The Costs of Success

Here’s how the story goes….

I am not getting as many bookings as I had this time last year…I’m getting a lot of views but no bookings…I have had to drop my prices to get bookings….I’ve noticed there are a lot of new hosts in my area…what to do?

Indeed, what to do.  I first noticed this problem being mentioned about a year ago, among hosts in London.  Later, I read about it happening in Seoul, South Korea.  Hosts were finding that they were getting fewer and fewer bookings, at the same time that they noticed the number of hosts in their area or their city, rapidly increasing.  The number of hosts in many cities has doubled in the last couple years.  For instance, within 1.5 years, the number of listings in London has increased by about 300%, and is now around 29,000.  And Airbnb has been eagerly trying to sign up new hosts — lately I can’t write a review for a guest without getting a popup box on the screen when I’m done, telling me I will get a bonus if I sign up one of my friends sign up as a host.  At the Airbnb Open in November 2015, in Paris, Brian Chesky spoke excitedly of how in the future there will be an Airbnb listing on every block in every city.

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Airbnb Hosts — Too Many Everyhwere?

 

But wait — don’t you see — Brian — there are already 3 Airbnb hosts on my block.  And there are 2 on the block around the corner….Brian, wait…don’t you think…it’s possible to have too many hosts?  Brian, wait a minute….Briiiiannnn!

Yes, it is true that Airbnb is signing up more guests as well as more hosts.  Most of the guests who stay with me are first time Airbnb users, for instance. So there are new guests all the time.  But for each new host who signs up, you’ll need multiple new guests.  For instance, say you have a host who rents out a room that is booked half the time, or 180 days a year, and who depends on that income to pay their mortgage.   A typical guest probably only stays in an Airbnb listing 3 to 10 days a year, lets’ say 7 days on average.  So for each new host who needs 180 days a year to be booked,  there would be a need for 180/7 = 25 new guests.

So if the number of hosts doubles over a given period of time, has the number of people using Airbnb as guests , increased by 25 times?

A whole slew of people, eager for the easy cash they expected, signed up as hosts and listed their places on Airbnb for the Superbowl in the SF Bay Area.  The result demonstrated clearly that when too many people are hosting because their eyes are lit up by dollar signs, this will ensure less income for all:  Many Superbowl Listings are Sitting Empty.    As this article states,

There are simply too many rooms and not enough guests. “You get a flood of people listing their places and nobody looks at it,” says Ian McHenry, a co-founder of research firm Beyond Pricing, which sells rental hosts a service to help calculate how much they should charge. “There’s way too much supply in the market.” Of the nearly 10,000 currently active Airbnb listings in the Bay Area this weekend, around 60 percent are still available, according to the San Jose Mercury News.

When I first started as an Airbnb host 3 years ago, I saw a lot of hosts bragging about how much money they were making, and I also saw some hosts start to write books about how to make a bundle on Airbnb.  I read articles in which property owners said others were suckers for not using their properties to do short term rentals, since they would make so much more money.  I could easily see where this was going.  Which is where we are getting to now.

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Residences — now all ATM Machines?

People were going gaga over the prospect of making huge amounts of money — so much so, that an increasing number of folks who had space, somewhere, anywhere, were looking to cash in on it by stuffing guests into it.

Though property rental has generally been a business for those who own property, one could see that the lure of easy cash was blurring the understanding of rental agreements.   A perusal of listings available in major cities on the US Coasts will reveal a rather large number of offerings by twenty-somethings.  When one considers that people in this age range typically do not yet own property, and landlords who own apartment buildings typically do not allow subletting, one can see how the stories of easy money could lead tenants to forget that the space wherein they live, doesn’t actually belong to them and hence is not theirs to rent out.

Those blessed tenants who did have permission to sublet were quick to sign on as hosts, and many of those folks, renter or homeowner alike, who had never considered having roommates, and didn’t need to, were now all agog at the prospect of having guests.

