The Airbnb Bubble Popping Will Pop the Housing Bubble

<i>It&#x27;s not uncommon to visit tourist-magnet cities and see entire buildings with only a few lights on, as many units are owned by the wealthy and left empty, as rents are not as important as having a safe place to &quot;park surplus capital.&quot; Thousands of other units have been pulled from the long-term rental market to reap the higher returns of STVRs [short term vacation rentals].</i><p>In NYC, another sign of STVR buildings are lockboxes chained to metal railings outside.<p>Starting tomorrow (September 5) such rentals are supposed to follow very strict new rules introduced by the Adams administration including hosts required to live in the same unit and reservation caps of no more than 2 people. Whole apartment rentals are banned unless the term is longer than 30 days.<p><a href="https:&#x2F;&#x2F;www.thecity.nyc&#x2F;2023&#x2F;8&#x2F;15&#x2F;23832212&#x2F;how-new-airbnb-registration-system-works" rel="nofollow noreferrer">https:&#x2F;&#x2F;www.thecity.nyc&#x2F;2023&#x2F;8&#x2F;15&#x2F;23832212&#x2F;how-new-airbnb-re...</a>

&gt; I also want to stipulate that I am not talking about people of modest means who acquired rental properties by scrimping and saving their earned income and making sacrifices for decades--a strategy that is part of Self-Reliance ; I&#x27;m talking about the already-wealthy who are seeking to &quot;maximize returns&quot; on their unearned &quot;surplus capital.&quot;<p>The mental gymnastics folks go through to say &quot;this behavior is ok if people I like do it, but it&#x27;s wrong when those other gross people do it&quot; always amuses me.

As long as new supply is not being built, whether due to restrictive zoning, NIMBYism, or other such reasons, the bubble will not burst. Too many people simply want too few homes. The answer is to build high density housing in the places people want to live in, usually major cities.

Considering most of those houses in question here were bought at 3% interest rates it seems unlikely that the wealthy would sell at a loss rather than just switch from STVR to medium-term or long term rentals where they would make less money. The housing market is still short on supply and at the purchase prices&#x2F; interest rate combo they have a lot of room to be able to ride it out.<p>Besides, its not residential homes that are a ticking time bomb, its commercial properties... Office workers are not going back to the office.

&gt; <i>A systemic driver of this bidding war for rental properties is the &quot;AirBnB&quot; model of monetizing individual properties to compete with hotels and resorts for lodging... This has led to an artificial scarcity of housing in popular tourist destinations.</i><p>This is fundamentally untrue, there is nothing &quot;artificial&quot; whatsoever.<p>AirBNB allows a city to host a <i>larger</i> number of tourists than hotels alone can provide, which stimulates the local economy with lots of spending etc. This is not &quot;artificial&quot;, it&#x27;s real local economic growth.<p>The scarcity of housing is then not caused by AirBNB -- it&#x27;s caused by not constructing enough housing.<p>It doesn&#x27;t matter whether demand for new housing comes from tourism or people moving to the city to reside. Demand is demand, and tourism is not &quot;artificial&quot;. Nobody calls people moving to the city for work an &quot;artificial&quot; cause of scarcity, and neither is tourism.<p>The solution is to build more housing. Period.

I’m remortgaging next year and with interest rates as they are and what they’re predicted to be, I’ll be paying off only interest. I’ll be back to paying rent essentially. It’s a scary thought.<p>I don’t know how people (not 4%) are surviving.<p>How would the housing market bubble bursting affect people in this same situation?

This smells a lot like when crypto people say their markets will affect greater financial markets. The scale is just not there.

1&#x2F;100 UK properties is an (Airbnb) short let of some sort. But I don&#x27;t buy that a few highly-leveraged people panic-selling their portfolios is going to bring down house prices at all.<p>Even if that caused some _local_ downward pressure on house prices, why would that affect the demand for short lets? It might reduce the supply, so local room rates would go up. The remaining owners would have a lower-valued asset producing higher returns - a better return on a percentage basis, and in cash.<p>Few people holding cash-generating property will be pushed into selling by a dip; lots of them will have held through 2007-14. Property value as investment is (still) a bit of a religion here.<p>Councils and national regs have far more potential to dent Airbnb numbers (e.g. I&#x27;d guess we&#x27;ll see sales tax added on nationally by the next government). But I don&#x27;t see the political will anywhere yet, even in places like Edinburgh and London that have unusual regulation.

