How Airbnb's new London policy is affecting Airbnb's profits

London

Last month, Airbnb announced that it would ban London-based hosts from renting out entire homes for more than 90 days per year without official consent from city councils. The practice has been illegal for some time, but was rarely enforced. As of this coming spring, the site itself will prevent the listings rather than leaving enforcement up to local officials. 

The ban will hit Airbnb where it counts: in the wallet: A new report suggests that the site will lose more than $400 million in potential London bookings this year. 

London as a Testing Site

While other cities and states have debated how to best regulate and tax Airbnb hosts, the London decision is special, and sets a precedent for other gateway cities.

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The UK charges high property taxes to businesses and imposes a value added tax (the ubiquitous VAT) for hotels—but small-business owners and homeowners renting out rooms (in other words, B&B landlords) face much lower tax rates. (Homeowners who rent out rooms in the UK can, in theory, earn up to £7,500 tax-free each year.) This makes renting out rooms on sites like Airbnb very appealing for entrepreneurs in London, but also presents challenges for communities, local governments and the hotel industry as a whole as travelers turn to the site for both short-term visits and long-term stays.

According to the report, nearly half of the room-nights booked on Airbnb last year would be affected by the new regulation. As such, with the site blocking the 90-day stays, Airbnb could lose a third of its bookings. The site’s London bookings could have surpassed $1 billion this year, but now seem poised to reach a mere $812 million—still a significant increase over 2016’s estimated $600 million. With Airbnb’s policy of charging a 13-percent service fee for each booking, the site looks poised to make more than $100 million from London alone this year.   

Airbnb would not say how many room listings would be affected by the new rule, but claimed that most hosts “would be unaffected.” In response to the report, an Airbnb spokesperson said that “there is a large range of unique homes for guests to choose,” and that room availability in the city is “not an issue.” 

Long-Term Stays

This new policy comes at a time of change for Airbnb as local governments seek to regulate its operations and the full-time hotel industry seeks to keep it in the margins of the business. As more hotel companies provide accommodation for extended stays, long-term Airbnb rentals are coming under increased scrutiny. 

Airbnb removed more than 2,000 listings in New York City over the summer due to concerns over properties that “could otherwise have been on the long-term rental housing market.” At the time, it claimed that in order to promote home sharing “in primary residences only, we have acted on a one host, one home policy” and removed listings that appeared to be shared by hosts with multiple listings “that could impact long-term housing availability.”

At the end of November, the site signed a deal with the state of Idaho to begin collecting taxes on behalf of the company’s hosts. The new rule finds sales of temporary lodging lasting 30 days or less subject to taxation, and these new rules went into effect on Dec. 1.

Another investigation found that approximately one-third of the savings that Airbnb can offer travelers over hotel accommodation comes from tax advantages related to its business model—and governments are now taking a more critical look at that model. Last month, Jeremiah T. Lynch, principal at global tax services firm Ryan, told HOTEL MANAGEMENT that 2017 would be a big year for “sharing economy” businesses (including Uber and Airbnb) as regulatory services become fully aware of their business model.

“As it relates to competition and regulation, some jurisdictions are trying to keep [these businesses] out, while others let them in but with specific tax rules,” Lynch said. “In many of the states where they are actively trying to bring Airbnb up to speed, the tax rates are coming in either exactly or extremely proportional to hotel rates.”

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