Is Airbnb Dead? The Numbers Nobody is Discussing

Jamie: Thanks, Toby, for having me.

Toby: Hey, it’s always fun to have a numbers guy. I always figure, people lie, numbers don’t. People do like to manipulate numbers. You’re the chief economist of the organization that’s probably the best number counter of this area based on what you’re seeing. First off, is Airbnb dead? Is it crashing? Is there an Airbnb bubble that’s destroying the market? What’s the reality?

Jamie: The reality is we’ve got a record number of people staying in short-term rentals. We hit a record in 2021. We increase that number by another 20% in 2022, and then we increase it by another 10% in 2023.

There are more people than ever staying in short-term rentals. We are seeing a normalization in terms of industry performance. We hit record highs in terms of occupancy, so people were selling their unit more than ever in 2021.

We have seen a lot of new supply come in. We actually saw a pretty big decrease in supply throughout 2020. Because of the pandemic, people were pulling their home out of the market. Really, this normalization is a supply story, not a demand story.

Now, supply is coming back. We’re bringing occupancy back down to normal levels. Pre-pandemic, we were running about 55%. In 2021, we hit 63%. That’s going to be a high watermark for going back probably through the end of time, and we’re never going to hit that high of occupancy on average for a year again.

Now we’re running about 58%. While that’s down from the highs, that’s still well above what we were at pre-pandemic and a really healthy level of occupancy when looking at new investments and needing to get the returns for short-term rental.

Toby: All right. I live in Las Vegas, so I always think of occupancy rates as 90%. It’s probably right around there. Let’s just put it in perspective. I have 100 units in a hotel, and I’m occupied 90%. That means 90 of those units every single day are used. There are some days where it’s 80 and some days where it’s 100. I can’t go above 100%.

When I normalize it out, my occupancy rate for the month might be 90%, but really it means I’m sold out every weekend. If I added another hotel, there are only 100 rooms, now I’ll add a second hotel. Both hotels now have 80% occupancy rate.

What the people are doing is saying, look, Airbnb occupancy rates are dropping. Is that what’s going on? They’re saying, look at these massive declines, because the hotel that was sold out, maybe the average rate was $200. But during the weekends, they jack that up to $500 because they’re sold out. They can do it. Is that what’s going on with Airbnb?

Jamie: Yeah, absolutely. We’re distributing the demand across more units. Rates were unbelievably high and increasing in the past couple of years. The ADR (average daily rate) for a short-term rental went up 10% last year. That is massive pricing power. The average revenue that a short-term rental was earning is up 30% over the past four years.

Toby: I got to just stop you right there. Last four years’ earnings per unit?

Jamie: Earning per unit is up 30%.

Toby: All right.

Jamie: Now we’re talking about declines. Nationally, we’re going down about 2% right now. Up 30%, down 2%, and the 2% is supposedly a crash in earnings. It’s still a great time to be an investor, owner, and operator.

Toby: I mentioned 90% occupancy here in Vegas. Obviously, that’s not what it is for the country. It’s really hard to get that data, but you mentioned 58%. What’s the magic number do you think for Airbnbs? Is it 50% occupancy? If I’m buying a property and I anticipate making it into an Airbnb, should I just basically say, hey, half the time it’s going to be vacant?

Jamie: It really depends on your market. Let’s say Hawaii runs the highest occupancies for short-term rentals, it’s a 90% occupancy market. There’s no seasonality. The reality is, though, that most markets that people are staying in short-term rentals are highly seasonal. If you’ve got a unit in Cape Cod on the coast, you’re going to be lucky if you’ve got a peak season of four-month period, and then the property is sitting empty the rest of the time.

There’s no magic number, because it’s really market dependent. A lot of major cities, 60% is the magic number. A lot of that works around long weekend travel, and you might be empty midweek and rent out every weekend.

If you’re able to run out three or four nights a week, that’s great, but you’re going to max out at 60% occupancy. It’s really around the seasonality of your market, both by month and by day of the week when demand is coming and wanting to stay.

Toby: If somebody wants to know for their area, that’s what AirDNA does. You literally go in there and say, in this area, what’s the occupancy rate?

Jamie: Yup. You can say, what’s the occupancy? What’s the ADR? What does demand and ADR look like by day of the week? How does it vary within each sub market, with each neighborhood within the market?

There can be cities like Las Vegas, if you’re near the strip and out in the suburbs. The reason why people are staying, like if you’re by the hospital, and you get people staying a week or two at a time, you can have much higher, more sustainable occupancies than if you’re at the strip getting weekend traffic.

