Airbnb's downturn and the ripple effects

[Patrick M.]

An interesting article in the WSJ on the disaster that is befalling Airbnb hosts, both owners and sub-leasee's. It also touches on the potential effects on the people they employ and general housing market. 

Specifically as to us- Over-extended hosts are either rushing to sell or putting their properties into the long term rental market. Your thoughts? I don't see this depressing my market as there are not many Airbnb's, but it sounds like Nashville, Atlanta and some parts of Florida may see a softening.

Some quotes:

For years, Cheryl Dopp considered the ding on her phone from a new Airbnb Inc. booking to be the sound of what she called “magical money.” A property she rented out in Jersey City, N.J., on Airbnb could gross more than $8,000 a month, she said, double what long-term tenants would pay.

Now, Ms. Dopp associates the dings with cancellations and financial misery. The 54-year-old information-technology contractor said she had about $10,000 in bookings evaporate overnight in March. She has $22,000 in monthly expenses for a largely Airbnb portfolio, she said, that included another Jersey City home and a house in Miami.

In her mind, the promise of more rental income offset the growing debt, she said. “I made a bargain with the devil.”

...

The sharing economy has proven particularly unstable in the pandemic. Silicon Valley championed the concept of turning America into a land of entrepreneurs taking advantage of flexible hours, unimpeded by regulations or specialized training. People who bought into the idea turned their cars into work stations for Uber Technologies Inc. and Lyft Inc. or became couriers for food-delivery services like DoorDash Inc.

They have taken a hit, but with Airbnb, the problems are broader. Hosts brought with them cleaning services, interior designers and property-maintenance workers who helped build miniature property empires—so their plight has ripple effects that go far beyond their own listings.

Airbnb hosts saw $1.5 billion in bookings vanish in mid-March as the travel industry froze, according to market-research firm AirDNA LLC, which analyzes bookings. Airbnb gave guests full refunds and forced hosts to dip into their pockets or beg for leniency on April loans and rent.

...

“Hosts should’ve always been prepared for this income to go away,” said Gina Marotta, a principal at Argentia Group Inc., which does credit-risk analysis for real-estate loans. “Instead, they built an expensive lifestyle feeding off of it.”

...

Smaller players have spent hundreds of thousands of dollars each buying homes for short-term rentals. Jennifer Kelleher-Hazlett of Clawson, Mich., spent about $380,000 to buy two Michigan properties in 2018. She said she and her husband cashed out their financial investments and borrowed $100,000 from employers to furnish them.

The 47-year-old expected to net up to $7,000 a month from Airbnb after mortgage payments, supplementing her income as a part-time pharmacist and her husband’s as a schoolteacher. Before the virus struck, the couple was considering buying more homes. Now, they can’t make mortgage payments because no one is booking, she said. “We’re either borrowing more or defaulting.”

Airbnb let hosts set their own refund policies over canceled stays. Hosts with strict policies would receive half the money on canceled stays. Many factored a steady stream of income when planning for the future.

Airbnb’s Mr. Papas said the majority of active listings didn’t have strict cancellation policies.

Hosts’ sense of control disappeared as the crisis took hold and the company stepped in to ameliorate travelers’ panicked cancellations. Airbnb granted guests full refunds for stays between March 14 and May 31, wrenching the finances of those who had used Airbnb income to underwrite and sustain their mini-empires.

...

That sum would provide little relief to hosts such as Jennifer and David Landrum of Atlanta. In 2016, they started a company named Local, renting the 18 apartments they leased and 21 apartments they managed to corporate travelers and film-industry workers. They spent more than $14,000 per apartment to outfit them with rugs, throw pillows, art and chandeliers. They grossed about $1.5 million annually, mostly through Airbnb, Ms. Landrum said.

They spend about $50,000 annually with cleaning services, about $25,000 on an inspector and $30,000 a year on maintenance staff and landscapers, Ms. Landrum said, not to mention spending on furnishings.

When Airbnb began refunding guests March 14, the Landrums had nearly $40,000 in cancellations, she said. The couple has been able to pay only a portion of April rent on the 18 apartments they lease and can’t fulfill their obligations to pay three months’ rent unless bookings resume. They have reduced pay to cleaning staff and others. Adding to the stress, Georgia banned short-term rentals through April.

“It’s scary,” said Ms. Landrum, who said she has discounted some units three times since mid-March. The Landrums have negotiated to get some leniency from apartment owners on their leases. If not, Ms. Landrum said, they would have to sell their house.

Florida, Pennsylvania, Vermont and Delaware also have clamped down on short-term rentals, instituting temporary bans on Airbnb properties and similar listings. Local governments including California’s Sonoma County and Myrtle Beach, S.C., have enacted similar restrictions. The measures have made it harder for some Airbnb hosts to fill properties with families looking to quarantine outside their homes or near relatives.

...

As short-term-listings bans were passed around the country, Airbnb said it was shifting to focus on long-term stays and encouraged hosts to allow them. Some hosts under pressure to generate income have pursued traditional 12-month leases on Zillow, Craigslist and other sites.

In Nashville, Tenn., which grants permits to hosts, about a dozen of the city’s 3,600 nonowner-occupied listings—which include Airbnb properties—surfaced in the first days of April as advertisements for one-year leases on Zillow or Craigslist, according to Host Compliance LLC, a software provider tracking permits for the city. City leaders said they feared more would follow.

...

Ms. Dopp, the IT contractor, bought two Jersey City properties in 2015 each with multiple apartments. She listed one apartment for $140 a night and generated $4,200 from it that month, she said. She also bought a Miami house that she listed on Airbnb and other short-term rental sites under a pseudonym and used the anticipated revenue from the properties to support a six-figure loan for maintenance, she said.

When states began locking down, Ms. Dopp said, “I thought, ‘Holy God. We’re about to lose everything.’ ”

Though some of her properties had long-term tenants, she lost most Airbnb bookings through spring, she said, and can’t cover April’s mortgages, property taxes and insurance. A family rented her Miami home at a discounted rate on Airbnb, she said, providing some relief. She also plans to apply for a small-business loan, seek forbearance from banks, find long-term tenants independently of Airbnb and sell one property.

She has begun shutting down her Airbnb account, she said. “I don’t want to bargain with the devil any more.”