The Airbnb Effect On London Real Estate

Contributed by Tim Houghten, 08 May, 2015

What will the real impact of Airbnb in London be?

While The Queen recently gave Airbnb and property owners the big thumbs up to begin letting London apartments on a short term basis, many fear the fallout of the new 'sharing economy' may not be very desirable.

What indicators are there to how Airbnb will evolve in London? What other current trends could compound or alleviate the Airbnb effect? And how is London's uniqueness both its shield, and Achilles heel?

Airbnb in Expansion Mode

Airbnb claims to have over 1 million unique property listings in 190 countries around the world. Even as Airbnb was just being legalized in the UK in March 2015 the site had over 13,000 real estate listings in London. 6,600 of them were listings for entire apartments or home.

Airbnb continues to battle the legal system and accusations of harming local housing affordability at home in San Francisco, California. Airbnb points out that it has had a tremendous, positive impact on local economies. Yet, locals often point the finger at professional landlords with multiple listings on Airbnb as a part of the affordability crisis. Some hosts have as many as 59 listings according to the San Francisco Chronicle.

New York had 34,000 listings as of February 2015. Paris tops the list of popular Airbnb cities; growing from just 4,000 three years ago, to 40,000 property listings in 2015.

Given that past performance is normally the most reliable predictor of what is ahead; London should brace for a significant increase in Airbnb listed lettings.

The Insatiable Appetite for London Property

It's no secret that prime Central London is the most desirable property market in the world. This is specifically true for luxury real estate buyers and wealthy investors. The Guardian reports that new data suggests the demand for London real estate is experiencing a new surge that will squeeze first time buyers out of the city. New statistics from the Mortgage Advice Bureau indicate that now retirees are able to direct their own pension funds, they are stampeding to buy-to-let opportunities in London. And they are armed with lump sums of cash that first time buyers just cannot compete with.

Obviously the more London properties scooped up by the buy-to-let crowd mean less inventory for regular buyers. In turn this drives bidding wars and higher property prices. A recent residential London property report from Pastor Real Estate forecasts prices to rise by 27% by 2018.

Airbnb Alters the Accommodation Market

In the USA where Airbnb was born some small B&Bs are complaining they are being forced out of business by Airbnb. The online home sharing service generally doesn't have to play by the same rules as formal businesses. That often means fewer taxes, costs, and regulations. It could certainly put the pressure on small UK accommodations providers. And we can bet that hotels are none too pleased. However, in general those staying in Airbnb lettings are probably not regular hotel guests. Airbnb guests are most likely looking for budget accommodations, or larger spaces for longer term rentals.

In the longer term Airbnb's history suggests that rental rates will be driven upwards. But as of May 1st 2015 there was at least one room being offered in London for just 7 pounds per night. Although you could spend as much as $7,932 per night for an entire floor in a Skyloft penthouse.

What may be even more impactful to come is how Airbnb plans to expand into a full suite of services. The company recently revealed to Fast Company magazine that it doesn't actually see itself as a vacation booking site at all. Aspirations for the near future include car transport services, bed linens, possible flight bookings, and more to provide a complete end to end service.

Will Airbnb Change London?

London is one of the most cosmopolitan cities on the planet. In this respect London has little to fear from an increase in international visitors coming to stay for extended periods in Airbnb lets. In fact; attracting more wealthy and talented individuals and families for a month or two at a time may prove to be an incredibly good thing for the nation's economy.

At the same time there is the chance that as Airbnb spreads exponentially outwards more boroughs that have so far remained a haven from tourists will change a bit. Without a doubt more diversity has proven to serve London very well. But it would be nice to have a couple of historical communities which retain their ambience, just for old time's sake. Otherwise many may find little reason to visit anymore.

The Impact on the Londoner's Wallet

Most average first time home buyers are already hard pressed to find a pad in outer London. Airbnb property sharing may be their only hope of offsetting high prices, and even high rents. But it is worth pointing out that in today's digital economy there is very little need to live in the city, or even in England to do business here. The challenge will be continuing to find workers for low level service jobs, teaching positions, and law enforcement, when none can afford to live within a several hour commute of their employers.

The biggest winners are likely to be individual real estate investors seeking to expand income property portfolios. For them Airbnb is likely to open the doors to higher rents, and far better profit margins. The trick is going to be beating the crowd to purchase prime London property before everyone else.

About the Author

Tim Houghten is a Journalist, social entrepreneur, analyst and ethical brand ambassador. He brings 15 years of mortgage, real estate and tech expertise to reporting what's really going on behind the scenes in the world's top property markets.

Tags: business | Other | budget | individuals | regulation | enforcement | law | services | real-estate | tax |



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