Short-term rentals’ impact on hotel industry

Ever since Airbnb entered the lodging scene in 2008, the hotel industry has been taken for a spin, growing in popularity among young travelers using short-term rentals.It’s proving not to be just a trend and it’s beginning to flow into the lives of business travelers.

According to the New York Times, Airbnb, which has the largest home sharing network at over two million listings worldwide, is now targeting business travelers the bread and butter of the hotel industry.

Airbnb has quickly become a threat to hotels, as travelers choose to book with independent hosts on the website rather than with traditional hotels. Since its launch in 2008, the Airbnb online marketplace has experienced very rapid growth, with more than seven to eight million guests and over three million nights of cumulative bookings worldwide at the end of 2015. The site is now being used by over 50,000 renters per night and had a market cap of $2.5 billion after its most recent funding round.

Hotel Valuation Appraisals estimated that hotels lose approximately $450 million in direct revenues per year to AirBnb. Between September 2014 and August 2015, 480,000 hotel room nights were reserved, while over 2.8 million room nights were booked on Airbnb.

By 2018, HVS estimates that Airbnb room nights will reach five million per year. Clearly, the vacation rental site has diminished the demand for traditional hotel rooms. Additionally, many hotel employees are losing their jobs because of these decreasing demands. Airbnbs are less labor intensive than hotels because they do not require the same level of service. Over 2,800 jobs are directly lost to Airbnb, a loss of over $200 million in income for hotel employees.

Brad Cramer, Idaho Falls Community development services director, said Idaho Falls hotels and motels are gearing up for the much anticipated 2017 eclipse that will attract thousands of people from across the United States. Hotel managers are already booking up and preparing their staff for the big rush.

“Short-term rentals offer the promise of making space for more tourists, particularly with the August solar eclipse and the Rexburg Air Show, and what we are finding out is we need more space to accommodate tourists,” Cramer said.

Legislatures are also becoming interested. A new bill proposed requires “lodging marketplaces” to register and be licensed by the State Tax Commission. The marketplaces then would be charged with collecting taxes, including a local bed taxes levied by auditorium districts.

Cramer discussed the bed tax that is funding the Idaho Falls event center. “What are the potential impacts on the existing hotel industry? Hotels are in competition with Airbnbs. People might try to avoid that by using a short-term rental. Companies like Airbnb are now including the option for the host to require a bed tax,” Cramer said.

Currently, short-term rentals fall under the same city ordinance as hotels. However, Cramer questions comparing the hotel industry model to short-term rentals. “If I want to build a new hotel, I have to meet codes. If I do a short-term rental, I don’t have to follow codes. Is that a fair business model to compare? It’s like comparing apples to oranges.”

Cramer said an ordinance would be helpful. “We just want to make sure people are safe,” Cramer said.

The House Revenue and Taxation Committee unanimously agreed to print a bill last Thursday that will make sure short-term rental providers pay state taxes while significantly limiting the ability of local governments to regulate them.