Airbnb, the prominent American online marketplace for short-term and long-term rental accommodations, has consistently made headlines for various issues, including customer lawsuits, data breaches, and even the renting out of unique properties like the Barbie Dream House. However, it is now making news for a far graver reason that could potentially have significant repercussions throughout the rental market.
Recent reports and statistics indicate that Airbnb is facing a severe crisis that has the potential to disrupt the global rental market. The company has experienced significant revenue losses in the past year, particularly in major cities across the Western Hemisphere. This impending collapse could have far-reaching consequences and turn the rental market upside down.
Renowned real estate expert Nick Gerli recently tweeted about the substantial decline in Airbnb revenue per available listing in cities such as Phoenix, Austin, Sevierville, and San Antonio. Between May 2022 and May 2023, these cities witnessed a significant drop of over 40 percent in Airbnb’s revenue. This decline highlights the challenges faced by the company in maintaining its financial performance and market presence during this period.
After enduring a challenging period during the pandemic, which involved mass layoffs, a decline in bookings, and substantial losses, Airbnb managed to turn things around and posted profits in 2022. However, recent indications suggest that the company’s trajectory is once again shifting towards a deep decline in revenue. This change in direction raises concerns about the sustainability of Airbnb’s financial performance and underscores the ongoing volatility within the industry.
The revenue decline in major cities
In Phoenix, Airbnb boasts an impressive inventory of approximately 18,000 rentals. However, over the past year, the revenue per available listing in the city has experienced a significant decline of nearly 47 percent, plummeting from $5,569 to $2,939. Similarly, in Sevierville, there has been a substantial drop of 47.6 percent, while in Austin, the decline amounts to 46.1 percent. These statistics highlight the alarming downward trend in revenue for Airbnb in these specific locations.
Nick Gerli has attributed the data he mentioned to the renowned website AllTheRooms, which serves as a comprehensive source of information on the Airbnb business and the real estate rental market as a whole.
The significant decline in revenue is expected to place considerable pressure on Airbnb owners, potentially leading them to consider selling their properties as a means of coping with the revenue backlash.
The high density of rental homes in the United States
The US housing market is on the verge of encountering another significant crisis due to the overwhelming concentration of rental properties across the country. According to data from AllTheRooms, there are close to one million rental units available, including those listed on major online marketplaces such as Airbnb and Vrbo. This saturation of rental options raises concerns about market saturation, potential oversupply, and the impact it may have on rental prices and property values.
The number of rental properties, which stands at approximately one million, exceeds the count of houses listed for sale on the US housing market by about 65 percent. This significant disparity raises a serious concern. If a growing number of Airbnb owners choose to cease their rental businesses and sell their properties, it could lead to a substantial increase in the supply of houses for sale.
In a major city like Phoenix, the number of short-term rentals, totaling around 18,000, surpasses the count of properties listed for sale, which stands at 8,000, by more than double. Given the significant decline in revenue, if property owners initiate a mass selloff in response, it could potentially exert downward pressure on sales prices.
Sevierville, Tennessee, known for its popularity as a tourist destination and proximity to the renowned Great Smoky Mountains National Park, faces a similar scenario. With over 8,600 Airbnb listings, the number of short-term rentals in the area exceeds the count of homes listed for sale by a staggering factor of 10. Moreover, the revenue per owner has experienced a sharp decline of nearly 50%. This combination of a high concentration of Airbnb listings and a significant decrease in revenue per owner accentuates the potential impact on the local housing market.
Central Texas, including areas like Austin, San Antonio, and Uvalde, is another region of concern when it comes to the impact on Airbnb revenues. According to data from AllTheRooms, there has been a significant year-on-year decline of 40-50% in Airbnb revenues across most of the area.
The Pacific Northwest and Mountain Region, encompassing states like Montana, Idaho, and Oregon, are also experiencing the repercussions of the Airbnb crash. The 40 per cent decline in revenue per listing highlights the challenges faced by hosts in attracting bookings and maintaining profitability in these states, which are popular destinations for outdoor enthusiasts and nature lovers. The imbalance between demand and supply within the rental market has played a key role in this downturn.
Was this decline in the Airbnb market anticipated in advance?
The decline in Airbnb revenue was widely anticipated by various industry stakeholders. In 2020, the company experienced a significant downturn in revenue and incurred losses due to the pandemic, as a substantial number of bookings were canceled. This trend persisted to some extent in 2021. However, in 2022, Airbnb managed to recover and regain profitability.
Currently, the demand for both short-term and long-term rentals is declining due to several factors. With fewer people working from home and the implementation of return-to-office policies, the need for accommodations has decreased. Additionally, the overall enthusiasm for trips and tours has diminished, further impacting the demand for rentals.
The decline in demand for rental properties has coincided with a continuous increase in the supply of available rentals. This has led to the current situation of declining revenue per listing. It is worth noting that many property owners have recently become aware of the significant revenue decline that has been impacting Airbnb over the past year.
Certain Airbnb owners may consider transitioning to long-term rentals as an alternative strategy. However, this approach presents a challenge as the market for long-term rentals has already experienced a substantial surge.
Over the past year, cities like Nashville have witnessed a significant increase in vacant long-term rentals. Consequently, if a large number of Airbnb owners pivot towards long-term rentals, there is a high likelihood of saturating and potentially crashing that market as well. This impact would be particularly pronounced in densely populated urban areas, where the majority of Airbnb listings are concentrated.
Who will be impacted by an Airbnb collapse?
In the declining revenue market of Airbnb, established operators who began their businesses well before the pandemic have a better chance of surviving. However, newcomers who entered the market within the past one or two years may face significant challenges.
Many of these newcomers may have borrowed money at higher interest rates and have higher mortgage payments to manage. Unfortunately, in the current environment of declining revenue, it will be increasingly difficult for them to meet their financial obligations to the banks.
The group of newcomers in the Airbnb market is likely to be among the first to consider selling their properties in order to manage their finances and avoid further financial repercussions. Selling their properties becomes a necessary step to mitigate the potential risks of a larger collapse and address the financial challenges they are facing due to the declining revenue in the market.