Toby: Have you guys ever looked at the data? Where’s that breakeven like, hey, it’s not worth it to move into a city that has 20% occupancy rates, but it is worth it to move into a city that has 50% occupancy rates? Has there ever been a study on that?

Jamie: Yeah, and we actually have a score called our market grade score that looks at that. It’s looking at the revenue potential, what you could earn given current occupancy and ADRs. It’s looking at the housing costs, it’s looking at occupancy levels, it’s looking at all those metrics, and then grading it. Once with a high score, you should be looking at this. Once with a low score, you can keep looking.

Toby: Yeah, avoid them for now. As a whole, people are traveling more now than they were a year ago, two years ago. What does it look like going into the future, because housing—and we’ll get into this—there’s no housing. There’s no inventory. Is that the same thing in the world of Airbnbs?

Jamie: The thing about a lot of Airbnb inventory is it is a lot of people’s second homes, that they’re looking to start generating revenue off of. The inventory for short-term rentals can increase without any change and actually investment in people looking to buy homes dedicated to short-term rentals.

Actually, if we go through a recession over the next year or two, that could actually cause an increase in short-term rental inventory because of people that now want to start renting out their home when they wouldn’t have otherwise, like, things are going great, I’ve got my second home, I want to use it.

Toby: When they’re home. Couldn’t I just house hack and say, look, I got an extra bedroom, and I lost my job, I’m going to rent it out?

Jamie: Right. That could actually be bad. If that happens, all of a sudden, traveler demand goes down. That would cause occupancy to go down. That’s not necessarily what we’re expecting. We are looking out over the near term, expecting demand to continue to increase at a pretty healthy rate. Our expectation is about 10% growth next year and in overall demand, even with a mild recession baked into our outlook.

A big piece of that is we’re just seeing greater and greater adoption of short-term rentals for different forms of travel. We saw more people try it for the first time during the pandemic. Now people, as they start to do group travel, family travel, multi generation travel, why would I want to stay at a hotel with my family when I could rent out a three-bedroom home, four-bedroom home and use that, be able to save money by cooking using a kitchen.

Secondarily, there is not a lot of hotel construction going on right now. We’re going to see the least number of new hotels constructed over the next couple of years in a really long time, given the tough dynamics of new commercial construction.

Toby: Interest rates are up, so building is down. We’re not keeping up with demand on the single family side, so they’re building apartments like crazy. Now with interest rates so high, you’re seeing that take it in the nose.

They’re talking about the big crash, because there’s just not enough people using office space. They’re talking about that crash, all this crash, that crash, the other crash. They never talk about the opportunities that are being presented because some people aren’t building and adding. You just mentioned hotels. If there was a demand number, how much does travel typically increase on an annual basis?

Jamie: We look at the data from us and look at it from travel research covering the hotel industry. You can look back decades and see travel demand is typically increasing by about 2% per year. Part of that is population, part of that is inbound international growth, and more people spending more on travel as opposed to other things. But generally, 2% a year.

Hotel supply is only going to be growing by about 1% over the next five years. That means that there’s going to be more demand than there is an increasing supply. My theory is that short-term rentals are the only way that that demand can be accommodated. There’s going to be increasing demand, and short-term rentals are going to be able to grow to satisfy it.

Toby: Yeah, unless you go into a city where it already has a really low occupancy. Maybe those guys could absorb it, but in places like Vegas, Miami, Hawaii, it is the only game in town. That’s really interesting now that I think about it.

Lots of travelers, and we need to give them options and places to stay. If we don’t, then expect hotels to continue to raise rates. Their occupancy rates are creeping up because of the extra travel. Then here’s the safety valve really is the Airbnbs and the Vrbos of the world. Right?

Jamie: Yeah, and the new hotel construction is very concentrated in the top 25 MSAs. We know that demand for travel is growing most outside of those top 25 MSAs.

Toby: What are MSAs just for people who don’t know?

Jamie: Metro Statistical Area. It’s essentially the 25 largest population centers. That’s where banks can get comfortable that the demand is going to be there, like Las Vegas and Miami. Tourists are going to be there, yes, long-term, hotel is going to make sense.

But for a bank to get comfortable lending in a market like Chattanooga, Birmingham, or areas that are actually really attractive right now for travelers and wanting to go to, or even coastal and mountain markets and not maybe the populations to say, this could support a new hotel, but really strong traveler demand. We see almost no new lodging outside of short-term rentals coming into those types of markets.

