For years, Airbnb has been considered not only the most popular option for vacation rentals but also as a wise investment and great way to make money for homeowners. People around the world and in the USA have been turning their homes into Airbnb apartments or house rentals, making far more in annual income than they would have simply by opting for long term renters.
But the company, which is still worth a whopping $90.04 billion, is down 2.14% in the market as of December 10, 2023, and financial experts argue that it’s going to continue to fall over the coming months. And everyone is asking: Why is Airbnb suddenly failing?
Historically, the Airbnb business model has been quite successful, but the problem now is that there are simply too many Airbnbs available for customers. Economists would call it a disproportionate supply and demand; there is more supply than there is demand. To understand why there are far more Airbnb rentals than are needed by the population, specifically in the United States, is to look back at the COVID-19 pandemic.
During those tumultuous years, many Americans decided that if they were going to work from home, they might as well work from a beautiful house. These professionals went off to states such as Montana, Texas, and Tennessee and “vacationed” while working full time. So they had not only “unlimited vacation time,” but they also had more money to spend as many were subletting their own apartments or homes in other states.
But now, as companies get back to normal, they are expecting their employees to come into the office, at least part time, which is keeping Americans in one place. And as with any market, since the Airbnb supply increased significantly and quickly, the business is now seeing a serious crash.
And while this phenomenon is certainly important for those who work at, invested in, or own their own Airbnb business, it’s also crucial to understand what the Airbnb crash means for the housing market. According to Nick Gerli, CEO of Reventure Consulting, there are currently 380,000 more Airbnb residencies than there are houses for sale in the USA.
So if Airbnb becomes less lucrative within the next few months, it’s likely that many of those who own a second or third home that they use for Airbnb, hundreds of thousands of homes could hit the market all at once. Gerli explained that this will “create [a] huge home price downside if struggling Airbnb owners elect to sell.”
While Gerli’s data is certainly respected by many, there are a few financial experts in the industry who believe that Airbnb is not nearly as close to collapse as the CEO claims. In fact, Jamie Lane, the senior vice president of analytics at AirDNA reported “[Gerli’s] data is not consistent with our own. [M]ore guests are traveling on Airbnb that ever before.”
What will happen next for Airbnb and the housing market as a whole is yet to be seen, though if Gerli is correct, change in the cost of housing and vacation rentals could be drastic within just a few months.
