Photo by Alexander Mils on Unsplash
Airbnb is a lucrative service for landlords, taking advantage of short-term rentals and prices several times higher than rent. That being said, this investment strategy only worsens the housing crisis while increasing the possibility of financial bubbles.
The US-based company offers vacation rentals, homestays, and tourism-related activities. The service is an online marketplace that takes a commission from sales made through their website and mobile app. Meanwhile, landlords using the service to advertise their property are finding that they can sometimes earn up to three to four times as much by turning rental accommodations into overnight Airbnbs.
The bad side of the situation can be seen in Brisbane, Australia where, like Canada, they face a housing crisis. There was a case this summer where a landlord in Brisbane turned his nine rental units into Airbnbs, giving tenants – including families who had lived there for years – notice to prepare to leave.
Rental prices have skyrocketed following the transformation of rentals into vacation nights in Brisbane, Canada and other countries that are location/vacation hotspots, and understandably so. When the supply of rentals cannot meet the high demand, prices rise.
In Toronto, this has been a problem for years. In 2019, The Globe and Mail published an article describing “ghost hotels,” units owned by commercial operators solely for Airbnb:
“Recent CBC reports have highlighted how some of these commercial operators operate nationwide networks of 200 or more apartments. Activist group Fairbnb estimates that in Toronto there are more than 6,500 homes and apartments operated by commercial hosts, who often have multiple units for rent. Airbnb often describes its users as landlords renting out spare rooms, but Fairbnb data suggests commercial operators make up nearly 42% of the platform’s hosts in Toronto and generate more than 73% of the platform’s revenue. business in the city.
There is another side to the proliferation of Airbnb: the risk of creating market bubbles.
My partner and I went to Sauble Beach during summer vacation. While in the Bruce Peninsula, we did an Airbnb experience at a farm. Our host told us that her dealership has seen such an increase in Airbnb services in the area that a law was passed by their city council that imposes a tax on Airbnb revenue. He then informed us that this tax fully funds the dealership’s fire departments.
A San Francisco-based company fully funds the fire departments of a farming community on the other side of the continent; it’s unclear how much of this type of reliance on Airbnb revenue for utilities occurs around the world.
If it’s not worrying because Airbnb “seems solid”, then just consider that there are now lenders selling risky mortgages with higher interest rates because the borrower intends to turn them into vacation homes. The industry term for this is a “debt service coverage ratio” (DSCR) loan, and it makes some real estate brokers a fortune.
It may have a similar flavor to subprime mortgages, high-default mortgages that were bundled together and sold as investments seemingly as safe as treasury bills, which helped fuel the 2008 financial crisis. are similar in that they seem solid while things are booming, but a cycle of recession, depending on the magnitude and reason for it, could tip the whole thing. In that case, what happens to the Bruce Peninsula Fire Departments funded by Airbnb taxes? Additionally, if governments finally take action against Airbnb’s grip on their housing markets, perhaps by extending a mandate on short-term use as Singapore has done, these DSCR loans could default. , causing an explosion in real estate securities.
If that doesn’t happen, the scenario isn’t much sunnier; As the world’s housing crises are exacerbated by rentals turned into an Airbnb structure, hopeful future middle-class homeowners will be thrifty by biding their time and saving, just like low-income renters who don’t are in no position to splurge on vacation stays as they are trying to pay high rents month after month. All of this could affect the DSCR lending boom. If not, it’s probably because rich people go on vacation all over the world and the money from mostly untaxed Airbnb outlets goes back into the pockets of commercial operators, vacation-based and Silicon Valley-based mortgage brokers.
The whole picture is clear: Airbnb is becoming a risky and lucrative tourism operation for the wealthy that harms local communities and further entrenches us in a deeply exclusive, financialized and liquidated global housing market.