Toby: I just went to a wedding in the Hill Country of Texas, and I was shocked. They did it at an Airbnb that had a bunch of land, it was a ranch. There were no hotels out there. The closest hotel was probably 20 minutes away in another smaller city, and they were all your off-brands. There wasn’t any great place to do anything out there. I think you could tell that the private market, the Airbnbs, that’s where everybody was staying for the most part. It was what was allowing that to occur.

What would you say to somebody? You and I see the same stuff going on in the news. Airbnb is dead, it’s going to crash. Airbnb is going to crash and is going to cause the housing market to crash. What would you say to somebody who repeated some of that to you?

Jamie: There are maybe two different things in that statement. One is that the short-term rental markets are collapsing. We don’t see that. We see revenues down 2%–3% nationally, which is not a collapse, especially when revenues are up 30%.

Toby: But the growth is up. The use of it’s up, but the revenue per unit is down? Or is it over when revenue is down?

Jamie: Revenue per unit is down, overall revenue is increasing. Revenue per unit is decreasing. Those are still high historically, but not decreasing in a way that’s causing an uptick in people leaving the market or causing the overall profitability of existing short-term rentals to turn negative.

If you’ve got a house that you bought in 2019 and underwrote your investment, and now you’re seeing revenues up 30% relative to what you underwrote at, and you’re locked into a 30-year fixed rate, in 2019, super low rates, you’re looking pretty. You could see some pain in people that may be bought in 2022 after interest rates went up, when housing values reached their high levels and with the expectation that those high revenues were going to continue to increase at an increasing rate.

Toby: Your projections may have been unwarranted because you were the only game in town in a city that needed housing. As the housing fills in, all of a sudden, your revenue drops. You really should have been doing your data crunching from AirDNA saying, how much is this thing going up and how much growth is coming in? What is the overall demand?

By the way, you’re not Airbnb. You’re just a data aggregator. You’re just helping those owners collect all the data. Is it just Airbnb or is it Vrbo too?

Jamie: It’s all listings on Airbnb and Vrbo. We modeled what’s happening in terms of total revenue, total occupancy, total ADRs that these properties are earning.

Toby: You don’t have a dog in the fight. You’re not sitting here saying, hey, I’m pro Airbnb because I have an investment in Airbnb, or I have a bunch of Airbnbs, or my business is Airbnb. You’re just looking at it saying, here’s the facts.

Jamie: We support short-term rental investors. If there’s no one investing in the short-term rental industry, we’d be out of business. I won’t say we don’t necessarily have a dog in the fight, but we keep people subscribed to our data by providing them good data. If we’re providing them bad or misleading data, people would stop subscribing to us.

Toby: Let me change this around a little bit to ask you a question. Are you going up or are you going down? And how many people are using your service?

Jamie: We’re still going up.

Toby: That would tell you whether or not there are investors out there if you service investors. It’s like if I sell mops, I can tell whether a lot of people are cleaning their floors, right? Is it going up?

Jamie: We’re still going up. A big piece of it is our penetration to the overall industry. Let’s say we’ve got 40,000–50,000 subscribers. There are 4 million Airbnb hosts out there. Our penetration into that market is just a piece of it. There are a million hosts just in the US.

The other piece of your question, though, around if Airbnb revenues collapse, could that cause a collapse in the housing market, I think that is almost a laughable conclusion given that short-term rentals are just such a small piece of the overall housing pie.

Toby: How small a piece?

Jamie: On average, over this past year, there are about 1.3 million short-term rentals available to be booked in the entire United States.

Toby: Are these separate structures? Could you have two in one structure?

Jamie: About half of those are in single family homes, the other half are in multifamily buildings.

Toby: Wow. We’re talking about 1.2 million or 1.3 million. How many housing units are there? I think it’s 140-plus million housing units. We’re talking about less than 1%?

Jamie: Yup. In most major cities, it’s less than 0.5%, so a very small piece of the overall pie. Separately, even with these revenue declines, we’re still seeing net increases in short-term rentals.

There’s churn happening. There’s always churn, people finding other use cases, selling homes coming out of the market. But we’re still seeing more people come in than we’re seeing leaving, which is continuing to grow the overall supply picture.

