The Air B ’n’ B revolution is upon us! If you haven’t yet chosen to stay in an Air B ’n’ B during your travels, it’s likely you know people who have. As private individuals list their own apartments and houses online for short-term rent, visitors can enjoy cheaper accommodation than that offered by traditional hotels.
So is there a downside?
Some people think that Air B ’n’ B is increasing the price of rents and dwellings in the general housing market but there isn’t much evidence to prove the case one way or the other in Australia. Some of the recent research done by the University of NSW would indicate that the impacts have been relatively modest at the moment. That could be because there are only 5,000 Air B ’n’ B residences listed for Sydney and around three and a half thousand in Melbourne.
In London, where the current number of dwellings transformed into Air B ’n’ Bs is a dramatic 50,000, analysis by the London School of Economics shows there has been an impact on the availability of long-term rentals for the permanent population.
If the supply of Air B ’n’ B places in Australia were to approach those levels – which in 10 to 15 years is entirely possible – then I would expect to see some very significant implications for rental housing particularly in the inner areas of Melbourne and Sydney.
The type of accommodation that is being offered through Air B ’n’ B is the sort that might normally be taken up by the top 60% of income earners – because the central CBD locations make them more attractive to tourists and also more pricey for renters. What happens when there is a shortage of rental supply at this end of the market is that it puts pressure on accommodation lower down the price scale, squeezing out the lowest-income groups. The real pain is felt by the bottom 40% of income earners, who may find that there is no where for them to go.
So, in a counterintuitive way, as more expensive, inner-city housing is diverted from long-term rental to Air B ’n’ B, there will be less affordable housing for those most in need. And the public sector can’t pick up the slack. Australia has a poor record on public housing: we don’t produce any new social housing stock from year to year. At best, some states have managed to maintain the same amount of per capita public housing.
That downward push on lower income earners has already been happening in Australia over the past 15 years as rentals kept increasing. However, in the last 3 years, rentals have stayed relatively flat as a significant amount of rental stock has hit the market so landlords haven’t been that interested in trying to price gouge as yet.
So, in the short short run, Air B ’n’ B isn’t likely to impact the housing market, but in that median five to seven years term, it could. For the property investor, it’s probably worth having a look at some of those fringe inner locations with good public transport which could be rented out as Air B ’n’ Bs now, and converted later for sale or long-term rental.
It’s probably worth noting that the Air B ’n’ B phenomenon is central-city related. Outside of the major capital cities, it’s had very limited impact. Recent research in Woollongong, for example, would suggest that it’s had no impact and there are very few residences.
The hotels haven’t felt threatened by Air B’n’B either, partly because they can differentiate their product. Hotel groups in Australia have had such strong growth they can’t even cope with demand, and occupancy rates are increasing quite substantially. Though they are quite comfortable with Air B ’n’ Bs, they’d like them to compete on a fair basis, so they pay tax and have to meet the same fire and safety standards.
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