Airbnb host? This analysis will help you with your pricing strategy
You might start think of renting part/all of your property to make some extra money, but do not know how to start? For example, how much should you charge? You surely do not want to underprice for the use of your property that you leave money on the table. You do not want to overprice either since high price can send potential guests away. Even if you are a veteran host, you may still find this analysis useful as this will probably clarify how the pricing strategy really works without too much trial and error, or confirm some of your business acumen that you know what works, but just do not know how it works.
This analysis focuses on price. The Seattle and Boston Airbnb datasets are from Kaggle. The Seattle dataset has 3818 records and the Boston dataset has 3585 records. The detailed analysis can be found at my Github repo.
The business questions to be answered are:
- Is there any trend in Airbnb rental price? How does price compare between Boston and Seattle?
- Should you become a superhost?
- What factors affect the Airbnb listing price?
1. Is there any trend in Airbnb rental price? How does price compare between Boston and Seattle?
Within the same period (Sep 6, 2016 to Jan 2, 2017), daily average rental price (DAR price) is higher in Boston ($191) than in Seattle ($136).
DAR price in both Seattle and Boston shows a strong seasonal pattern. In both cities, DAR price is relatively low at the beginning of the year and gradually increases as the season enters summer.
The months of peak DAR price varies though for each city. In Seattle, DAR price is relatively high from May through September, with June ($146), July ($150), and August ($148) the obvious top three, more than $10 more than the annual average. In Boston, DAR price is relatively high from September through November, with September ($229) and October ($228) the obvious top two, close to $30 more than the annual average.
DAR price in both Seattle and Boston also shows a strong weekday pattern as shown in the above plot by many small peaks. Each peak cycle corresponds to one week. In both cities, DAR price is relatively high on Friday and Saturday, close to $6~$7 more than the annual average.
2. Should you become a superhost?
Boston has 403 superhosts and 3157 regular hosts, while Seattle has 774 superhosts and 3024 regular hosts. Seattle has a higher proportion of superhosts than Boston. Superhosts seem to be able to charge slightly higher than regular hosts. So what is special about superhosts?
Compared to regular hosts, superhosts in both cities tend to:
- have on average 1 more review per month.
- charge extra_people.
- offer more services/amenities, such as more chances of offering First Aid Kit, 24-Hour Check-in, cancellation_policy_moderate, Safety Card, Breakfast, Free Parking on Premises, Indoor Fireplace
- be more pet friendly. They tend to have Dogs, Cat(s), Other Pet(s), Pets live on this property.
- require guest_profile_picture.
In addition, Boston superhosts have more chances to offer Houses than regular hosts (24% vs 15%). More Boston superhosts ask for security deposit than regular hosts (47% vs 36%).
Seattle superhosts have more chances to offer exotic property types, such as Yurt, Cabin, Treehouse, Camper/RV, Loft etc.. Keep in mind though, the overall number of superhosts offering these kinds of property types are slim though (<2%). More Seattle superhosts require guest phone verification than regular hosts (16% vs 8%).
3. What factors affect the Airbnb listing price?
For Boston listing, the scores of both training and test data sets are 0.66, which are reasonably good. The final number of features used is 89. It means using the 89 features/columns, the pricing model can predict 66% of the variances in the price target.
The list of coefficients shows the magnitude of each feature importance. For Boston listing, neighbourhood matters. And the price can go either up or down depending on the neighbourhood.
Boston — Top positively correlated factors¶
1. bedrooms, bathrooms, beds, accomodates, guest_included
This makes perfect sense. The more these variables are, the higher the price is.
2. require_guest_phone_verification, host_is_superhost, calendar_updated, cancellation_policy_super_strict_30
These variables are somewhat related to the hosts’ rental policies/characteristics.
If require_guest_phone_verification is True, it is possibly because the host values his/her property. The more the host values his/her property, the more tendency the host will set the price high.
The same logic above explains why cancellation_policy_super_strict_30 is positively correlated with price.
Superhost’s price tends to be higher than regular hosts. This is possibly because superhosts offer more values based on services/aminities.
The positive correlation between calendar_updated and price is somewhat hard to explain. One possible explanation is the longer the host has not updated his/her AirBnB calendar, the more hesitant the host is willing to rent his property, thus the higher rental price.3. amenity — TV, Air Conditioning, Indoor Fireplace, Doorman
This makes perfect sense. Having Air Conditioning in summer, and Indoor Fireplace is desirable in Boston.