Toby: It’s interesting, I think you said something earlier that resonates with me, at least. This might be their second house, this may be their home. I remember Airbnb, the way it was pitched to me was, hey, when you go on vacation, you should rent your house out. It’s tax free. There’s a section 280-A, where you can rent your house out for up to 14 days. You don’t have to recognize it as income.

When you go on your two-week vacation, rent your house out to somebody else, somebody stays in your home, I always thought that was weird. That seemed to be the value proposition, tax-free money, pays for your vacation, or at least pays for a big chunk of it. Then you come back and you do it. There are people that could just say, I’m going to Airbnb my house, I got two extra bedrooms, the kids moved out, and I needed some extra money. That’s a unit, or is that two units if they did that?

Jamie: That’s one unit. When you look at units and talk about that 1.3 million number, but then when you look at what percent are actually full-time units like not people just doing it occasionally, you essentially cut that number by half. The home isn’t a dedicated short-term rental, it’s something that people are doing occasionally.

Toby: How many full-time rentals are there, like units, would you say?

Jamie: Single family homes, it’s 400,000 and 500,000.

Toby: All right, now we’re putting it in perspective. So 400,000 out of 140 million, even if they just decided to get out of the business all at the same time.

Jamie: Yup. Considering that most of the supply is also people’s second homes, that they rented as a short-term rental but still want to use it two or three weeks out of the year. In my mind as an economist, it’s a much better use of that asset than when it’s not being used.

It’s being used by the homeowner and for their vacation that is being used to generate overall economic activity. It’s bringing in tourists to a destination, it’s allowing them to spend in that market. Where the asset just isn’t sitting empty the rest of the time is a much better use of that home.

Toby: We could fix the issue of homelessness in this country just by people with their empty bedrooms if we chose to. You do it, but that’s how many empty bedrooms there are, if we wanted to, if you wanted to rent those out.

Jamie: Right. Even before Airbnb, there were 5 million second homes out there in the US. We’ve actually seen in the past decade since Airbnb came online, a reduction in the number of second homes. We see a much higher percent of those second homes on Airbnb.

Toby: Because they can go to Airbnb and go use somebody else’s home. That’s probably why they had the second home, because they didn’t want to do a vacation rental or whatever that is, the fractional ownership stuff, and they didn’t want to do a hotel.

Jamie: Right. But the notion that short-term rentals are causing an increase in housing values, because it’s taking homes out of the long-term rental or dedicated house market. The data just doesn’t support it because we’re seeing the number of homes dedicated to second homes going down and homeownership rates actually going up.

Toby: I do want to read you a quote. This is from Peter Dreier. I believe he’s a professor at Occidental College Urban Policy. “When you take units off the market and rent them to tourists, one consequence is that it leads to more people fighting over fewer units, and that leads to higher rents.” Airbnbs make the housing crisis even more severe. What would you say to somebody like that?

Jamie: In theory, yes. If you reduce the amount of supply of homes, that’s got to send the prices up. But there are so many other factors that impact home values. One, we’re talking about a very small percentage of the overall housing stock.

Oxford Economics just did a big study looking at changes in home values. From 2014-2021, there was a roughly 33% increase in home values of that period. They used our data to isolate what the impact of the increase in short-term rentals was of that overall home value increase. They found that short-term rental density—the additional increase in short-term rentals over that period—added 0.4% to the overall home value increase.

Toby: All right, facts don’t lie. Again, you’re just looking at it going, all right, this is not the issue. How about this? We have more people and we don’t have enough homes for them, so we need to build more houses, but housing is really expensive right now, and interest rates are really expensive.

Builders can’t build cheaply, so housing prices are going up. People keep talking about tiny homes, but there are very few 1400 square foot and below houses being built. It just doesn’t make sense when you’re a builder.

How about this? Somebody wrote this from Tennessee. The problem isn’t that some homeowners are listing their property for rent. Rather, entire neighborhoods are becoming unrecognizable because many of the homes are no longer owned by community members. In other words, these Airbnbs are screwing up our communities. What do you say to that?

Jamie: One is that most homeowners renting out their homes as a short-term rental are trying to be good community members. They’re putting in noise monitoring software, and Airbnb has banned parties across the board and rentals. They’re trying to take this seriously, and you’re actually using tech to reduce it.

Another piece of it, though, is the way we live, work is changing. There is an argument to be made that the need to temporarily stay in a single family home is there. If there’s displacement because of, let’s say you’re doing a renovation in your house where you need a place to stay for a month, and you’ve got a friend in a hospital. I know I’ve got a young kid and my parents come to stay nearby, they don’t want to stay in a hotel three miles away. They want to stay in a house a block away so they can help at 2:00 AM if it’s needed.

