Economic Impacts of AirBnB
AirBnB and its Impact on the Economy
January 14, 2015
Elliott Choi – Primary Article Contributor
Piercon Knezic – Team Leader Following AirBnB
Keywords: AirBnB, revenue, hotel industry, traditional companies, self-regulation, insurance, hotel lobby
AirBnB is a company that challenges the monopoly that currently exists in the hospitality and lodging industry. Originating in San Francisco, the founders, Brian Chesky and Joe Gebbie, innovated out of need when they could not make the rent of their shared loft; the original purpose of AirBnB was target primarily to high-profile events with scarce accommodation, but expansion to a wider demographic came after the company’s first incubation period.
Today AirBnB operates as a virtual marketplace for vacation rentals, acting as the connection between providers and consumers. Operating as a middleman, AirBnB grows not by increasing physical inventory, but rather increasing its efficiency between linking renters with hosts. There have been a host of issues that arise from the deregulation of an industry, especially one as convoluted as hospitality. The question of whether or not AirBnB brings positive change to this stagnant industry is one this article will go on to discuss.
Economic risk, simply, is the chance that macroeconomic conditions will affect an investment. In the case of AirBnB, the largest region for contention lies within pending government regulation backed with powerful hotel lobbyist groups. Only six years from their founding, AirBnB is growing at a rapid pace with 3.5 billion dollars in revenue last year. This must be compared to a paltry 250 million dollars in 2013. Projections have AirBnB making revenue of 10 billion by the end of 2020. With such incredible growth it is imperative to analyze governmental risks, and the policies AirBnB has enacted to best mitigate the risks it faces.
On a cursory level, the deregulation of an industry seems to pose a threat for those already operating within the industry. Yet, on a macroeconomic scale, AirBnB poses little to no threat to the hotel industry. AirBnB provides lodging at relatively cheaper prices than hotels, therefore consumers who would otherwise not be able to afford a city’s hotel rates are now able to book accommodations. As a study by SF Travel shows that, a one percent increase in AirBnB revenue results in a five-hundredth percent decrease in hotel revenue. In essence, AirBnB merely expands the overall tourist base, which actually has a host of cursory beneficial impacts to a local tourism industry.
Investors in AirBnB are also wary of the impending tax regulations and a rise in housing prices that AirBnB consumers and providers may soon face. AirBnB service providers are unique in that the income gained from lodging operations can be taxed as supplementary income. As an aside, this extra income helps combat rising house prices in various urban centers such as San Francisco and New York. However, AirBnB also notes that taxes for lodging still occur in accordance to particular state laws. Therefore, as taxes are already being paid, and as it doesn’t seem to hamper the growth of the company, it should, at this point, be of minimal influence for investors.
While the hotel lobby is a powerful group in American politics and beyond, they may be campaigning against what is merely perceived threat. AirBnB often makes a profit from individuals who would otherwise not travel due to financial restrictions. AirBnB also provides supplementary income to owners, which helps combat inflation and rising living expenses. While there is some merit to the argument that AirBnB is a threat to the hotel industry, the most persuasive argument is that AirBnB has simply found its own niche that really only marginally impacts the hotel industry.
