Property insights: Airbnb Decline

We don’t have to look very far to see that Airbnb is contributing to a housing crisis worldwide. 

Gone are the days when Airbnb was simply a company; it has evolved into a lifestyle and a pervasive concept.

Globally, prospective property buyers now weigh up the profitability of their investments against the likelihood of listing on Airbnb or should they look to secure ongoing rental income with a permanent tenancy.

A a mental checklist:

• Can I utilise this property when it’s not booked?

• If i buy a certain property now, could this property potentially become an Airbnb if my circumstances change —perhaps due to retirement or relocating?

Yet, the most critical question often overlooked is: 

Can I afford this property without Airbnb? Eg. Low occupancy 

This mindset encourages property purchases that hosts might not have considered otherwise—a beach house, an inner-city studio, or even a ski cabin—under the assumption that personal use combined with short-term leasing will cover costs.

According to the ABC, Air B and B property managers have reported bookings have dropped by a third in 2023 compared to 2022. link

The challenge arises when everyone adopts this same approach, stretching themselves financially by opting not to secure permanent tenants.

Instead, they bank on premium nightly rates during high seasons to cover their entire year’s repayments and holding costs.

When an entire suburb subscribes to this philosophy, it saturates the short-term rental market. Who emerges as the standout among the competition, and who finds themselves with consistently low or no bookings? How does a host differentiate their listing? 

Depending on family circumstances, some may find their nightly rates significantly higher than competitors, due to their LVR ( Loan to Value Ratio) , interest rates, available income to top up investment mortgage repayments and so on. So.. at what point does a host decide to lower their rates to achieve better occupancy?

And inevitably, when does the decision come to transition to seeking full-time tenants? How does a host make that tough decision and when?

Some of the pricing on Airbnb has become disconnected from reality, particularly for the most mundane properties. Instead of lowering nightly rates to attract more occupancy, often hosts increase nightly rates to cover their growing costs and cut back on property up keep and maintenance. Obviously a bad idea.

A quick search will show beautiful furnished properties now listed on Air B and B have transitioned to RealEstate.com.au searching for long term tenants. With some owners desperate to secure a tenant they will include fully furnished, utilities, internet and crockery.

The rose-colored glasses that once made regional seasonal towns appear enticing to Air B and B hosts has faded. The reality is that infrastructure and investment in these areas are often not year-round, meaning your holiday home must generate income during the same season you wish to enjoy it.

Additionally, consumers face four main challenges with Airbnbs, which may explain the rising trend to switch to hotel bookings:

1. Pricing Doesn’t Reflect Experience: A casual scroll through Airbnb reveals countless outdated and basic homes priced similarly to highly-rated listings & well-maintained listings. I refer to this as the “bachelor couch effect”—dark leather furniture reminiscent of a bygone era. 

   
   

2. Deteriorating Service Standards: Reports indicate that service quality with Airbnbs is declining. Guests are often tasked with cleaning bathrooms, washing sheets, or even bringing their own linens and pillows. It’s no wonder hotels are becoming the more appealing, fuss-free option.

   
   

3. Declining Property Standards: Many consumers report that the homes are not in great condition, poorly cleaned, and not accurately represented in the photographs. This includes cleverly taken images that omit crucial details, such as a lack of fences in new developments or no curtains in bathrooms facing public areas.. wild! Issues like a non-functioning spa or broken fly screens are not uncommon, and guests often receive no offers for cancellation or price reductions.

   
   

4. Additional Fees: Many guests are surprised by the cumulative costs associated with Airbnb bookings. Minimum night requirements, along with cleaning fees, booking fees, and service fees, can significantly inflate the total price. This can lead to frustration when the final cost exceeds that of a hotel stay, when such fees should be more transparent and included in the initial price upon searching.

   
   

   I recently booked an Air B and B that when I changed my booking from 2 adult to 3 adults, it charged a further $200 on a 3 bedroom property. Why are we being charged per adult if we are already paying a premium for a bigger property... Host will attribute this to linen charge however you could outright own a full set of bed sheets from Kmart for $100, so many consumers assume it's a way to hide further incremental price increases.

No toilet paper? and undisclosed parkering fees?

That said, Airbnb excels in processing refunds and compensations, often outperforming traditional property managers in this regard however this requires the guest to report the issues during the stay and go through a bad experience with a host.

Cost of living crisis in Australia is a contributor to guest travelling less, not at all or returning to hotel stays, having a new found appreciation to the perks or a hotel stay. Facilities, restaurants, kids play areas, Golf Courses and more.

I personally stayed at RACV Ballarat Victoria recently, for $127 per night, we stayed in a spa suite over looking the golf course, with a living room and fire place... and no hidden fees!

In Noosa, the community has pushes to ban Air B and B all together as standard Rentals have jumped by 51 per cent in over the past five years.

Tightened regulations by law, now requires; a local person manage the property, be available 24/7, be located within 20km and respond to complaints within 30 minutes.

Victoria has tightened its taxation, trying to push home owners to return to regular rental agreements.

7.5% levy on short-stay accommodation bookings, including those made on Airbnb, starting January 1, 2025.  

What can we learn from international examples?

Paris has instituted minimum nightly and monthly costs for short-term rentals, requiring proof of study, employment, or project work to mitigate the impact on the local housing market. Meanwhile, Barcelona has taken a firm stance against Airbnb, a sentiment echoed globally.

Airbnb isn’t problematic if a host can afford to purchase and hold a property without guaranteed rental income. However, the false economy that Airbnb has fostered is now statistically unraveling for many homeowners.

New regulations in New York for instance, mandates that hosts register their properties with the city and prove their residency, with fines ranging from $1,000 to $5,000 for non-compliance. Still, the city grapples with a surplus of Airbnb listings compared to available rentals, complicating efforts to implement significant reductions.

So for that reason, the biggest concern when buying an asset for the sole purpose of Air B and B is not just the trending decline in bookings however will your local council bring in new laws that will completely obliterate your booking model?