&gt; Here&#x27;s how we can tell if a speculative bubble is a bubble: everyone says it isn&#x27;t a bubble<p>It&#x27;s hard to argue with this ironclad circular logic.

STRs are still a small fraction of the total housing market, as are institutional investors. People need houses, this market is organic, though reacting to the massive flux in interest rates.<p>Some data here: <a href="https:&#x2F;&#x2F;www.housingwire.com&#x2F;articles&#x2F;datadigest-inventory-and-the-purported-airbnb-crash&#x2F;" rel="nofollow noreferrer">https:&#x2F;&#x2F;www.housingwire.com&#x2F;articles&#x2F;datadigest-inventory-an...</a>

It&#x27;s always amazing to me that people will write these long articles and then do things like compare <i>real</i> median income (adjusted to account for the price of housing) with <i>nominal</i> rent prices.<p>For context, here&#x27;s nominal rent vs. nominal income, both indexed to 1985.<p><a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;graph&#x2F;fredgraph.png?g=18r0r" rel="nofollow noreferrer">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;graph&#x2F;fredgraph.png?g=18r0r</a><p>EDIT: Some criticisms of the charts the author uses:<p>1) The Case Schiller chart is in I guess &quot;units&quot;? The underlying data is an index to 2000, so saying it dropped &#x27;50&#x27; (going from 180% of 2000 to 130% of 2000) is for the most part meaningless. The farther you get from the year 2000, the bigger the numbers will look.<p>2) The investor purchases thing is just a noisy first derivative of the interest rate chart. (<a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;graph&#x2F;fredgraph.png?g=18r18" rel="nofollow noreferrer">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;graph&#x2F;fredgraph.png?g=18r18</a>)<p>3) Population doesn&#x27;t occupy houses, <i>households</i> do and those have grown faster than housing units. (<a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;graph&#x2F;fredgraph.png?g=18r1T" rel="nofollow noreferrer">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;graph&#x2F;fredgraph.png?g=18r1T</a>)<p>4) See above<p>5) There&#x27;s a lot of complex policy debate about whether or not we are in secular demand crisis, but the MBS chart is all about lowering interest rates to increase demand. I agree that has unintended consequences, but the author seems to forget that <i>builders</i> pay interest rates too.

So on the topic of NYC, and the new registration laws coming into effect tomorrow. From Bloomberg:<p>&quot;At stake is potentially millions of dollars in lost revenue for Airbnb in one of its biggest markets. Some 7,500 units don’t meet the requirements to apply for a license, according to market analytics firm AirDNA, and so will likely eventually disappear from the platform. More than half of those listings are frequently rented and account for about 40% of Airbnb’s income in New York City, according to AirDNA. In a lawsuit against the city over the rules, Airbnb said it earned $85 million in net revenue in 2022 in the Big Apple, which is about 1% of its total.<p>New York has been sparring with Airbnb for years over rules that prohibit rentals in most apartments for fewer than 30 days without a tenant present. AirDNA estimates that only 9,500 of Airbnb’s 23,000 listings are legal.&quot;<p>Will that few units (out of a city of 8.5M) coming back online really pop the housing bubble?

I see a lot of Airbnb-hate online like reddit or Twitter, but financially I see no sign of Airbnb slowing down at all. It really just seems like a case of more light and no heat at this point.

And good riddance to the bubble. I say it as a homeowner too

A key argument appears to be based on incorrect data.<p>Specifically, as I write this, the OP states that the number of housing units per capita in the US is at an all-time high, per this plot (unless the OP changes it):<p><a href="https:&#x2F;&#x2F;www.oftwominds.com&#x2F;photos2023&#x2F;housing-per-capita8-23a.png" rel="nofollow noreferrer">https:&#x2F;&#x2F;www.oftwominds.com&#x2F;photos2023&#x2F;housing-per-capita8-23...</a><p>Federal data shows otherwise. Here&#x27;s the actual number of housing units divided by number of persons in the US:<p><a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;graph&#x2F;?g=18r64" rel="nofollow noreferrer">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;graph&#x2F;?g=18r64</a><p>Otherwise, I&#x27;m reluctant to call the US housing market a &quot;bubble,&quot; because I haven&#x27;t seen the classic signs of financial mania.