There are so many new and emerging use cases for short-term rentals, that I think most communities now are realizing that a percent, maybe it’s 1%, maybe it’s 2%, maybe it’s 0.5% of homes being used as a short-term rental, is a healthy use case of that inventory and are codifying that into the laws.

San Diego just came out with new regulation, where the community is saying, we’re comfortable with 1% of supply being used as short-term rental. As long as it’s being taxed, as long as those units are being registered, and then they’ve put that into place, and they expected 10,000 and that 1% to be registered, they found that only 5000 people actually applied for the permit.

What they found was that such a high percent of the overall inventory on Airbnb was people doing it occasionally, that by putting in the registration requirements, they’re like, you know what? It’s not worth it to register. I was doing it occasionally. You can keep it.

Toby: Or they’re just saying, I’ll just keep doing it the illegal way. You guys might catch me, but maybe you won’t.

Jamie: The other thing we found is that some markets, and to one of your earlier points on short-term rentals, may not be the easy thing that people thought, that could solve the housing crisis. Like in Telluride, they put in a two-year moratorium on short-term rentals. You can’t increase the supply, you can’t add new ones. You saw the overall number of listings going down over the past two years. They still saw housing prices skyrocket.

They also found that their ability to earn revenue for their market declined substantially, given that they didn’t have the taxes coming from their short-term rentals, now they’re changing the tune of, all right, we want short-term rentals, we want to tax them, because it can bring in revenue to help us actually build more housing inventory for lower income households. The way to solve it is by building more supply, it’s not through restricting use cases of existing homes.

Toby: Interesting. It sounds to me like Airbnb—my personal view is the boogeyman under the bed that doesn’t really exist—it’s convenient to say, hey, what was that noise? Oh, it’s the boogeyman. What’s causing the prices to go up? Oh, the boogeyman is. That Airbnb, the boogeyman. It’s not really what they’re representing.

I looked at the same numbers before. It seemed to me like Airbnb has been growing robustly. In some cities, I remember Phoenix, there was so little inventory that the prices per unit were really high, but they were way high compared to rents.

I was like, well, even when they came back down, and people were like, Phoenix is crashing, it was twice as high as you’d get if you just rented your house. Still, it’s not like a dead revenue generator. That said, what’s the prospects in 2024? Are you expecting Airbnbs to still grow? Is it still an area that people should be exploring from an investment standpoint?

Jamie: Yeah, and we do expect more investment to come in. Our expectation is about another 10% increase in overall supply over the next year. That supply is going to be going in different areas than we may have seen in the past. Home values and affordability are really impacting that. Where does it make sense to make new investments?

It’s moving away from maybe some of the coastal and mountain markets that have seen really high housing price appreciation to some of the smaller midsize cities. Some of the suburban areas of major cities are really great investment opportunities right now.

It’s really dependent on the type of market, where you are within the market, and where it makes sense. But there are still a lot of areas that make sense for new investment in short-term rentals.

Toby: A good place to start might be to go to your site at AirDNA and take a look at the cities that have the highest score, because that looks like that’s a great place to invest, right?

Jamie: Yeah. We have new tools where you can actually sort all the cities in the country, get a sense of the size of the market, the type of market. Do you want to go to a beach market? What are the beach markets with the highest occupancy with more than 500 listings? That’s an easy sort on our site now and helps you find new and profitable markets to invest in.

Toby: Perfect. Jamie, I told you this would be about 20 minutes. We went a little bit over. Thank you for coming in and shooting straight, and helping us actually talk about facts instead of emotion, and in clearing some of this up. Is there anything else you want to add?

Jamie: Toby, this was a lot of fun. I’ll tell people, if you want to follow me, I’m on Twitter, @jamie_lane, on LinkedIn, and we host a podcast of my own called the STR Data Lab where we talk about short-term rental performance, investing, and interviewing large professional operators.

Toby: Perfect. We’ll put those links in when it goes on YouTube. Thanks again. We put it on the podcast and all those notes. We’ll make sure people get driven over to you, because again, facts don’t care about our feelings. Sometimes we need to actually look at the facts especially when it comes to your money. Make intelligent decisions, guys.

Thanks again, Jamie. You’ve been awesome. I really appreciate you taking the time out to come on. I know you’ve been busy. Hopefully, we’ll see you again.

Jamie: Thanks, Toby.