An attitude of entitlement prevailed in some quarters.  I recall overhearing a conversation,  where one host was complaining that his landlord had stopped his hosting career, and was looking for a new apartment to rent out so he could be a host again.  Another host, a homeowner, said that in her view hosting was primarily for homeowners.  The first host snapped back that he couldnt’ afford to buy a house,  but he didn’t feel that should mean he couldn’t be a host.   There seemed to be a sense of a right to be a host. In my imagination I envisioned someone borrowing a car from his next door neighbor and then, without getting permission from his neighbor to do so,  insisting on his right to rent out his neighbors’ car for profit, since “it’s too expensive to buy my own car, and I have a natural call to be a car rental agent.”

But I think that it’s Airbnb that has contributed to this sense that many have, that people sort of have this right to be hosts, quite apart from legitimately having any property that they have legal authority to rent to others.  As Airbnb presents it, hosting is something quite different from being in the property rental business — and that misrepresentation is the cause of innumerable problems, (as I describe in this blog –  Dont’ Be An Airbnb Baby  ) because hosting most definitely is part of the property rental business.

I realized things were getting all gaga, last July, when I went hiking in a local park. and had this experience for the third time:    As hikers passed me on the trail, I heard their excited conversation, “….well we can just Airbnb it…..Susan does that and she…..” I realized that if I had heard hikers on these trails talking about Airbnb-ing their places out, three times already in a year, that meant that things were getting crazier.  Nuttier and crazier and more and more Airbnb everywhere.

This last winter business got really slow.  I saw some 20 to 30 posts in various host community groups lamenting how “slow” business had been.  Hosts were asking others if they were slow as well.  Hosts were asking for tips in getting more business.  I was thinking to myself that eventually many of these hosts were going to give up.  16hoz0lThe amount of available business was insufficient to support the number of hosts in certain areas, and so that available business was being stretched too thin.

I had predicted this would happen, not long after getting started in hosting, when I started seeing people blabbing about how much money they were making.  I couldn’t believe that people didn’t realize that blabbing about how much money they were making, would ultimately lead to them making a lot less money.  As for me I kept my mouth shut, but I also wasn’t interested in maximizing profits.    I was interested in being comfortable in my own home — something I had never been able to achieve with standard roommates.

It was easy for me to predict, 3 years ago, what would happen with Airbnb hosting — as more and more people got wind of making “easy money” as Airbnb hosts, more and more would sign up to be hosts.  This would have numerous consequences that would ensure that hosts would from then on make less and less money.  First that there would be less business available for everyone since areas would become saturated with hosts.  Secondly, people would sign up as hosts, do well during the first month during which all hosts get artificial promotion over existing more tenured hosts, and then some would start to flop as time went on,  when they had to start competing with other hosts.  Many of these hosts would then quit hosting.

Third, prices would drop overall, as competition increased, and eventually this would bring things to the point where short term renting was no longer more profitable than long term renting — in fact in many cases (particuarly in cities where rents are already high due to other market forces)  it would be much less profitable than standard long term renting.

Fourth, affordable housing advocates and Airbnb foes would be sure to rail against Airbnb and hosts alike, the more they heard about hosts making easy money or lots of money.  I don’t know about you, but it’s been my experience as a human being on this planet, that if someone is making good money in any endeavor which has the slightest element of controversy about it, those who aren’t making that money or who can’t, are going to get envious and resentful and will go what they can to put a halt to others’ success.  It seems to be in human nature, that people don’t like to see others doing much better than they are, and that those who are miserable, tend to like to try to make others miserable.  Then too, it is predictable that those who are finding their lives made more difficult by increasing rents and housing scarcity, are going to be pretty resentful of those who they perceive as profiting from their hardship, or who they perceive as profiting in ways that cause their hardship — particularly if these Airbnb hosts are flaunting their success. And when enough renters are upset and experiencing housing hardship, city governments listen, and Airbnb hosts may find their opportunities correspondingly curtailed.

Moral of the story:  If you are successful as an Airbnb host, don’t brag about how much money you are making.  Because, if you have some foresight (or long sight, as the case may be) you will realize that the more you flap your jaws about how much money you are making as an Airbnb host, the less money you will eventually be making as an Airbnb host.

Which ultimately I think is fine.  Since in my ideal world, people aren’t buying up or renting out numerous investment properties just so they can make more and more money —   they are hosting guests because it’s something that they like to do,  they like meeting people, it is stimulating and brings good energy to their home or property — and besides, for many of us — it is so many times better than having permanent tenants or roommates!

 

 

 

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