How much does Airbnb cost?

How much does Airbnb cost?

The cost of Airbnb

The new normal of holidays

During this topsy turvy year the word “staycation” has wormed its way into our vocabulary. Whether we like it our not, it is likely to be part of our plans for much longer than we would prefer. By now we are familiar with the steps involved with a staycation, or even a vacation if thats not too far flung an idea for todays world. Though are we fully aware of the costs?

Chances are, when you are considering a stay away one of the first things you will do is price the accommodation. More often than not this involves taking a visit to Airbnb.com. You are not alone in this. In fact, Airbnb are aiming for 1 billion visits annually by 2028, yes…billion.

Sure, when you are planning a staycation you weigh up the costs, 100 quid for fuel maybe a bit more for drinks. Most of the time the biggest cost is the accommodation (perhaps flights.. but who gets to go on one anymore). Though, are we really aware of accommodation costs and how we measure them?

Benefits

A number of papers have been written on the subject, each of them outline the effects of Airbnb on local economies from a slightly different perspective, but let’s start this out positive, what are the benefits?

  1.  Airbnb provides holidaymakers with the opportunity to source more non-traditional short-term accommodation, in many cases this experience is very different from the traditional stay in a hotel or B&B. You only have to scroll through the seemingly unlimited options of quirky, cosy or modern houses in which you can spend your holiday.
  2. Guests can source entire apartments or houses for a price much lower traditional accommodation sources. The popularity of Airbnb has resulted in the supply into the short-term rentals market going through the roof. As a result, the price of these rentals has fallen, saving the renter money.
  3. Perhaps the most widely reported benefit is the fact that Airbnb, through its lower costs and subsequently higher usage, brings more money to local economies through increased tourism. This is the benefit which Airbnb themselves push and along with cheaper accommodation is reported as the main benefit of the platform.
  4. Thinking of the landlords for a second, the ease of renting your house can provide homeowners with a diversified range of income sources. The business model of Airbnb allows potential landlords to massively reduce costs which, in the past would have made long-term renting the only cost-effective option.

The costs (other than drinks)

So you’ve told me the benefits, but what are the costs? In the interest of keeping this blog balanced, let us challenge the benefits I have just outlined.

  1. Ok, I can’t find a cost of the quirky, cosy and fun stays you can get with Airbnb…They are pretty good.2.
  2. The lower price is one of the two most important search criteria for short-term renters (or holidaymakers) when choosing accommodation, the other being location. The impact of Airbnb’s impact on price can be measured through  hotel revenue decreases, mainly due to price competition and the supply shock that Airbnb has introduced into the market.  They find that each 10 percent increase in the size of the Airbnb market results in a 0.4 percent decrease in hotel room revenue. Although, as with most things, it is not that simple and the introduction of new is less an introduction and more of a redistribution. The introduction of Airbnb units has not prompted many new builds, rather it encourages landlords to move homes once listed on the long-term rental market to the short-term market. This has a number of worrying implications for the housing market as whole. Already 2.7% of the U.K.’s 1.5 million landlords have made the switch from long-term rentals to short-term rentals, facilitated by Airbnb. Even more worrying is the fact that almost 10% of landlords, when asked, said that they were considering moving their properties from short-term to long-term rentals. This 10% equates to around 470,000 houses and almost 8.6% of the entire UK rented housing sector, removing these units would serve to put an unimaginable strain on an already stretched supply. Also, a number of papers indicate that although cheaper holiday accommodation is positive it was not a very pressing matter and one which does not warrant a solution with such negative implications. A bit of a long winded cost to a concise benefit, but hopefully it is clear.
  3. The widely marketed “fact” that Airbnb brings untold millions to local economies while strictly speaking is true, the studies used to support the fact assume are a bit ropey. They assume these visitors would not have visited these cities if not for the presence of Airbnb. In doing this they assume that hotels and other forms of short-term accommodation are not viewed as suitable alternatives. I’m not sure about you, but I can’t imagine not going on holiday just because I couldn’t use Airbnb.
  4. The fact that Airbnb is a source of diversified income for landlords is an undeniable fact, though this requires a number of facilitating factors. The initial stereotype is that Airbnb comes about when you or I are away for the weekend and decide to rent out our house for the weekend. However, this is not the case, more often than not the typical Airbnb landlord is an owner of multiple homes and is not the everyman that Airbnb would have you believe. Typically the presence of wealth generated from nonresidence property is limited to the top 20th percentile of the population in terms of wealth. This has given rise to a smaller number of “super hosts” who operate more like a mini hotel than a homeowner trying to make some easy cash

Overall, studies show that a 1% increase in Airbnb listings is causally associated with a 0.018% increase in rental rates and a 0.026% increase in house prices. While these effects may seem very small, consider that Airbnb’s average growth is about 44%…a year! Rent in the UK has increased by 8.6% from Jan ’15 to Dec ’19, a significant increase. In London (where 1/50 homes is now a short-term rental), rents have increased twice as fast as the rest of the UK. Renters in London are now paying up to half their income in rent, this is not totally driven by Airbnb but it is undoubtably a contributor.

It’s easy for me to sit here behind a computer and blame Airbnb for the woes of the rental sector, when in reality the problem goes much deeper. Many feel that the company is a convenient scapegoat for the impossible scenario landlords have been cornered into. The combination of scrapped tenant fees, zero mortgage relief and an extremely exhausting list of compliancy legislation make it almost impossible to self-manage a property. It is far more likely that this, along with the governments inability to deliver on house-building promises is the real driver of the woes. The issue of Airbnb is just the tip of the iceberg, it is a problem and more needs to be done to ensure that the operation of Airbnb does not come at the expense of our economy; but the issue requires policy makers to look at the issue through a wider lens and do more to tackle the real drivers.

Rant over, hopefully you found this somewhat useful (or at least made it this far). Im not sure if this will stop anyone from using Airbnb, I know I wont, but in this world of ethical consumerism it is useful to be aware of the impact our purchases have. So next time you are scrolling through the feed of cosy, quirky and modern listings spare a thought for the renters that are being impacted by the operation of this lettings juggernaut.

Info sources:

Harvard Business Review 2019: When Airbnb listings in a city increase, so do rent prices

Economic Policy Institute, 2019: The economic costs and benefits of Airbnb

Forbes 2020: The Airbnb effect on housing and rent 

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