relief Fund is only applicable to Superhosts and Experience hosts that have suffered significant economic loss due to coronavirus. To qualify, Superhosts must only share their primary or secondary home with no more than 2 active listings.
So this Airbnb set aside does nothing for the Landrums mentioned in the Zerohedge/Wall Street Journal article as they own 18 apartments. I'll assume that the $250 million is also a worldwide fund. I'm also assuming the $250 million is for cancellations that Airbnb allowed customers to make up to May 31st. And for a company that lost $674 million in 2019, I really doubt they can provide additional funds to their hosts. And who is really thinking that the vacation rental market is going to bounce back after May 31st?
Citylab asks the obvious question: can Airbnb survive coronavirus?
When travel to cities returns, it may not be Airbnb that reaps the benefits. Some experts think there may be a medium-term swing back toward traditional hotels once the travel industry starts to revive, due to fears about how consistently hygiene standards can be enforced in the home-share market. “People might be less inclined to book Airbnb after the recovery due to perceived cleanliness issues” says Michael O’Regan, senior lecturer in marketing at the U.K.’s Bournemouth University. “They simply can’t guarantee a deep clean on a host-to-host basis after every guest.”
As mentioned via my early April tweet, this is an opinion that I hold.
Another question to ask is: how will this impact the housing and long-term rental markets across the United States? If the Landrums aren't the only ones with multiple rental units in Atlanta, Atlanta might see a huge benefit accrue to home buyers and renters. Yet, I'm not sure how big of a benefit will occur where I am located, Los Angeles county. The Glendale News Press had this in December:
Glendale has adopted rules that will change the way homes and apartments in the city are rented out for short stays on platforms such as Airbnb and VRBO.
On Tuesday, Glendale City Council members voted to ban vacation rentals — where the host isn’t present during a guest’s stay — as part of a short-term rental ordinance that hosts will have to comply with by May of next year.
The city of Los Angeles implemented what appears to be similar rules that started in July 2019. So yeah, I'm not sure how much of an impact this will have on the rental/new home buyer markets in Los Angeles county though any incremental change always has some minor impact.
This virus has also negatively impacted a well known FIRE investor that blogs under Financial Samurai:
My wife and I own three rental properties. But ever since the resorts across Nevada were shut down in March, we’ve been losing all rental income on our Lake Tahoe vacation property (about $3,000 per month). And we’ll keep losing that money for as long as the lockdown continues — while still paying the monthly mortgage of $2,480.
The good news is that our two tenants in San Francisco still have their jobs and are paying rent on time. But with more layoffs expected, things could change at any second.
If they start facing financial hardships, we will of course work with them to ease their burdens. However, we expect to receive zero mortgage debt forgiveness, which means we’ll have to accept the losses.
Based on the article, his Q1 2020 income was around 92,000. Their expenses are around $40,000 per quarter (the article shows 65,000, but 25,000 looks to be a one-time expense). Yet, of that 92,000 in income, $21,850 is driven by rental property (net operating income) and 28,000 is real estate crowdfunding ex principal. I suspect that both of those income amounts can quickly turn into expenses.
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