Mounting legal woes will drive Airbnb to IPO ASAP
At the star-studded Airbnb Open this week, an event to celebrate their success, I began to wonder if the party will last till their IPO. Enjoying the LA sun you could begin to feel tension in the air from angry protestors next door with media piling on about the flashpoint issue of affordable housing and the impact of Airbnb. Public statements by numerous city politicians and mayors from San Francisco to New York the last few weeks have been even less kind as they increased their local limitations on home sharing. A quick listen will tell you that they are no longer in a mood to compromise. Other cities around the world are looking for templates to increase their own crack down, conveniently blaming affordable housing challenges on Airbnb. Unlike Uber that is beating a cartel for the public good you get the feeling that Airbnb is increasingly fighting new legislation with broad grass roots support.
Is Airbnb to blame for the high cost of housing? The truth is of course far more complex. Sadly, for Airbnb (see Trump vs. Hillary) complexity does not sell in today’s media environment. Airbnb is of course partially responsible for price increases in many neighborhoods, albeit likely a small portion overall. In today’s housing environment they are the perfect scapegoat for cities, distracting conveniently from their own failings and short sighted planning decisions.
To understand how cities are making the housing crisis worse all one has to do is read this newly passed bill in Los Angeles to see how incredibly ridiculous housing regulations have become. As a short example, 40% of units must be allocated to meet strict affordable housing guidelines (homes not for the middle class) in new buildings. 60% of workers must prove experience on par with union workers (aka be union workers). That is just the start. Some predict this bill alone could double wages required for Los Angeles construction in an already short supply and expensive market. Add to this the threat of Trump deportations next year in a region where you can’t even today find workers for your projects and we have a serious mess on our hands.
The result? A lot less overall supply in the market driving up prices for the rest of us. True, a few people get affordable units but now the project needs to create only units for the super rich to make the numbers work. A terrible plan that is not going to end well, especially for the middle class.
All this means a lot more heat for Airbnb in the urban areas where it excels. With many venture funds counting on them to be the big winner that pays for the rest of their losses expect tremendous pressure to sell that risk to the public ASAP. Airbnb’s newly released Tours and Experiences looks terrific yet will likely not be enough long term to counter the loss of their primary business.
Increased regulation from cities drives out the better listings who decide the risk is just too high to work with Airbnb leaving the system with a tattering of rogue homes willing to break the rules. This is not an environment that will be attractive to the high end business travelers that Airbnb is hoping to attract to justify a 30 billion dollar valuation. Business travelers will find better solutions with the hotels as before or corporate housing services that offer a more predictable and professional product. I expect Airbnb will fast track the IPO while in a position of relative strength to avoid further risk from regulation.