The presense of Doorman can also increase perceived value (thus charge higher price) by giving a sense of security to the potential customers.
Boston — Top negatively correlated factors
1. room_type Shared room, Private room
This makes sense. The whole house/apartment is always a better option if you can afford it.
2. extra_people
If there is a charge for extra people, the price is relatively lower. Sounds reasonable.
3. reviews_per_month, host_listings_count, require_guest_profile_picture
The more reviews_per_month, the lower the price tends to be. In the old days, consumers trust word of mouth. Nowdays, consumers read reviews. The more (positive) reviews, the better. To some extent, having no review is as bad as having slightly negative reviews, because it is hard for guests to trust your property. So hosts strive for reviews, especially positive reviews. To solicit more reviews, hosts have to attract more guests. One way is by charging slightly lower price.
The more host_listings_counts, the lower the price is. Maybe the host is able to gain equal or higher profit while charging a lower price because of the economy of scale.
require_guest_profile_picture is negatively correlated with price. The host tends to trust guests with profile pictures. The host does not mind charging a slightly lower price knowing the guest(s) will take good care of his/her property.4. amenity — Free Parking on Premises, Kitchen, Hangers
It is possible that free parking is mostly offered at areas further away from blockbuster locations. As a result, the rental price tends to be cheaper.
The same logic applies to Kitchen.5. minimum_nights
The longer the rental period, the cheaper the price. Sounds reasonable.
For Seattle listing, the training score is 0.68, while the test score is 0.63, which are reasonably good. The final number of features used is 149. The list of coefficients shows the magnitude of each feature importance. Just like Boston listing, neighbourhood matters in Seattle too. And the price can go either up or down depending on the neighbourhood.
Seattle — Top positively correlated factors¶
1. bedrooms, accomodates, bathrooms, guest_included, beds
This makes perfect sense. The more these variables are, the higher the price is.
2. review_scores_rating, host_is_superhost, calendar_updated
host_is_superhost and calendar_updated are somewhat related to the hosts’ rental policies/characteristics.
review_scores_rating — the higher review score rating, the better services/values provided to the guests, the more guests interested, the higher demand, the higher price.
3. Amenity — Doorman, Elevator in Building
Doorman — same as the explanation for Boston
Elevator in Building — valuable to some guests. More value, higher price.
Seattle — Top negatively correlated factors
1. room_type Private room, Shared room, Dorm
This makes sense. The whole house/apartment is always a better option if you can afford it.
2. host_acceptance_rate, extra_people, reviews_per_month, review_scores_value
host_acceptance_rate — more possibly because of correlation only, not causal relationship. For some properties that are hard to get booked, such as remote areas, the hosts have no choice but to accept any reservation while charging a low price.
extra_people — same as the explanation for Boston
reviews_per_month — same as the explanation for Boston
review_scores_value: Value shopping guests tend to maximize utility/price. By doing so, they tend to choose properties that ask for lower prices.
Conclusion:
Daily average rental price is higher in Boston than in Seattle. The rental price in both Seattle and Boston shows a strong seasonal pattern. It starts relatively low at the beginning of the year and gradually increases as the season enters summer. The rental price in both Seattle and Boston also shows a strong weekday pattern. Price is $6~$7 higher on Friday and Saturday than other weekdays. Knowing the price trend in both cities, you, as a potential Airbnb host, probably can use the price trend. For example, depending on where your property is, set the price higher ($10~$30) in summer season and set the price slightly higher ($6~$7) on weekends.
In both cities, neighborhoods have a huge impact on price. The price can go either up or down. Second, the more of bedrooms, accomodates, bathrooms, guest_included, and beds, the higher the price. These two factors are hard factors, meaning you have no way to improve them as a host. Third, Superhosts seem to be able to charge slightly higher than regular hosts. Compared to regular hosts, superhosts in both cities have more tendencies to have more reviews per month and to offer extra services/amenities. As a potential Airbnb host, you may try to offer more services/amenities, or solicit more quality reviews. By doing so, you may have a better chance to price your property slightly higher than regular hosts. One of the top features that impact price in Seattle is review scores rating. So having high average review score is always helpful.
Knowing all the above tips will not make you a billionaire. But they will definitely improve your chance of not short selling your property.
