The sharing economy and the rise of the Airbnb entrepreneur

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The sharing economy and the rise of the Airbnb entrepreneur

Real estate management has been a business activity that has always attracted the attention of aspiring entrepreneurs. The recent rise of sharing economy platforms has made the rental of properties far easier and accessible to a greater number of individuals than ever before. Many owners of real estate (e.g. apartments) can nowadays use online home-share and apartment rental platforms, such as Airbnb, VRBO (Vacation Rental By Owner) and HomeAway, among others, to participate relatively easily in the short-term rental business. A significant number of home-owners around the globe nowadays use these platforms to short-let their houses or apartments. Some of these individuals learned that they could make substantial money by renting out their home and live elsewhere for a short period, while others have acquired new real estate with the sole purpose to offer it for rent through such platforms. We are experiencing a phenomenon, which for the sake of brevity is referred to as the Airbnb entrepreneur.

Some of these new entrepreneurs have switched from a typical wage-employment job to self-employment by living off the sharing economy online platforms (e.g. Airbnb). Others, use these online rental platforms to supplement their existing income while aspiring to become an "Airbnb entrepreneur" in the future. There are a number of already successful entrepreneurs of this type who are promoting through their personal websites, online blogs and e-books the idea of the "Airbnb entrepreneur" as a career path for a successful and easy living.
62 percent of Airbnb hosts in New York said Airbnb helped them stay in their homes and the typical Airbnb host in New York earns $7,530 per year.

Unfortunately, the path that the sharing economy of home short-term rentals is paving is far from ideal, and Airbnb, among other similar online platforms, has been the target of criticism. In Barcelona for example, locals have demonstrated to raise awareness about the unsustainable price increase of their rented homes due to the growing number of illegal tourist apartments rented out through Airbnb. The number of long-term rentals availability has decreased, thus pushing the rental prices up for locals who struggle to pay such high prices. Protest movements have been taking place in major cities around the world, such as Venice, Barcelona, Berlin and San Francisco, where residents demonstrate against the negative effects of Airbnb, as long-term rental citizens are forced to move out of their homes because the landowners seek to maximise their gains through short-term rentals using Airbnb (e.g. short-term rental can earn them up to four times more than long-term rental). It is estimated that in New York City almost 65% of the rental listings on Airbnb were entire homes offered for rent for less than 30 days.

Similar effects can be also seen in Cape Town, where the number of rooms and apartments listed on online rental platforms grew from 700 in 2013 to over 15,000 in 2017, or Venice, a city of 55,000 residents that welcomes more than 20 million tourists per year. Local residents in Venice complain not only about the recent shortage of long-term rentals caused by the increased concentration of short-term rentals on Airbnb-like platforms, but also about the increasing levels of pollution caused by the huge amount of tourists visiting the city. These effects can be thought as a negative externality of the sharing economy phenomenon, or a socially harmful incentive of the online home-share and apartment rental companies. In either way, the result is that some landlords have chosen to evict their long-term tenants, who live and work in the city, in order to rent their houses or apartments to tourists for short-term using Airbnb-like platforms. These people then have to find accommodation further away from the city centre, where they can still afford the rent and then commute to the city centre for work.
As soon as it becomes more profitable to buy an apartment and rent it out to travellers, instead of putting someone in there to live full-time, there's a problem.

Ben Groundwater

Another aspect of the problem has to do with the legality of the Airbnb home rentals and the grey zone in which the Airbnb entrepreneurial activity is taking place. Many countries did not have a proper legal framework in order to regulate the sharing economy platforms. As such the benefits of participating in it were greater than the drawbacks for the new entrepreneurs, who could use the online platform with little or zero cost of entry. Countries have already started introducing laws to regulate the activities of the new sharing economy companies and the "Airbnb entrepreneurs", but the harmonization is nowhere on the horizon yet. In New York, San Francisco, Barcelona, Berlin, Amsterdam and elsewhere, a variety of laws are being put in place to limit illegal rentals and regulate the sharing economy of short-term rentals market. Hence, the "Airbnb entrepreneur" might be tangled in a more volatile situation than what they initially thought.

The complexity of the "Airbnb entrepreneur" has a couple of aspects that arise from the vague and ongoing changes of laws regarding the sharing economy platforms of home and apartments short-term rentals. One, as I mentioned earlier, has to do with uncertainty: the uncertainty of the future of this new market. Since much of the path the new legislation regarding short-term rentals is taking is in the form of a cap on the number of days a home (or room) can be rented per year (e.g. maximum of 180 days), or limiting the number of continuous days a home (or room) can be rented (e.g. minimum of 5 days). Another issue is the dependence of these new type of entrepreneurs on the online platforms for running their businesses and finding customers. As such, it might limit their freedom of choice and undermine power relation balance between them and the shared economy platform, making them in effect involuntary employees of those online platforms. Another aspect of the complexity is due to the unknown future costs of legalising the rentals and any direct or indirect taxes that will be created. Regulators and legislators might not fully understand how the peer-to-peer services function, and in their effort to legitimise them ending up harming the sharing economy or limiting its functionality.

These aspects will place an extra burden on the Airbnb entrepreneur that will affect the profitability of their business model, as well as impose on them needless uncertainty that might not be beneficial for their future planning.
if lawmakers and regulators don’t understand peer-to-peer services and the value they add to the economy, they may cling to outdated rules that protect incumbents and stanch innovation.

The New Climate Economy Report: Innovation


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