A spate of lawsuits and legislation has brought short-term rentals to the forefront of the real estate industry's mind of late as the industry struggles with the growing pains of a maturing market sector.
The short-term rental industry is young and flush with demand, not yet fully crystallized and still expanding into new business lines. One writer even went so far as to call Airbnb the new NATO, arguing that the company is restoring his faith in human decency.
But at the same time, the short-term rental market’s growth has ruffled some feathers.
Complaints of short-term rental activity inducing rent inflation and exacerbating the housing shortage are common, and the multifamily industry is trying to catch up as unregulated short-term rental activity has caused issues in communities across the nation.
Despite these growing pains experts say that short-term rentals will persist because demand always wins, and someday, short-term rentals will change the way we look at space forever.
First, let’s quantify the demand:
According to a CBRE research report, Airbnb alone has 3 million listings in more than 19 countries, accommodating 160 million stays over its lifetime.
Lump in other services like HomeAway and VRBO and it begins to become clear that demand for this product is massive, and it’s not going anywhere.
“Demand ultimately wins out…demand wins, and demand is not going anywhere in the world of short-term rentals,” Short-term rental expert and Senior Vice President of RealPage’s short-term rental management platform Kigo Matthew Hoffman told HousingWire.
“Demand has grown so much, it has outpaced the available supply for non-hotel accomdations, or short-term rentals,” he added.
This explosive growth has created issues. More and more municipalities are cracking down on short-term rentals with new legislation restricting and regulating its use within their borders as rowdy vacationers and rising rents have people pointing fingers at the short-term rental activity as a problem that needs to be solved.
Besides the looming issue of gentrification associated with short-term rentals and the ire it has earned for the industry from municipalities, multifamily entities have also expressed displeasure with short-term rental practices. In fact, Airbnb is now in a handful of court battles that have drawn involvement from the National Multifamily Housing Council and the National Apartment Association.
At the heart of these cases is the question of who gets to control and make money off of underutilized space.
The multifamily industry, like many municipalities, wants more control and the ability to capitalize on the space it rightfully owns.
The tricky thing is that people have been able to operate short-term rentals virtually unchecked for years. They like short-term rentals, and it is tough to tell them what they can and cannot do in a space they feel is their own.
It's not that the multifamily industry is against short-term rentals. Indeed, many multifamily owners and operators are pro short-term rental and want to participate in the market, but doing so comes with many a headache.
The dream scenario is a symbiotic relationship among residents, travelers, property owners, and short-term rental platforms where everyone capitalizes on unused space.
This has created the opportunity for short-term rental management companies and platforms to step into the gap and start working toward a solution to the headaches surrounding this burgeoning market.
WhyHotel is one such solution finder. Its business model is predicated on the pain point of lease up, and it operates pop up hotels in Class-A urban core properties in the process of filling their units.
This model satisfies two fronts: traveler demand and multifamily owner/operators.
This allows multifamily properties to benefit off of their unleased space and travelers have a bunch of fully-furnished apartments to stay in should they so choose.
The only party left out is the resident. WhyHotel makes the case that residents enjoy the pop-up hotels as an added amenity, and that is true. WhyHotel has been well received in the communities it operates in. But, in terms of residents getting paid for the time they are not in their homes, WhyHotel does not fill that desire.
Moving toward the resident benefit end of the spectrum, Airbnb has created a program called the Airbnb Friendly Buildings program. Under this program, everybody gets a cut. Residents can still rent out their units, but multifamily properties get to regulate, benefit from and know who is renting what when. Though it’s been in operation since 2016, Airbnb recently doubled down on the program in light of its success. Timely, in light of the heat Airbnb has been drawing lately from the multifamily community.
Moving into pure management territory, Kigo is a software platform in RealPage’s stable that takes on the short-term rental manager role on behalf of multifamily properties, regardless of the platform. This, like Airbnb Friendly Buildings, is a way to get revenue to all parties involved and assuage a lot of fears; it’s just that with each involved party, the slices of the pie get smaller and smaller.
This is looking like the future of the short-term rental market, and though revenues will be diluted, it will most likely calm what are now stormy seas once it becomes the norm.
Let’s zoom out and take a peek at the crystal ball.
It’s 2050, and we don’t think of our spaces as office buildings, retail buildings, residential or hospitality buildings anymore. It’s all about maximum utilization, and you can rent space for work, living, or vacationing. It’s all lumped in.
“That’s the future…you’re going to see an evolution of monetization of unutilized capacity and shared space,” Hoffman said. “Once the consumer experience can be simplified, you can create a whole of host of neat experiences around these actual living spaces, and I very much so believe that you’re going to start to see a cross-pollination across many different sectors.”
WhyHotel Co-Founder and CEO of WhyHotel Jason Fudin calls this future phenomena the co-mingled asset, and he says that the short-term rental is a foretaste of the coming sea change.
The question is who is going to control it and who will manage it?
“That co-mingled asset is where the world is going, and what it does from an investor standpoint is diversifies the income streams, which reduces your volatility and makes the project more profitable,” Fudin told HousingWire.
That’s where the world is going to end up. Exactly who operates that, that’s the question we ask ourselves…who is the person inventive enough economically to make this and how powerful is the brand? That is the fundamental question,” Fudin said.
According to Hoffman, right now, the technology required to effectively manage the fluid space of the future does not exist, but it is coming.
“The models [for utilization of space] are so different…There are some systemic challenges that have not allowed for comingling of the like to occur, but we’ll move in that direction,” Hoffman said.