Whether you love or loathe Airbnb, you have to admit its founder, Brian Chesky, is a pretty smart guy. Anyone who can parlay an idea to rent an airbed in a spare room into an $80 billion industry has to have more than good luck going for him.
So when he starts promoting a shift back to people welcoming travellers into spare rooms in their homes – rather than letting whole homes to complete strangers – you have to assume there’s something afoot.
There’s a “perfect storm” brewing in the holiday and residential rental market and it’s all pointing towards simple economics forcing Airbnb to embrace the genuine sharing model it first launched all those years ago.
Could market forces do what cities and states around the world have failed to achieve – get tourists into spare rooms and renters into empty flats?
This week the Flat Chat Wrap lays out the elements that could, at long last, turn back the holiday letting tide.
TRANSCRIPT IN FULL
It’s a grey day here in Sydney.
It is. We’ve got a few things to talk about today. We’ve got some rumblings on Airbnb; I’m not sure if it’s good news or bad news… I suppose it depends whether you’re an Airbnb host or not. And we’ve got some interesting statistics on landlords and rentals and profits. So let’s get into it. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.
And I’m Sue Williams, and I write about property for Domain.
And this is the Flat Chat Wrap.
So Jimmy, what’s happening with Airbnb now? Because he was saying that he doesn’t like the fact that it’s become really commercial now, with a few people owning lots and lots of Airbnb properties, rather than the original idea of people renting out a room in their home to increase their income.
Well, I don’t know if you are aware; I think we talked about this a couple of weeks ago… Brian Chesky, the founder of Airbnb, is saying that he regrets the way it became a thing, renting out whole homes. Your heart breaks for him; he’s only got $80 billion dollars. So we’re now seeing ads on TV, of nice people going to a house in Paris, and they meet the artist who lives in the house, and they stay in the house with the artist and they go and drink coffee in her coffee shop.
Which is nice.
It’s lovely. And that’s what Airbnb was supposed to be originally, but now it’s been corrupted into what is basically, a giant short-term letting platform. They’re trying to wind that back. I suspect that it may be because they’ve kind of maxed out on the ‘whole home thing;’ there’s no more room for expansion there.
Probably. As well, a lot of people who are doing Airbnb now (and other short-term platforms, like Stayz), they’re having a bit of trouble filling their places, because with all the cost of living rises and interest rate rises (although it hasn’t risen this month, but it’s probably going to rise again twice before the end of the year, most economists say)… A lot of people just aren’t going on holiday anymore. They’re just not going away for weekends. So therefore, the people who have the property investments that are right on the beach, or right by the river, or have a fabulous view over the mountains, they’re still getting people in, but the other people with homes a bit further away from the beach, or where you have to drive to the ski fields, they’re not being able to fill their rentals. So they’re having to drop prices and having to go for long periods without anybody staying there. Which must be hard for people who are real residential renters, because you’ve got such a minuscule vacancy rate and they’re seeing all these places now sitting empty.
And I wonder what it’s going to do to the support businesses; you know, these little companies that come and change the sheets and the towels and clean the place. If there’s no turnover of renters, they’re going to be hit as well. I mean, I have to say, I find it very hard to be terribly sympathetic. When you look at people that say “oh, I can’t rent out my apartment for as much as I used to;” compared to people who say “I’ve got nowhere to live and I have to sleep in my car. I know where my sympathies lie.”
Yes, that’s right. We were talking to a friend today, who went on a holiday somewhere and took his family. And the place that he stayed; the short-term rental place, said that they can earn as much in one weekend (one long weekend), for having people in, than they earn for the rest of the year, just having people rent.
He said 8 weekends, but you know, it’s still ridiculous. I mean, they’re making huge amounts of money. But then, he at one point said that he’d also let out their place once and came back and it stank of fish, because the two families from the country met and stayed in their place at the beach. They fished every day; cooked up fish. And then, there was beer splatter all over the ceiling. So you know, he never did it again.
But the good thing is that some people are having difficulty renting out their places short-term; they’re actually now going back to residential rents, and that’s a really positive thing for many, many people.
And, when people still want to go on holiday, but don’t want to pay so much, they can tap into ‘rent-a-room’ in an apartment or a house, which will help the people who are struggling with their rents or their mortgages. Suddenly, we’re going back to that original Airbnb idea, which we all thought was great, until it turned out to be the monster that it was.
And it was fantastic in the early days. I went to Melbourne and I stayed there for a couple of months, writing a book about Father Bob Maguire (the late Father Bob Maguire, sadly). I stayed with a woman who had quite a big house, and she wanted help with the rent; probably a mortgage, I think. It was fantastic; we went out to dinner a few times and she showed me around South Melbourne. We became really good friends. So it can work really well.
