In recent years, Airbnb has received significant attention within the Sharing Economy, as it is criticized for driving up rents and housing prices. Moreover, it has disrupted the hotel industry, prompting many to question: is Airbnb really a part of the Sharing Economy? Because it is preempting resources from the traditional markets (Chen et al., 2022; Demir & Emekli, 2021; Hall et al., 2022).
The Success of Airbnb
To understand the phenomenon, let’s delve into why Airbnb became so successful in the first place. Short term-rentals have long existed since World War I. With improved economy and transportation, workers are granted more holidays and are able to travel. Lily Hoffman, one of the author of “Airbnb, Short-Term Rentals and the Future of Housing” argues:
“…What Airbnb did was legitimate and glamorize it. Airbnb marketed it as cooler, a greener way to travel, to visitors.”(CNBC International, 2023)
Through technological innovations and a decentralized peer-to-peer business model, the model of short-term rental is revolutionized. The direct contact with the hosts is the major reason for guests to choose Airbnb. A sense of community and trust is fostered, since hosts and guests form relationships in intimate sphere, the home. Users were captivated by the opportunity to experience other people’s life (Roelofsen & Minca, 2018). Beyond the experiential aspects, Airbnb’s position as a Sharing Economy model also attracts users.
Airbnb and the Sharing Economy
Airbnb, in essence, embodies the value of Sharing Economy. Started with an one-time experience of sharing apartment with three travelers, Airbnb has made sharing a global phenomenon. Originating in San Francisco, it expanded to over 200 countries, offering a diverse range of properties from penthouses to cottages (Airbnb, n.d.). Throughout its evolution, one thing remains the same: hosts sharing their experience with guests. At least this is what Airbnb claims on its website (Airbnb, n.d.). Airbnb also offers benefits inherent to the Sharing Economy, providing an alternative for ordinary people to make money, facilitating the circulation of goods, and helping narrow the wealth gap (Crommelin et al., 2018).
Why Airbnb is An Exception in Sharing Economy & Its Cause
However, the nature of housing makes Airbnb stand out in the Sharing Economy, exposing the potential dark side of Sharing Economy. The prevalence of Sharing Economy has significantly increase the demand. While other businesses, for example, Uber, can respond to high demand by producing more physical vehicles, housing is limited by space, especially in big cities with dense area and high land price. As a result, Airbnb is running business mainly using the assets from the traditional housing market. What’s more, Airbnb allows anyone to register as hosts. This is where professionists came in and caused more properties to be removed from the traditional market and used in tourism business. With limited land and property, traditional market could not encounter this challenge without raising the price (Crommelin et al., 2018).
The Rise of Professionists in the Airbnb Ecosystem
“Professionists” stands for the people who are from the real-estate and hotel business. They are also named by the characteristics of their hosting style, the multi-hosts. According to data in the top 10 Europe cities, the amount of properties professionists host range from 200 to 1000. Since the rise of Airbnb, professionists have decided to abandon the traditional market and flocked into the platform to get a piece of the pie. With their expertise, they outrace many single-hosts by bringing out superior customer service and maintaining cleaner accommodations, receiving more positive reviews on the app and drawing both old and new customers (Demir & Emekli, 2021). Furthermore, the listing of multiple properties leads to an over-supply in the Airbnb market, exacerbating inflation of rent and home prices in the traditional market, due to limited available properties (Chen et al., 2022). It is evident that the nature of Airbnb has turned into a competition, and it brings no benefit of the Sharing Economy. It no longer adheres to the pure concept of utilizing spare space to earn income and form meaningful connections with people.
Balancing Act: Moderation, Regulation, and Evolution
A cheaper price, is one of the main reasons for guests to choose Airbnb over hotels. What’s more, compares to the hotel seasonal pricing strategies that involve charging high price during high-demand seasons, Airbnb’s pricing is more flexible since it is determined by the hosts. In response to Airbnb’s competitiveness, hotels are shown to lowering their seasonal price. Service influence guests’ choice as well. Research found that low to middle range hotels are the most affected by Airbnb, because both of their main consumers are leisure travelers (Li & Srinivasan, 2019). However, high-end hotels are at risk as well, as Airbnb has been actively targeting business travelers. Airbnb introduced the Business Travel Ready program in 2015, offering business amenities in the rooms. Nowadays, it is a mature program in Airbnb. With official booking site, business travelers are accessing properties with 5-stars rating by other business travelers and with a cheaper price. Who doesn’t like that? To compete, research suggests that high-end hotels should work on providing a better service (Airbnb, n.d.; Blal et al., 2018).
To moderate Airbnb’s impact on the housing market, governments have implemented regulation such as the “One Host, One Home” policy, aimed at eliminating the multi-hosts.
Cities like New York, San Fransisco, and Portland that have enforced this policy immediately witnessed a 3% decrease of rents and property values. Further research shows that for every 10% increase in Airbnb properties affected by the policy, home values and rents could decrease by approximately 0.3% to 0.6% (Chen et al., 2022).
