Airbnb, the online marketplace and hospitality service enabling people to rent short-term lodgings, is under scrutiny by local tax authorities in many countries. The fast success of the platform has created distortions in the real estate market in major cities globally as well as creating new sources of revenue.
Airbnb has made it possible for property owners to generate profits by renting their assets for short periods of time and for tenants to reduce their rents by sub-letting their units. In cities or areas which are in high demand, this phenomenon has taken on a more important dimension with the emergence of new investors attracted to this lucrative market. Yields for these short-term rents can reach almost three times the amount of a long-term rent, especially for small surfaces located in tourist destinations. These new buyers do not hesitate to overpay their assets taking into consideration the double-digit yield they can get by renting them through Airbnb.
This situation is creating distortions in the market. Traditional residential buyers cannot compete with these new investors to acquire assets available for sale, meaning that these properties will disappear from the traditional renting market. Rents are also following that upward trend, tenants are willing to pay extra because they integrate the assumption that they will be able to generate extra cash by sub-letting their flat. So far there are limited studies to quantify this impact - many other factors contribute to the real estate market - but there is no doubt that Airbnb is putting more pressure on prices. Another consequence of this trend is being felt in the hospitality sector. Major players have been complaining about this unfair competition which is eroding their revenue.
The main risk is for cities that are watching their inhabitants leave and the conversion of their city centres into tourist accommodation. The large flow of tourists also has a negative impact on neighbourhoods by creating nuisances such as noise pollution and uncivil behaviour. Another aspect is that the retail landscapes are changing quickly with the arrival of new shops dedicated to the more lucrative tourist segment, offering bike rentals, fast-food restaurants, souvenirs, etc. A large chunk of the traditional businesses dedicated to residents are suffering from this change in consumption. This is a new step in the gentrification process which started in many large cities across Europe at the beginning of the 1950s.
Following an observation period, local and national authorities have taken measures to supervise the development of Airbnb and its peers by introducing new rules. The most common and powerful one is to restrain rental duration, for instance 90 days in London or 60 days in Amsterdam. In France, the leading country by number of tourist arrivals, many cities have taken such measures. After Paris introduced a limitation this spring, Bordeaux has been the last one to act, forcing property owners to register at the town hall to make sure they observe a 120-day cap on short-term renting. This decision was expected; the city has become a victim of its own success. Bordeaux has not only become very fashionable in France but is recognised as one of the most attractive cities globally by many opinion leaders.
More constraints are on their way globally, governments could not let this new business prosper without getting a slice of it. All revenues made by these collaborative platforms will be declared to tax offices and taxes will be paid. These measures will make short-term renting less attractive and cool current real estate speculation. Even if new regulations calm things down, new disruptive innovations have replaced traditional services and changed consumption habits for good.
Sebastien Henin is the managing director and head of wealth management at Alienor Capital