But you know, to get back to that… When I was in Avignon in France recently, I stayed in a place which I suspect was Airbnb. It was a really nice apartment; it was beautiful and it was right in the middle of the town; it was fantastic. Never saw the host, and never saw the landlord. We had a code that we tapped into, to get into the place. I mean, I booked it through booking.com, so I didn’t know what it was, until I got there. But you know, that’s kind of the opposite end of the spectrum; it’s not sharing, it’s letting a property and you’re not seeing the people who live there, who can tell you where the fantastic cafes are. Although I have to say, this place had a lot of leaflets that said ‘go and eat in this place, go and drink here,’ which is great. Not leaflets; actually a booklet that they they’d made up. I just think there’s a middle ground. You know, rent a room in your house, to help you with the rent. People who can’t afford to rent a whole house, maybe can afford to rent a room.
Because I think at the moment, with a lot of Airbnb (and other short-term platforms… I have to keep saying other ones as well), they’re really, really expensive. Some are more expensive than hotels and I think hotels maybe are pushing down their own rates, so they can compete with them better. And they often advertise hotels on the same platforms.
They do. So you can compare like-with-like.
And maybe, if people do go back to renting out a single room and things, it will go back to being a good alternative to staying in a hotel, and be affordable.
Yes, and more of a community-driven thing. And talking of communities, there’s some news coming out of Victoria. I got an email from somebody who had read my column in the Fin Review a couple of weeks ago, about Airbnb, and they were saying that the Municipal Association of Victoria has just passed a motion at their conference by 80%, asking for curbs on Airbnb in Victoria.
Wow! So that’s for the whole of Victoria; councils all over?
Basically, it’s all the councils in Victoria. They can’t do anything; they’re asking the state government to do it. State government has blocked local councils from making any changes that might affect Airbnb. So they’re saying to the State government “we’ve had three or four years of this now; can we please just have some sensible laws and bylaws?” Hobart has just the doubled the rates for short-term holiday let properties.
Because they’ve got a huge housing crisis there.
It’s just to try and disincentivize?
And they have also asked to be able to charge holiday let hosts for the cost of security patrols. Because apparently, in Mornington Peninsula, they’ve had to set up a security patrol to go around, because of all these places being used as party houses. You know, so people come down, they rent the property, they call all their friends in and then they just party all weekend and the people who live there, or who have bought holiday homes to have a quiet weekend in, are just having their lives totally destroyed. This notice was sent to me by a guy who’s apparently very active in the whole thing down there. It was he who proposed to Port Phillip Council that they should propose to the Municipal Associations of Victoria Council. And so his proposal has gone right up to the top and this was supported by, as we said, 80% of the vote.
That’s a big proportion of people.
And you would wonder if the state government can really keep ignoring all these cries for help, because councils in Victoria want something done about Airbnb, or about short-term holiday lets. They can’t keep ignoring it, because that’s what they’re doing. They’re just not engaging at all with local residents.
And that’s really interesting, because local councils are much closer to local residents than state governments.
So you’d think if people in those council areas were really keen to keep their Airbnbs, and were really keen to say “it’s our right to do this, and we want to carry on unhindered by any regulations,” they would be more effective than the state government?
Oh, absolutely. And that’s the main thrust of what I’ve been saying for the past few weeks; get the local councils back involved. You can take Byron as a perfect example. There, all the housing is basically taken over by short-term holiday lets and the council are saying “well look, obviously we’re a tourist town; we need to have tourists come here, but we need to have people live here, as well.” And they are perfectly placed to come up with a balance and say “you know, if we can cut down holiday lets by this much, then we can still maintain the economy of the town and we can have people living here.” But it’s this one-size-fits-all policies; these bloody politicians, who have never lived in apartments in their lives, just making all these rules, because some algorithm, some theory, tells them that most people will benefit by the most amount. Well, you know, it doesn’t work like that. Randwick Council; we know they want to cut down on the number of short-term holiday lets, but they don’t want to cut them out. They want to get the right balance. And they’ve got to be able to tweak the figures on rates and things like that, to get the right balance. But you know, the idea of state governments giving up power to local government seems unlikely, to say the least
I kind of wonder if the market might change things, as well. As I’ve said, people are earning less money now from Airbnb, because we’re all a bit more hard-up. But also, landlords are making so much more money now -general residential landlords- because rents are so high. Properties are so scarce; the vacancy rate is so low. I think there was a figure in the paper the other day, talking about how landlords have made $3.1 billion out of property in the years 2020 to 2021. That’s the latest year that they’ve got figures, Whereas, the year before in 2019, they actually lost $240 million.
So minus $240 million, or making $3.1 billion… That’s a huge difference.
And the other big statistic that really caught my eye, was that 25% of the rental properties in Australia are owned by 1% of taxpayers. Now I wonder; there must be some big corporates involved there. Meriton still build-to-rent, don’t they?
They do; oh no, Mirvac… I don’t know if Meriton do build-to-rent. Oh, they do. They do serviced departments, don’t they?
