Airbnb hosts can’t pay the rent on their “Airbnb rentals” properties because nobody in the world can travel and cities/states/countries are indefinitely banning short-term rentals (less than 90 days).  Simply put, Airbnb hosts are collectively about to, or already in the process of, break thousands of leases on their rental properties, move everything out of the properties (furniture, appliances, fixtures, etc.), and completely abandon those properties to avoid having to pay rent out of their own pocket.  This issue with hosts right now reflects the fundamental problem with Airbnb itself: that Airbnb has never owned any of the properties listed on its service and the overwhelming number of hosts don’t own the properties, either.  Airbnb announced a Host Relief Fund and claims to have $250 million dollars set aside to compensate hosts for cancelled bookings.  I personally doubt the company has $250 million dollars at all.  My opinion is that the Host Relief Fund is chasing bad money with good and a futile attempt to prevent the inevitable.

Airbnb Hosts Can’t Pay Their Rent On Multiple, Or Even One, Listings

To elaborate on the math behind this problem, many of Airbnb’s hosts rented the properties they have listed on Airbnb, specifically to list on Airbnb, and have absolutely no way to pay the rent on their “Airbnb rentals” without that income from Airbnb guests.  The hosts count on the initial Airbnb guest income every month to cover their rent expense, with the remainder guest income as their profit.  For example, if the host pays $1,000/month in rent on the property and charges $150/night on Airbnb, then the host breaks even after 8 nights (factoring in the 13% in booking fees collected by Airbnb) and any additional nights are the host’s profit ($150/night minus the 13% kept by Airbnb).  But if that host can’t rent the property even one night, then the host is stuck paying their landlord that $1,000 of rent out of their own pocket.  And that $1,000 out-of-pocket expense continues indefinitely for every month the host can’t rent the property on Airbnb.

For one host with one “Airbnb rental” they can’t rent, that would be bad enough.  But in many cases, some Airbnb hosts have (without exaggeration) fifty or more listings per city.  And some hosts have (without exaggeration) that many listings in multiple cities.  To use our previous example, a host with “only” 10 Airbnb rentals in “only” one city, at $1,000/month rent each, is now having to come up with $10,000/month out of their own pocket indefinitely to avoid breaking those leases.

For hosts that own “Airbnb rentals” like condos and houses, and took out mortgages to buy them, the problem is even worse.  Those hosts are now facing foreclosure of all their rental properties because they can’t pay the mortgages.

And collectively, with hundreds of hosts and thousands of listings that can’t be rented, that is the problem Airbnb and all of Airbnb’s hosts are facing right now that will continue indefinitely for months and possibly (in some locations) more than a year.

Airbnb Might’ve Had No Choice But To Announce “Host Relief Fund”

Airbnb’s “Host Relief Fund” is intended to compensate hosts 25% of what they would normally receive for cancelled bookings, which is apparently being paid by Airbnb with its own money.   The company claims to have $250 million dollars set aside for the Host Relief Fund.  To qualify for a claim on the Host Relief Fund, though, the booking must’ve been made before the coronavirus epidemic (officially March 14, 2020), the cancellation must somehow be the result of the coronavirus epidemic, and is not effective after May, 2020.  That’s my understanding of it.  If Airbnb doesn’t actually have $250 million dollars set aside for Host Relief Fund, and can’t realistically pay those claims, then they shouldn’t have announced the program.  They’re just inviting a possible inquiry from the Federal Trade Commission.

Chasing After Bad Money With Good

No board of directors anywhere would allow company management to spend $250 million dollars of its cash (money that belongs to creditors and shareholders) to turn the business into a charity with no clear plan to replenish those funds.  However, I don’t think Airbnb may have had a choice but to do something drastic on short notice.  Hosts that are stuck paying rent on  “Airbnb rentals” out of their own pocket indefinitely are undoubtedly being very vocal with the company about their frustration.  Faced with the possibility of having hosts collectively delete thousands of listings almost all at once, the company had to do something bold immediately to try and prevent that.  My conclusion, though, is that Airbnb is basically just wasting $250 million dollars of cash to pay rent on properties it doesn’t own.  Thousands of Airbnb rentals will still inevitably end up abandoned.

 

(Editor’s Note: The featured image is Abandoned Places, a portfolio of photos by Henk van Rensbergen).