Disrupting Slumlords
Thanks to the housing crisis, Airbnb users are buying up cheap dwellings as rental properties. So is Wall Street.
The scars of the housing bubble are everywhere, if you look. High profile failures like California City have left behind abandoned infrastructure and roadways, confidently laid down to catch a market that was going up, up, up. When the market finally crashed, work simply stopped, leaving behind land-art-sized monuments to irrational exuberance and a misplaced faith in the power of formulas.
Add to these spectacular shrines the quieter markers of that demented age — the millions of housing units that were completed but never sold, taken back from their residents in foreclosure mills, or simply abandoned by homeowners stuck with underwater mortgages.
Need/Want co-founder Jon Wheatley looked at that housing stock and saw an opportunity. “There’s a lot of places in the US where house prices are still very cheap. It’s possible to find a nice apartment in a major city for less than $50,000,” he writes. Then he describes how be bought one, fixed it up, and turned it into a remotely-managed Airbnb listing. Which is to say, how he created an unregulated micro-motel.
Wheatley isn’t the only one. The growth of Airbnb has led to all kinds of complaints from hoteliers, landlords, and regulators. New York’s attorney general has issued a broad subpoena to determine whether residents are breaking the law. Airbnb is resisting and putting on a public relations show to forestall the threat to their business while promising to work with regulators. Their main message is: hey, we’re just a bunch of folks. They trumpet their support for events like the NY Marathon. There’s an astroturf petition to ‘legalize sharing’.
Being the helpful sort of folk, Wheatley (who lives in San Francisco) offers all sorts of details on the tools and services he uses to make his Vegas property work — a Nest thermostat to keep heating costs down and let him monitor when people are in the apartment; a Lockitron to ease key-exchange logistics; a property manager to clean and make it all work. Want more advice? He’s offering to answer questions on Twitter.
Perhaps he’ll be fielding questions from Wall Street. Salon’s David Dayen reports that in the wake of the near total collapse of the economy, investors are looking to securitize the real estate market again. This time, instead of selling mortgages to unqualified applicants, the idea is to buy up all those cheap homes and then rent them out. Private equity firm Blackstone has bought 40,000 homes at foreclosure prices and wants more. Alongside competitors, as many as 200,000 dwellings are now owned by Wall Street.
It’s sort of a pilot project. “Renters in the U.S. occupy about 14 million single-family homes worth as much as $2.8 trillion, according to Goldman Sachs Group Inc,” notes Bloomberg.com, dryly. “Demand for leased housing is increasing as fewer Americans are able to qualify for a mortgage after the financial crisis, which forced millions of homeowners into foreclosure.”
“The irony is rich,” Dayen writes. “Wall Street created the conditions for millions of foreclosures, then they sweep in to buy up the homes and rent them out, often to the same people they kicked onto the street.”
Blackstone is mortgaging the houses in bundles and repaying their lenders in tranches, just as with subprime mortgages. Rating agencies like Kroll, Morningstar and Moody’s are giving the senior tranches triple-A ratings, just as with subprime mortgages. And, so far, the evidence is that Wall Street doesn’t give a shit about residents, just as with subprime mortages.
It is tempting to see Airbnb as the scrappy alternative to Blackstone’s monolithic uncaring. Certainly, Wheatley is determined to be a good host, warning prospective imitators, “this isn’t ‘passive’ income … guests will have questions or issues will arise that need your attention.” This personal touch is a far cry from the horror stories of unanswered calls and unfixed sewage lines that plague Blackstone’s investments.
But there is a strange symbiosis in play as well. Wheatley’s place was cheap for a reason. The last time Wall Street got into real estate, they nearly destroyed the world economy, causing a crisis whose effects have lasted to this day, with a jobless recovery leaving 34 million Americans un- or under-employed. So when Hantman proudly announces that “62% of Airbnb hosts say Airbnb helped them stay in their homes,” one has to consider the conditions that led those people to worry they’d lose their homes in the first place.
This is the Taskrabbit economy in full swing. The sharing economy which allows car owners, home dwellers, and free-time havers, to extract every bit of value from their resources needs people desperate for a little extra cash. Some chunk of that 62% of people who are using Airbnb to keep their homes are people who wouldn’t be putting up with the hassle if times weren’t tough.
The sharing economy benefits greatly from a collapsed normal economy. Airbnb and Blackstone are two sides of the same dark coin. Airbnb doesn’t have a multi-billion dollar valuation for being friendly.