The most recent regulation in New York, effective September 5th, 2023, imposes several key rules:
- All property serves as rentals under 30 days must be registered.
- All hosts must show up in the homes.
- Only 2 guests are allowed in one property.
While intended to moderate Airbnb’s impact, some view this local law as a “de facto ban” on Airbnb in the city (Hoover, 2023). The video below dissect its possible impact in the future (CNBC Television, 2023).
But here is the twist: this disruption, while initially chaotic, is pushing the traditional market to evolve. Sharing Economy, has been described as disruptive innovation (Blal et al., 2018). In the case of Airbnb, its emergence has encouraged traditional hotels to re-evaluate their pricing strategies and improve service quality to offer a better experience. And during the process of trials and errors, where things might went side track, regulation comes in to moderate the harm and figure out a way for both business models to co-exist.
In the ever-changing landscape of Sharing Economy, Airbnb’s disruptive impact on both the traditional housing market and the hotel industry has raised doubt on its true essence within this economic model. Airbnb’s initial success was driven by its character of sharing the under-used spaces and fostering human connections. However, the unique constraints of housing forced Airbnb to use resources in the traditional market. What’s more, its openness attracted professional individuals from the traditional industry to host multiple properties on the platform, leaving less properties in the traditional market and subsequently driving up rents and housing prices. In response, the traditional market adapts by adjusting existing business strategies, and local governments around the world are implementing policies to restrict the phenomenon of multi-hosting. While it may appears that the stakeholders are fixing and correcting the issues, the “Airbnb effect”, on the other side, presented an opportunity for change in a positive way. It stimulates innovation within the hotel industry, prompting a re-evaluation of pricing strategies and an improvement of services. Airbnb’s capacity to bring about evolution within the traditional industry underscores its role as a disruptive innovation, which aligns with the nature of Sharing Economy.
Airbnb. (n.d.). About Airbnb: What it is and how it works. Help Centre. Retrieved October 2, 2023, from https://www.airbnb.com.au/help/article/2503
Airbnb. (n.d.) About us. Airbnb Newsroom. Retrieved October 2, 2023, from https://news.airbnb.com/about-us/
Airbnb. (n.d.). Business Travel. Airbnb. Retrieved October 2, 2023, from https://www.airbnb.com.au/work
Blal, I., Singal, M., & Templin, J. (2018). Airbnb’s effect on hotel sales growth. International Journal of Hospitality Management, 73, 85–92. https://doi.org/10.1016/j.ijhm.2018.02.006
Chen, W., Wei, Z., & Xie, K. (2022). The Battle for Homes: How Does Home Sharing Disrupt Local Residential Markets? Management Science, 68(12), 8589–8612. https://doi.org/10.1287/mnsc.2022.4299
CNBC International. (2023, August 15). The Airbnb effect: why second homes have become so divisive. [Video]. Youtube. https://www.youtube.com/watch?v=oZhkjxnXVgA&list=PLfO9Ydj_aJ7BPo RP6ivOIc5btjpjHj1sJ&index=10&t=177s
CNBC Television. (2023, September 6). NYC’s new legislation cracking down on Airbnbs goes into effect today. [Video]. Youtube. https://www.youtube.com/watch?v=683ePecw11U&list=PLfO9Ydj_aJ7BPoR P6ivOIc5btjpjHj1sJ&index=12
Crommelin, L., Troy, L., Martin, C., & Pettit, C. (2018). Is Airbnb a Sharing Economy Superstar? Evidence from Five Global Cities. Urban Policy and Research, 36(4), 429–444. https://doi.org/10.1080/08111146.2018.1460722
Demir, E., & Emekli, G. (2021). Is Airbnb no longer a sharing economy platform? Evidence from Europe’s top 10 Airbnb destinations. Anatolia : an International Journal of Tourism and Hospitality Research, 32(3), 470–488. https://doi.org/10.1080/13032917.2021.1890626
Hall, C. M., Prayag, G., Safonov, A., Coles, T., Gössling, S., & Koupaei, S. N. (2022). Airbnb and the sharing economy: Introduction. Current Issues in Tourism, 25(19), 3057–. https://doi.org/10.1080/13683500.2022.2122418
Hoover, A. (2023, September 5). The End of Airbnb in New York. Wired. https://www.wired.com/story/airbnb-ban-new-york-city/
Li, H., & Srinivasan, K. (2019). Competitive Dynamics in the Sharing Economy: An Analysis in the Context of Airbnb and Hotels. Marketing Science (Providence, R.I.), 38(3), 365–391. https://doi.org/10.1287/mksc.2018.1143
Roelofsen, M., & Minca, C. (2018). The Superhost. Biopolitics, home and community in the Airbnb dream-world of global hospitality. Geoforum, 91, 170–181. https://doi.org/10.1016/j.geoforum.2018.02.021