Has this guy ever been right? I just remember him writing about the coming housing crash for the last 15 years. It never manifested itself and just kept going up. He has never been correct in his predictions, so I would actually use him as a contrarian signal.

AirBnB is banned in many cities, and that doesn&#x27;t make much of a difference. Urbanization is not slowing down, and that drives up prices if not enough housing is built.<p>Popular Tourist Destinations tend to be places that people do not just travel but move to.<p>&gt; Here&#x27;s how we can tell if a speculative bubble is a bubble: everyone says it isn&#x27;t a bubble<p>What an incredible sentence. Is a speculative bubble a kind of bubble? But then there&#x27;s no need to tell whether such a speculative bubble is in fact a bubble. Anyway, we can tell if everyone says it isn&#x27;t a bubble. Cars are a bubble. Lolipops are a bubble. Everyone says these things aren&#x27;t bubbles, which means they must be.

Housing is different than other kinds of assets because it is also essential for nearly everyone to have a home. Most people in the market for a home only have their paychecks and credit from the bank. Median wages are quite a bit lower than FANG salaries and banks only give credit to people with appropriate incomes buying appropriately priced homes. Governments also need to keep people in housing and voters will kick out any government that fails too hard at that.<p>So unlike bitcoin, housing cannot stay irrational and divorced from fundamentals forever. Real people need to use real paychecks and actual local credit unions need to look at those purchases and see a safe bet.<p>If that system stays out of whack for too long, everything collapses, the banks’ business model, the housing market’s prices, the ruling party’s majority, rule of law as the people resort to squatting and the capitalist system that failed in the simple task of keeping people out of the rain and cold.

Booking and airbnb pushing prices all over the planet<p>Ive been there I tried that<p>Now a days I a bring a tent cuz I love waking up on a beach or on a pastureland with cows on the country side in the morning. You can also rent a cheap combi car and use it as a tent o vacation and go anywhere.

I think a lot of the economy&#x2F;stock market has been juiced by people refinancing their homes as prices went up and using that money to buy second homes, new cars, remodel their homes, new phones, etc. Now that rates are higher, I think the rest of the economy will cool off as people can&#x27;t use their homes as ATMs which will lead to a consumer spending slow down which will lead to a stock market correction which will lead to layoffs and finally start forcing more real estate transactions.

My city just did a revaluation at peek prices using comparable sales. The state requires a revaluation every 10 years.<p>This is going to create some other problems if the housing bubble does burst. The city has kept increasing the budget year over year.<p>They are banking on these huge valuations to fund all sorts of spending.<p>At the budget meeting, elderly people were speaking up on how they cannot afford the tax increase.

Hugged to death, cache here:<p><a href="http:&#x2F;&#x2F;webcache.googleusercontent.com&#x2F;search?q=cache%3Ahttps%3A%2F%2Fwww.oftwominds.com%2Fblogaug23%2Fairbnb-bubble8-23.html" rel="nofollow noreferrer">http:&#x2F;&#x2F;webcache.googleusercontent.com&#x2F;search?q=cache%3Ahttps...</a>

No it won’t. This reads of straight fantasy. The idea that an extreme minority is going to panic the majority into selling at bargain basement prices is absurd. It’s far more likely that either<p>1. People simply choose not to sell their houses; as most people who own one or more homes have that option, or<p>2. The 64% of people buy the homes selling for cheap, and resell for a profit

Dead for me - anyone have a mirror?

Cheers to that. IF the housing bubble pops, perhaps all the airbnb&#x27;s revert back to actual long-term housing and the housing crisis &#x2F; crazy rental market fixes itself. Capitalism, just fixing itself. Nothing to see here, no reason to worry.

here&#x27;s hoping! let the whole rotten edifice fall. I ain&#x27;t got nothing to lose.<p>investors should not be buying housing stock.