Hotels have never been more full. So just who is Airbnb and the home-sharing economy disrupting?

The most valuable tech start-ups, by their very DNA, need to disrupt something. 

Airbnb, most recently valued at approximately $38B, is the hotly anticipated IPO that it is because it’s displacing hotels, resorts, inns and motels faster than Facebook and Google obliterated newspapers and traditional media.

The market share to conquer is massive. Everyone needs to stay somewhere when they travel. and travel and tourism are among the fastest-growing industries on the planet.

Except there’s one thing: hotels are not exactly suffering.

The U.S. hotel industry is expected to hit a 10th consecutive year of growth in 2019, according to a forecast from CBRE Hotels Americas Research. The real estate and investment firm projects hotel occupancy will rise to 66.2% this year, its fifth-consecutive record year, with occupancy powered a 2.1% in demand. The hotel supply increase of 1.9% just can’t keep up.

The story is the same in Canada, and particularly acute in cities like Vancouver, where our work with Tourism Vancouver identified a critical shortage of hotel rooms in light of the 10.6 million overnight visitors who came to the city in 2018, the fifth-consecutive record year for visitor numbers.

IT’S THE RENTER WHO IS BEING ‘DISRUPTED’

So back to Airbnb for a moment: if the world’s highest-valued hospitality brand—valued at more than Marriott and capturing more U.S. consumer dollars than Hilton—isn’t making hotels go extinct, who is the dinosaur here?

Look closer—at street level in cities from Vancouver to Vienna—and the answer becomes obvious in the spike in monthly rent or in some cases, few rentals at all.

That’s right. It’s housing affordability and availability that’s being disrupted. The dinosaurs, in some extreme cases in the world’s most coveted cities, are renters.

Landlords are choosing, in many cases completely legally, to chase money in short-term rentals filled by Airbnb, VRBO and increasingly OTT platforms like Booking.com.

Who are they not renting to? Resident tenants who live and work in the city, pay taxes and invest their life in building the very destination coveted by the new competition for a roof over their heads.

A new study in Toronto quantified things earlier this year. The number of long-term market rentals that are now Airbnbs has doubled since 2016, sitting at 6,500, according to a May 2019 report by Fairbnb. The organization is a Canadian coalition of affordable housing advocates, condo residents and hotel workers.

The fear, of course, is that the supply of new units is getting gobbled up as quickly as it’s built.

CITY LICENSING OF AIRBNB ISN’T ENOUGH

At an Urban Development Institute (Pacific) meeting this past spring in Vancouver titled “How to Diversify Your Portfolio in the Hotel Market,” the city’s hotel and real estate industry was told that, despite the city government’s new crackdown on unregulated properties, there was one host running 30 units with one of the 3,161 legal Airbnb licenses the City had recently issued. And with the cost of a one-bedroom apartment today sitting at more than $2,200 per month according to Rentals.ca, the highest ever, renters are not exactly breathing a sigh of relief.

But the same UDI session revealed what may be the seeds of a solution.

Emma Cahalane spoke of a new kind of hotel-sharing economy hybrid company where she is a regional general manager.

After sharing details about how her company, Sonder, brings the “consistency and service of hotels with the livability of short-term apartment rentals,” as well as the company’s rapid expansion from 20-something cities today to 50 by Christmas, she outlined its true differentiator between other home-sharing companies.

“We have a hotel license and are 100% regulatory-compliant in all our markets,” she noted.

“We work with developers and landlords to lease entire floors of existing or planned mixed-use buildings.”

This guarantee of occupancy at such a large scale is key to affordable housing.

‘STABILIZE’ A BUILDING AND THE AFFORDABILITY FOLLOWS

“It’s hard to make the numbers work for any in-demand city, even with city incentives for affordable housing inclusion,” Cahalane said. “With Sonder, if we were going to have a mixed-use building and pay market rates, that gives developers and building owners the confidence to make more affordable units available while tapping a city’s incentives.”

The thinking is that such large-scale leasing removes the risk of piecemeal renting and selling. A developer or landlord has a large percentage of the building secured—Sonder prefers the term “stabilized”—and can then focus on the remaining inventory or move on to the next project.

Cahalane outlined examples of Sonder properties that resulted in affordable housing units. A San Diego loft space was stabilized by Sonder taking 13 of 15 units as a hotel, with the balance being provided as low-income rentals by the developer. Similar deals were being worked on in Philadelphia and Vancouver.

Of course this is just a small step for restoring affordability to the world’s most coveted cities. Still, it has to start somewhere. And as we all know, market-driven innovation with a financial carrot always moves faster than waiting for goodwill, or even adherence to top-down regulation.

The fact that Sonder raised $210 million over the summer, in addition to $15 million from real estate developer investment in its Series D funding, means the market agrees. And if the travel and hospitality industry’s newest billion-dollar unicorn can pursue affordability against all odds, surely other for-profit entities can, too.

To learn more about how Resonance services like Tourism Scenario Planning and Real Estate Development Strategy can help your city or region harness its future, please send me an email.