Short-term rentals (STRs) that are facilitated by online platforms like Airbnb have been the subject of intense debate across the U.S. Local governments around the globe, including several cities in the U.S., have responded quite differently towards regulating STRs. Most cities have not significantly regulated these platforms, but a limited number of cities have recently put severe restrictions in place.
The truth of the matter is that opposition to multifamily home sharing runs smack up against powerful demographic trends and market demand. And while the pandemic has been an inflection point, change was already taking place in the multifamily sector. Studies indicate that this “living as a service” model has already proliferated multifamily properties nationwide, albeit “under the radar.”
In fact, research from NMHC found that 65% of all booked nights on Airbnb took place in multifamily buildings. Resistance to this trend has only led to more risky practices with less control and governance over the activity. Now, Migo by RealPage® is paving a new, right way forward by bringing to the sharing economy the tools and levers needed to streamline the home sharing process and make it safer for all involved.
That said, the resistance to multifamily home sharing has affected the ability of multifamily property owners in New York, Boston, Chicago, Miami Beach, San Francisco and other major cities to offer home sharing as an amenity in their communities. For example, San Francisco imposes a 14% hotel tax (i.e., a Transient Occupancy Tax) and a cap of maximum 90 rental days per year. Other cities have banned “owner absent” rentals, which defeats the whole idea of home sharing for those who want a flexible living option.
While all these facts represent strong support for home sharing, public policy needs to catch up. Licensing and regulatory schemes need to adjust to the new reality — that home sharing is on the rise, largely because Millennial and Gen Z renters are focused on a flexible lifestyle, fueled by a pandemic-induced shift to “work from anywhere.” Licensing and regulation, therefore, need to be flexible — a quality not always associated with property laws.
In 2019, Warton School of Business at University of Pennsylvania expressed the view that, “The sector will continue to grow, much more quickly than the traditional rental economy.”
Further, they opined that employment will continue to change, and that, “Governments that look ahead and adapt to these developments will derive substantial benefits for their economies and their communities.”
From their inception in 2008, Airbnb has laid the foundation for the STR model,
which is now being applied to home sharing via the company’s partnership with Migo. As the years have gone by, Airbnb has stepped up its ability to verify guest identity and perform background checks, and that has led to greater security in the STR process.
Moreover, Airbnb has gotten travelers comfortable with local hosts and home-sharing accommodations. And, by 2018, when the company was logging roughly 500,000 average stays per night, about 65% of those bookings were in multifamily buildings.
Now, Airbnb has partnered with the gold standard in multifamily technology — RealPage — specifically to be more aligned and integrated with multifamily systems and practices.
The changing employment landscape
In the pandemic-accelerated world of remote work, the “office” has become synonymous with “wherever I choose to work,” with Zoom, Slack, Teams and other cloud-based platforms providing virtual office connectivity and collaboration tools.
As a result, young career professionals are no longer encumbered by the need to reside within a commutable radius from their employers.
Changing renter preferences
The Millennial and Gen Z generations prefer to rent. Millennials “job hop,” so they savor flexibility, both in their career and where they live, which is why they are mobile. A recent survey revealed that 73% of Millennials said they would move in the next 10 years, and 33% say they’re delaying home ownership because they’re “not ready to settle into a more permanent lifestyle.” That’s why Millennials are more likely to rent and will keep doing so.
Another reason why the Millennial and Gen Z generations prefer to rent is the high price of buying a home, which reduces their living options. In California, the third-largest state in America, the median price of a home in 2020 was $600,000 — nearly 88% higher than the national median.
In 2021, the median price for a home in California increased to $725,000. That hefty price tag has convinced Millennial and Gen Z renters that buying a home is, for the foreseeable future, beyond their financial reach. That’s why, in recent surveys, Millennial and Gen Z respondents have indicated that they will likely extend their renting period and delay homeownership.
In fact, although the vast majority of Millennials want to own a home, 12.3% of them say they plan to “always rent.” And Gen Z renters view homeownership as being something that may never happen for them. As a result, there will be sustained demand for multifamily rentals going forward, especially those that offer flexible living options.
Warton has identified Millennials as one of the major proponents of this growing STR sector, citing that 7 in 10 Millennial business travelers want to stay in local-host rentals, not in hotels. Further, they quoted a survey by Expedia, which found that 62% of Millennials are willing to extend their travel after a business trip to experience local life.
And Millennials are “the most sustainability-conscious generation.” In fact, sustainability is a key concern for this generation of renters. They are heavily influenced by such trends as the move to “sharing instead of consuming” through peer-to-peer economies. For multifamily owners, home sharing increases the sustainability of properties by keeping units occupied at often above-market rent rates.
The changing multifamily landscape
New short-term rental analytics tools are equipping multifamily property owners and investors with real-time insights regarding the earnings potential of their properties as compared to the seasonally adjusted revenue of nearby rentals. For residents, home sharing offers not only flexible living but also the chance to offset rent by as much as 20%. Part of the profit goes to the property owner, so it’s a win-win all the way across the board.
And with the kind of transparency and control levers Migo brings to home sharing, the headaches of renter turnover are diminished, and short-term rental properties are quickly becoming one of the best performing aspects of an investor’s portfolio.
In addition, Migo enables multifamily owners and investors to use concurrent listings to adjust dynamically to market demand for STRs, ensuring that their properties are always listed at ideal prices and stay lengths. And by focusing a small portion of their less popular or more frequently vacant units in the STR niche, investors will quickly build a more diversified portfolio and will realize better margins with little to no cost of “entry.”
Home sharing is becoming a worldwide norm
Considering underlying market factors, the demand for STRs is strong and seemingly here to stay. And the practice goes well beyond our national borders. Multifamily home sharing is becoming a worldwide norm, as “work from anywhere” affords workers the ability to travel and explore new places.
As Francis S. C. Yeoh, professorial fellow in entrepreneurship at the School of Computing, National University of Singapore, notes, “It’s a big wave – a tsunami – that’s coming, and you have to recognize, acknowledge and manage it. It is futile to try and fight.”
Clearly, there is no better time for multifamily owners and investors to get in on this burgeoning flexible living trend and meet the future of multifamily real estate where it stands.