Last week, many of us opened our virtual newspapers to see news whose shock value was at best muted: Airbnb, which just a few months ago was poised on the verge of an IPO promising to add to San Francisco’s already swollen subculture of millionaires, announced it was laying off approximately 1,900 employees, roughly a quarter of its workforce. The shock value was minimal because by now we’re all painfully aware of the struggles of all hospitality/travel-based companies. Hilton is struggling; it’s only natural that Airbnb, a dotted-line competitor, would join them.
But for us, an Airbnb implosion may hurt worse. While hotels and airlines are major employers and hotels are major local taxpayers, home sharing — especially in a tourist-dependent city like San Francisco, is all of that and more.
Airbnb burst onto the scene in 2008, promising to free travelers from the limitations of traditional lodging and to empower property owners (and a number of rule-skirting renters) to monetize their homes. By turning themselves into de facto innkeepers, homeowners could explore lifestyle opportunities previously only available to the rich and the mega-rich. They could travel extensively and pay for the trip by short-term renting their home. They could, and did, in many cases, quit their “straight” jobs and pursue creative dreams while their homes paid the bills. They weren’t landlords, exactly, because they didn’t have the responsibilities of long-term renters. They were “hosts.”
And now, thanks to a microscopic organism that looks like a cartoon alien, the bottom of the home-sharing market has dropped out, leaving a hotshot company facing an uncertain future and scores of suddenly over-leveraged hosts facing their own personal financial meltdowns.
“It went downhill fast,” one host told me recently. “We were booked solid through June but now all bets are off.”
For their part, Airbnb created a $250 million hosts relief fund to make up for some of the lost income, but ultimately ended up paying out only about 10-25 percent of lost revenue, “depending on how strict your cancellation policy was.”
The problem, of course, was that Airbnb didn’t have any sort of insurance plan for this kind of interruption; then again, who did?
Of course, Airbnb hasn’t always been the most popular kid on the San Francisco block, in part because of its immediate popularity. The nature of home sharing always seemed to arrive at the hazy intersection between San Francisco’s collective consciousness and its libertarian spirit. Thanks to some public squabbles with The City over taxing and registration of units, and a perception among some that growth among short-term rentals can only come at the cost of available long-term rental units, sympathy for the company (and for its hosts) may not be as strong in San Francisco as it is for, say, first responders.
I’m here to tell you that, sympathetic or not, unless our goal is to see local real estate collapse, we should all be rooting for Airbnb.
In general, the Realtors I talk to can’t agree on what happens next for their industry. Some say we’ve already escaped the crisis unscathed; others say the worst is yet to come. One told me a crash was coming this summer and that it would take “years” to recover. In this scenario, what happens if hundreds of Airbnb operators foreclose over the next year? What happens to the property taxes being paid, the money spent on upkeep, the cash spent at corner stores by tourists staying in neighborhoods rather than in hotels downtown?
The other thing is that the story of the globe-trotting Airbnb host is mostly a myth. According to a 2018 SmartAsset survey, Airbnb hosts in San Francisco are just trying to cover their mortgage and doing so at a much lower rate (63 percent, 12th highest among U.S. metropolitan areas) than hosts renting in less costly cities. Most are running single rental units which, as one host points out, gives them “no resiliency. If 100 rooms of a hotel cancel, they’ve still got 400 more rooms to rent. If my guests cancel, I’m out of luck.”
Good-bye, 63 percent of your mortgage payment. Hello, homeowners in jeopardy, which may be what you’re wishing for if you’re viewing the world through Rage Against the Machine glasses, but be careful what you wish for unless you like to watch dominos fall.
Airbnb’s promise to hosts is dead-on the San Francisco dream, that you can use your house to finance your creative, spiritual or traveling dreams; to follow your bliss. Wouldn’t it be a shame to see that go?
The Market Musings real estate column appears every other Wednesday. Larry Rosen is a San Francisco-based writer, editor, podcaster and recovering former Realtor. He is a guest columnist and his viewpoint is not necessarily that of the Examiner.