Governments lay down rules to restrain Airbnb’s rental market disruption

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 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 properties located in tourist destinations. These new buyers do not hesitate to overpay for 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. 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 property. 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 inflow of tourists often have 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.

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, Bordeaux has recently acted forcing property owners to register at the town hall to make sure they observe a 120-day cap on short-term renting. The city has become a victim of its own success. Bordeaux has become very fashionable in France.

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.

The most common and powerful rule is to restrain rental duration