Could Airbnb superhosts cause the next RE bubble?

Understanding Airbnb superhosts, covid19 impact, and the future of the US housing market

Social media has been rife with speculations that AirBnB Superhosts may be leading the way to the next US housing crisis.

Let’s deep dive to find out the actual scenario: What is Airbnb Superhost?

Airbnb launched its Superhost program in 2016 to reward its most devoted hosts with a special VIP status. This was a response to the lack of consistent experiences on the ‘alternative lodging’ platform since Airbnb’s rating system proved an inadequate way of deciphering between professional quality operators and novice hosts.

The four criteria that hosts must meet to become an Airbnb Superhost are:

● Superhosts have completed at least 10 stays in the past year or 100 nights over at least 3 completed stays.

● Superhosts have a 4.8 or higher average overall rating based on reviews from their Airbnb guests in the past year.

● Superhosts respond to 90% of new messages within 24 hours.

● Superhosts cancel less than 1% of the time, not including extenuating circumstances. This means 0 cancellations for hosts with fewer than 100 reservations in a year.

This led to a virtuous cycle where hosts who provided a good experience for Airbnb customers received more bookings driven by better positioning in search (5% increased page views) which translated to 81% more occupancy than super hosts thus earning 60% more revenue per available day. This status mattered a lot more in emerging tourist destinations with larger metropolitan areas where safety can be a bigger concern for guests.

So what did this change?

Airbnb’s global inventory of 7 million listings – makes it bigger than the top-ten hotel chains combined, which have 5.48m guestrooms. In many markets, as many as half of the listings on Airbnb are advertised by hosts with at least one other listing. According to experts, 7 percent of hosts on Airbnb are Superhosts. Leaving aside part-time hosts, 19.4% of hosts had achieved Superhost status in 2017. Given that the margins on short-term rentals are higher than long-term ones, many of these superhosts signed more than 10 leases with the intent of keeping all the properties continually booked, or took out large bank loans to buy condos and remodel them as “AirBnB homes”. AirDNA estimates that a third of Airbnb’s U.S. listings are run by hosts with between two and 24 properties. The remaining third involves hosts with more than 25 properties.

Along with zero interest rate policy and quantitative easing after the 2008 economic recession, AirBnB helped push housing prices faster than overall inflation, rents, and wages. According to the Case-Shiller U.S. National Home Price Index, housing prices have surged by 59% since their bottom in 2012. (Captured in these interesting graphs: Graphs)

And these bets looked good until COVID-19 happened

Airbnb is at the cross-section of the travel industry and the mortgage market, two areas particularly targeted by the coronavirus outbreak and the ensuing economic shutdown. With coronavirus spreading across the globe, thousands of travelers have called off plans for vacations, work trips, and family visits. Airbnb hosts saw $1.5 billion in bookings vanish in mid-March. The travel ban along with AirBnB expanding its cancellation policy, short-term rental hosts are assessing their own sudden loss of revenue since rentals provided the bulk of their income. A recent survey among Airbnb hosts, 49% hosts said that the short-term rental income from Airbnb helped them make ends meet. With little to no cash flow and uncertainty over how long it will take the travel industry to get back up to pre coronavirus levels, the Airbnb superhosts might soon start to default on their mortgages.

But is this collapse in the Airbnb economy enough to crash the $16 trillion U.S. mortgage market?

● According to data compiled by FHN Financial and CPRCDR, investor property loans in the US as a percentage of all 30-year mortgages have declined in the past four years, to less than 7%. From 2011 to 2014, the share climbed from 5% to almost 8% which coincided with a huge jump in the number of guests stays through Airbnb.

● Moreover, those who take out investment property loans have strong credit, a situation which is a very different situation from 2008, where subprime mortgages were extended to any American living anywhere and creating complex derivatives tied to those loans. However, that does not mean the US housing market is not walking into its next crisis

● Already, at least 3.8 million homeowners have sought mortgage relief and were not making their payments by the end of April, a 2,400 percent increase from March, according to Black Knight, a mortgage technology and data provider.

● The unemployment rate in the US spiked to 14.7% in April as the economy lost more than 20 million jobs during the self-imposed shutdown to fight the coronavirus pandemic. Goldman Sachs predicts that the real jobless rate will peak at 35%, up from the bank's previous projection for a peak of 29%.

● Nearly 10% of 40 million renter households didn’t pay in April compared with 5 % during a typical month, and May is expected to be even worse, according to industry data.

● This isn’t the only seismic shock to the housing market since the start of the coronavirus pandemic. Home buying demand has all but evaporated in the last month. Year-on-year growth in the housing market slumped from 27% in January and February to 1% in March.

The US housing market is under pressure from almost every angle and the cracks are starting to show. The breakdown of the Airbnb economy could strain lenders, undermine property values, and validate some local governments’ long-held suspicions that Airbnb contributed to the affordable-housing crisis.

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About the Author: The post is written by our EZPP Partner Abhirup Roy with relevant edits from our editorial team. Abhirup is a graduate from IIM Ahmedabad and works with Zolo Stays.