Since being founded in 2008, Airbnb has revolutionized the short-term rental market worldwide. Not only has Airbnb found success for themselves, they have also created a new stream of income for homeowners, and inadvertently created a market for data suppliers such as AirDNA and SmartBnb which allow renters to better capture the value of their properties.
Despite the enormous shift in how property is utilized through the sharing economy, Airbnb has a habit of benefiting a small number of property owners, more than the average user. Finally, Airbnb impacts the overall housing market and increases housing prices dramatically.
A Superhost is a certification earned by hosts that is achieved by running a superb Airbnb that meets the following criteria:
Due to the first page of search results on Airbnb being a limited space, much like a search engine, a very small percentage of listings are seen first thus they make the bulk of the profit in any given region. Because there is such a massive demand for premium listings, Superhosts are seen first and can increase their prices while still retaining a massive increase in demand. It is extremely important to manage listings efficiently because obtaining Superhost status will amplify the reach of a property due to sheer exposure and positive reputation.
Despite the simplicity of renting out property on a fixed term lease, the economics of running a property on Airbnb can net much more value to the landlord. An average property in Canmore, Alberta will net $231 on average per night, which rises to $387 per night during peak rental season. The main issue with these numbers is occupancy which is maxed at 90% in July, with a bottom of 30% in November. The important factor to consider when offering short term vacation rentals is the income is not confirmed, whereas the risk is hedged during a long-term rental. Despite this added risk, with an average occupancy of 80% and an average daily rate of $231 per night, per year an Airbnb rental property can earn a revenue of $67,452 versus an income of $20,500 annually from a fixed term rental of $1700 monthly on a two-bedroom apartment with one bathroom. Though the revenue of running an Airbnb is impressive it should also be considered that this number does not include cleaning nor turnover costs (source).
Because guest turnover for an Airbnb is much more frequent than an average fixed term lease, running an Airbnb is much more labor intensive therefore it is not as attractive of a use of property for some. This coupled with the risks associated with seasonal slowdowns in rentals make for risks that do not exist in a fixed-term lease model. As the entire experience is what is being reviewed, it is important for an Airbnb property to have clean towels, clean sheets, stocked kitchens, comfortable spaces, and provide a unique experience to their guests.
Despite being one of the highest grossing areas in Canada for Airbnb hosts, the city of Canmore has taken a strong stance against the rise of short-term vacation rental properties. Canmore is clamping down on vacation rentals of under one month in residential areas, and only allowing the practice in designated commercial zones. If caught operating a short-term vacation rental property in a residential zone, you could receive a fine of $2500 CAD. Despite this issue, Canmore vacation rentals continue to be one of the highest grossing destinations in all of Canada, with home prices soaring to new highs. (source)
Canmore is far from the only location to see conflict between cities and Airbnb hosts. Toronto is also seeing a massive surge in Airbnbs, thus dramatically reducing the amount of available housing within the city. Because of these conflicts, groups like Fairbnb are lobbying to regulate short term rentals. Despite the increasing legal difficulties being faced by hosts, new Airbnbs continue to list worldwide (source).
It is an indisputable fact that Airbnb listings have an effect on the rates of rent and house prices in a given area. As reported in, “The Sharing Economy and Housing Affordability: Evidence from Airbnb” a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices. These facts are the main reason that many cities such as Washington DC and New Orleans want to ban the practice of Airbnb short term rentals outright (source).
Despite the increasing pressure from regulators towards Airbnb and Airbnb hosts, the practice is projected to continue and to grow throughout the coming years. Because of the explosion of the sharing economy and the major effects of short-term rentals on housing prices, understanding how Airbnb functions in your city should be taken into consideration when preparing to buy a home.