The Airbnb Effect

Your rent is going to rise, but the supply of new housing is going to increase. In Melbourne, Airbnb listings have increased from 5 properties to 16,000 properties in just 7 years. Airbnb encourages people to "Live like a local," but what if you are a local and just want a place to live? Plenty of people are worried about Airbnb having a direct effect on rental prices, causing them to rise by taking properties out of the traditional market. With so many variables effecting how much rent changes hands this is far from a simple Supply and Demand Equation. This article is an attempt to unravel the mess and just like the fairy lights at Christmas, we are going to take this one slowly, one step at a time. Let's start with a bit of context, the forces that drive property prices and why Airbnb is being discussed as a possible disrupter to the traditional rental market. Mark Twain once said that "Facts are stubborn things, but statistic are pliable." This summarises perfectly the current state of the conversation around Airbnb and housing affordability. The truth is no one has a clear answer to how much Airbnb effects rental prices. If Airbnb is driving rents up, the effect is currently negligible. It isn't changing consumer behaviour and the only people up in arms about the short term rental platform are those in the extremes. People always fear what is new but not everything scary is dangerous. 

I will start with a few statistics to get them out of the way. As dry as they are if we take a long term view the trends are obvious and they tend to put things into perspective. As you can see below, rents have risen consistently over the past 16 years. The median rent in Metropolitan Melbourne in the year 2000 was $185 per week. That has nearly doubled to $360 per week as of the September Quarter of 2016. The Department of Health and Human Services (DHHS) reports that "the Melbourne Rent Index (MRI) increased by 0.7 per cent in the September quarter. In the twelve months to September 2016, the same Rent Index increased by 3.6 per cent. This annual rate of increase is above that in the twelve months to September 2015 (2.8%) but well below the long term average annual increase over the past ten years of 5.0%." Since Airbnb's popularity, rents have increased less. So in Melbourne, has Airbnb had an effect on rents? The DHHS also reported that the number of affordable rental properties available decreased in the last three months, as well as the previous six months before that. The problem is that whenever there is an issue, especially a complicated issue like housing affordability, not only do people look for someone to blame but they also need to simplify the problem, breaking it down to make it easier to manage. This is particularly true of Politics, giving no credit to the people (warranted or not) the leaders both at a local level and Nationally are forced to take sides and ram home three word slogans to get their message across. It won't be long before more join the bandwagon, both to protect the Airbnb Community and to run them out of town. After researching for some time, what I take out of all the statistics, anecdotes and experiences I have had is that Airbnb will have an effect, it just hasn't yet and it may be slight. The effect across the board, whether it is an increase in the Melbourne Rent Index of 0.7 percent or a decrease in affordable properties of 0.6% hasn't changed the way people behave in the market - but it will. The supply of new apartments across Melbourne will also start to decline and with a lower supply of dwellings, a higher percentage of short term rentals and a lower supply of affordable properties, something will give. People will start changing the way they find long term accomodation and where they look for it. In my case, I will be looking for a cheap rental near the coast during the quieter months where I can work, write and read uninterrupted, so it doesn't sound all that bad to me.

Take the case of Noelle and her friends, three girls looking for a six month lease in Melbourne's inner-north. Usually they would be forced to trawl through internet listings with terrible photos, identifying the properties they like and then attend weeks of inspections and suffer constant disappointment, both with the properties and the rejections, before even a chance of moving in. The application process is onerous, the open for inspection times are rarely convenient and the traditional market is so competitive in the inner-city that you can be ready to tear your hair out after just the first weekend. Thinking outside the square, Noelle had a look on Airbnb, having used the platform while travelling, whose to say she couldn't find a longer term Airbnb, instead of a shorter term traditional rental? She managed to find a beautiful big three bedroom house, brand new with a friendly landlord through Airbnb. After a meeting at the property, she found somewhere that she will love living and agreed to pay a fair price to an owner that is making more than the traditional market can offer, with a little negotiation and a little more service. The point of this story is that the tools, technology and platforms we use don't dictate our behaviour, they just give us options and enrich our experience. The number of rental properties available has increased at a similar rate over time independent of Airbnb for the last 16 years also. Since Airbnb's inception in 2008, it has continued to rise even more than the previous 8 years prior to that. The stagnant growth was stimulated by the huge surge in apartments being developed and built throughout Melbourne. My gut feeling, the only option for owners to get a decent return and cover their mortgage is to Airbnb their apartments. The image below is a little more evil looking do to the consistent peaks in supply. From December to March during the Summer months there is a huge spike in the supply of available properties with people moving during school holidays, in between university semesters or just families taking the chance to upgrade when they have some time off. As you can see, the trend is in the upwards direction for properties available, so with rents steady, supply increasing and affordability slightly down, what's the big deal? 

The big deal is below - I am told the correct term to use in the startup world for this kind of growth is "Hockey Stick," I am keen on also using this as a verb and say that Airbnb has been "Hockey Sticking" in Melbourne since it began. After launching in 2008, Airbnb had 5 listings in Melbourne in 2009. Five. In 2012 this number was up to 377 and it reached a staggering 14,000 in 2016. This figure has jumped to 16,000 already and we have only just hit February 2017. This is amazing and I think this is what scares people. Incredibly, Airbnb listings across Melbourne now account for 24.34% of the total available rental properties. If a consumer was to look at just the traditional market, they could be missing out on a quarter of the properties available to them. This is where things get interesting. As a landlord, would you want to be locked out of the potential returns from Airbnb? As a tenant would you want to miss out on the properties that are advertised? If the rental market gets too competitive, more people will be drawn to Airbnb as a way to find property. Traditional Agency will be disrupted, problems will arise and solutions will be found. There will be change in the coming months, with one in six Australians currently having an Airbnb account and 25% of available properties being on the platform it can't be ignored. It doesn't need to be feared either. Landlords are still going to want the most money from their investments, as they should. Tenants are still going to want to pay the least for a lease and may or may not keep the gardens in great shape, that's just the way it is. The important thing is that we take our time to regulate the right way. 

The reality is that Airbnb is just another way for consumers to find products, for property owners to find tenants and for people to exchange in a meaningful way that will enrich their lives either financially or otherwise. All Australians just want what is best for them, their families and the wider community. We should split the Airbnb world in two, Commercial and Community. Those who run business using short term rentals for an income stream should be treated differently to those paying their mortgage or for their kids school books by renting out a room in their house on weekends. Pensioners topping up their income by offering tourists an amazing local experience should be encouraged to do so. It may take some time, forethought and collaboration but the effort will be well worth it. We have an amazing opportunity in Melbourne to shape our future as a leader in this space. To drive tourism and encourage people to earn extra income through a bit of Australian ingenuity we could even stimulate the social and financial mobility of everyone in the state. Imagine if people worried less about money and more about their contribution to society? We could free people from the quotidian grind they have been trapped in just by being a little thoughtful in the way we deal with Airbnb. So, does Airbnb have an effect on rents? The answer is almost certainly, if only a little and not quite yet. The full effect is yet to be uncovered but if you are struggling to find a place to stay or struggling to find a tenant, why not try Airbnb and the old way at the same time? It doesn't cost you anything to advertise on Airbnb.