Yes. So you know, there was a point where they were having trouble selling stuff that they’d built, and they just immediately put it onto the rental market. But I mean, even so, that 1%…
But then you’d be amazed, Jimmy; I get lots and lots of emails from pr’s talking about wealth companies. Wealth companies are ones like financial advisors, or mortgage brokers and stuff. And most of these people say that owning property is the way to create wealth (that’s probably true). And many of them have multiple properties. And many of them are 35-years old and they’ve got eight properties, because they keep using the equity in the first one to finance the second one, and then it goes on and on. And they’re kind of saying, that that’s the real way to build wealth. So there’s probably a huge number of individuals out there, who own a huge number of properties. I mean, it’s not just companies who own properties and some of these people are just really young, and they’re only just starting out.
Some of them will be thinking of finishing up.
Yes, they’re taking early retirement. It’s an astonishing statistic really, but you can see these people around. I suppose if we did go into recession (hopefully we won’t), those are the people who might really start having to…
I don’t know. I mean, there’s such a shortage of rental accommodation at the moment, I think if you already have the investments, you can’t really go wrong, except if you’re in the wrong area, or in the wrong building.
There’s no prospect really, of a huge number of apartments coming onto the market, because you know, the development applications are really down. They’re talking about how government should step in and create more properties, because the free market isn’t doing so, because the cost of construction is so high and there’s still lots of problems with the supply chain, back from the pandemic. The government doesn’t seem to have much of an appetite really, for building social housing.
Well, you know, we’ve had this whole thing… I must say, I’m deeply disappointed with the Greens. Once again; good policy… Do you remember what they did with the carbon tax? All it needed was Green support. You would have thought the Greens could have supported carbon tax more than anybody else, but they said “no, it’s not enough.” And so we went through all those years; the Rudd/Gillard years, Tony Abbott and all that… Going backwards. And it’s the fault of the Greens. And I say this, I have voted Green just about every election, for the past 10-years.
For the Senate.
Yes. And it really irks me to say this; there’s that old thing ‘don’t let perfect be the enemy of good.’ And now, we’ve held up this housing thing, because it’s not enough; they say it’s not enough.
It’s better than nothing.
Baby steps. In fact, this wasn’t a baby step; this was a big bloody step forward and now we’re going to be six-months later, and they’ll start arguing it again.
In the meantime, a lot of people are suffering. Maybe now is the time to be really quite bold. I mean, anybody from overseas who hears about our policies of negative gearing can’t quite believe it, that you could make an investment (a bad investment that you’re losing money on), and then you get subsidised for it. But now, for the first time, since the late 90s, landlords making a profit outnumber the people who are claiming negative gearing. So maybe now is the time to get rid of negative gearing as well?
Well, they said that they would keep it… Well, they’d grandfather it, for a start, so anybody that’s benefiting now wouldn’t suffer. But they would keep it for the first investment property, but only one. I think again, incremental steps are going to work. I think another big issue in strata is basically, people from overseas are investing in buildings here, and then keeping them empty, and not contributing. Because they’re not getting any rental income, they’re not paying their levies. If there’s work needing to be done, they’re not interested in the special levies that have to be paid to get the work done. I think there has to be some sort of way of making overseas investors, regardless of where they’re from; forcing them to be responsible for the investments that they’ve made. It’s not enough for them to come in and put the money down, buy the apartment, and then just walk away and say “oh, look, you can get your levies back when I sell the apartment in five or 10 years’ time.” There has to be some way of saying you need a body, a responsible body here, that will put the money in that needs to be put into keep these buildings going.
That’s right, because I think those ‘ghost landlords’ really create issues. And some buildings are actually kind of becoming ghost buildings, because there are so many of them. And you think, how miserable would it be, to live in one of those, when you know the apartments just down the corridor are all empty? I mean, it’d be really creepy, wouldn’t it?
Yes. Airbnb are doing their “it’s not us; it’s not our fault” thing. And it is not entirely the fault of short-term rentals, but they point to the fact that there are ten’s of thousand’s of empty homes in Australia. I think London has come in with punitive rates for properties that are left empty.
Because they’ve got lots of properties that are owned by people in the Middle East and people in Russia, as well.
And they are not interested in paying their rates and they’re not interested in putting tenants in.
And they might only come over and visit for a couple of weekends a year. But then they’ve got so much money, they can afford to buy really expensive apartments.
And then not bother about the fact that their rates are really high. I think they have to say “use it, or lose it.” It would be my policy.
Reinstate squatters’ rights.
That would cause a bit of controversy. Lots of little things happening around rentals and Airbnb, and all the rest of it. It just keeps ticking over, doesn’t it?
It does. I think there won’t ever be a week where we don’t have stuff to talk about, Jimmy.
Oh, now you’ve said that, next week we’re going to be sitting here looking at each other, saying “what are we going to talk about now?” Thanks again Sue, for your contribution.
And thank you for listening. We’ll talk to you again soon.
Thanks for listening to the Flat Chat Wrap podcast. You’ll find links to the stories and other references on our website flatchat.com.au. And if you haven’t already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify, Stitcher, or your favourite pod-catcher. Just search for Flat Chat Wrap with a W, click on subscribe, and you’ll get this podcast every week, without even trying. Thanks again. Talk to you again next week.