Airbnb Squeezing Already-Tight L.A. Housing Market as City Ponders Options

Thursday, March 12, 2015

Airbnb, a prominent member of the sharing economy, markets itself as a community enhancement that allows hard-pressed wage earners a chance to make a few spare bucks by renting out temporary space to visitors.

But a report (pdf) on the outside-the-box business model says it is squeezing the already-tight Los Angeles housing market and is being gamed by entrepreneurs, who are anything but mom-and-pop renters and homeowners.

“The 7,316 units taken off the rental market by Airbnb is equivalent to seven years of affordable housing construction in Los Angeles,” according to “Airbnb, Rising Rent, and the Housing Crisis in Los Angeles.” The author, Roy Samaan of Los Angeles Alliance for a New Economy, identified 8,400 hosts renting out 11,401 properties and, by and large, they were whole units, rather than a room in the house or a spot on the sofa.

“In places where vacancy is already limited and rents are already squeezing people out, this is exacerbating the problem,” Samaan told the Los Angeles Times.

Airbnb says on its website that it “is the easiest way for people to monetize their extra space.” But the space is not exactly extra. Nearly 90% of the Airbnb revenues in Los Angeles “are generated by lessors with whole units and leasing companies who rent out two or more whole units,” according to the report.

The 7-year-old Silicon Valley startup, which claims business in more than 34,000 cities in 190 countries, is fighting with state and local governments over whether they should be covered by regulations that govern rental markets and the hotel industry or be treated as something new and different.   

For now, the unregulated business costs cities hotel tax revenues, disrupts communities with transients, reduces vacancy rates and ramps up rental prices. That sounds pretty good to investors, who have poured money into the company, which is valued at $13 billion. That is considerably higher than Wyndham ($9.3 billion) and Hyatt ($8.4 million).   

Some media reports claim Airbnb has booked 10 million guests since 2008, and may be outbooking Hilton and Intercontinental on an annual basis.

All this, despite having a business model that some consider illegal. The report suggests that those who lease out multiple whole units are, in fact, professional management companies masquerading as “hosts.” The most prolific host, Globe Homes and Condos (Ghc), with 78 whole units on L.A.’s westside, originally advertised themselves on their Airbnb webpage as “Danielle and Lexi,” along with a fetching photo of the two avatars. They are now, proudly, Ghc.

While companies like Ghc seem to be thriving in the Airbnb world, individual renters, who are supposed to be the backbone of the movement, are not faring well. The report’s analysis of Airbnb listings showed that individuals “are more than three times as likely to generate no revenue than hosts with multiple listings.” Thirty-eight percent of “hosts” with a single listing never made a dime.

Hosts with two or more listings failed just 11% of the time, while those with five or more came up empty in just 2% of cases.

The report calculated that the 11,401 Airbnb units rented in L.A. would have generated jobs for 7,400 hotel workers at an average wage of $14.07 an hour. It is much cheaper to service Airbnb units with cheap domestic labor that usually makes around $4 an hour less.

Los Angeles, which has the highest percentage of renters in the nation, doesn’t do very well at providing affordable housing to its residents. Median wages have stagnated while rental prices have not. The city estimates it needs to create around 5,300 units a year to keep up with demand, but the market has averaged around 1,100 since 2006.

Airbnb is obviously not entirely responsible for the city’s housing crunch, but isn’t helping in the 10 tourist-laden areas around L.A. where they generate 70% of their local revenue: Venice, Santa Monica, Hollywood, downtown L.A., Mid-Wilshire, West Hollywood, Hollywood Hills, Silver Lake, Echo Park and Marina del Rey.   

San Francisco passed a vacation-rental law that took effect February 1 to require that hosts prove they live permanently at the short-term rentals they rent. It hasn’t been very effective. Los Angeles is studying the issue but the city council has not ordered any drafts of potential ordinances to address the issue.

–Ken Broder


To Learn More:

Airbnb Puts the Squeeze on Los Angeles Renters, Says a New Study (by James Elmendorf, Capital & Main)

Airbnb and Other Short-Term Rentals Worsen Housing Shortage, Critics Say (by Tim Logan, Emily Alpert Reyes and Ben Poston, Los Angeles Times)

S.F. Airbnb Law Off to Slow Start; Hosts Say It’s Cumbersome (by Carolyn Said, San Francisco Chronicle)

San Francisco Snapshot of Airbnb Finds Few Couches Being Slept On (by Ken Broder, AllGov California)

Airbnb, Rising Rent, and the Housing Crisis in Los Angeles (by Roy Samaan, Los Angeles Alliance for a New Economy) (pdf)

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