Short-term rentals, Covid-19 and platform capitalism

We know that the Covid-19 pandemic has stopped national and international mobility and consequently tourist activity as well. In this new context, it seems that short-term rentals has suddenly disappeared, that there has been a transfer of this type of apartments to the long-term rental market, and that tenants see this as an opportunity to increase the supply of rental housing and thus balance somehow a market that has seen how thousands of homes were lost to Airbnb. The opportunity exists, although I believe that in the current situation most tourist apartments will not return to the residential market. To think that due to a lack of tourist demand property owners and investors will start making long-term contracts is highly unlikely. In this text I try to explain the reasons for this situation, as well as to raise the need for a profound change in the current domination of neoliberal ideology in relation to the housing market. To understand how the short-term rental market is responding to the pandemic, it is necessary to first analyse the way in which this market has been reorganised in recent years, as well as the role that it plays in the current platform capitalism. I base my observations on the study that we have been doing of the short-term rental market in Portugal with colleagues Jaime Jover, Ana Gago, and Gloria Domínguez within the framework of the SMARTOUR project.

The first point is to see the benefits that this market offers to property owners and investors. The success of short-term rentals is explained not only because property owners can obtain more revenues by renting to visitors than to permanent residents, but also - and in some cases especially - due to a series of advantages that are inherent to the flexibility of this market. This flexibility means having control over the asset. The short-term rental market allows landlords to obtain profits from rental income and, at the same time, sell the property, use it, or directly abandon the market when they will. Another advantage of this control over the asset is that the maintenance of the property is constant since it is possible to check the condition of the apartments weekly; that tourists pay in advance; and that the high turnover of "tenants" allows landlords to constantly speculate with rental prices. In other words, landlords view the traditional rental market as "too rigid" for the simple fact of having long-term tenants. This is a vision shared by both local property owners and international investors. And in this sense, the flexibility of tourist apartments is a key point in the current context in which housing is seen as a financial asset. As in many other countries, one response to the 2008 crisis in Portugal was to approve several programs to attract international capital that provide tax benefits to real estate investments. In these cases, the main reason to invest in housing is to deposit capital and then decide on the use to be made of the home, or directly leave it empty. In our work we found a consensus in which placing the house in the tourist market is always the best option for this type of investors since they can use the house when they visit the destination or sell it without tenants when they find a good opportunity. Ultimately, the short-term rental market greatly increases the possibility of speculating on housing. This fact represents a neoliberal utopia that represents another twist on the vulnerability and insecurity of groups for who the rental market is the only option to access housing. While the flexibilisation and deregulation of the rental market have been key neoliberal policies to give more “security” to property owners and supposedly to improve market efficiency, the tourist rental market simply ignores any leasing law, however flexible it may be, reinforcing the neoliberal paradigm and strengthening the asymmetry of power between owner and occupier. Property owners no longer needs tenants to obtain revenues from rental income, unless they accept short-term contracts. It is paradoxical to see - and this is the main problem - how in this neoliberal utopia the housing market does not function more efficiently, but housing directly loses its social function.

Going back to the context of the pandemic, for landlords a central benefit provided by the flexibility of this market is to adjust both prices and length of letting to existing demand. For example, a recurring strategy in Lisbon has been to rent to tourists during the summer season and move to the international student market during the academic period. Flexibility here means moving to other forms of rental during times when those forms are more profitable, and this transition to a different sector is not very difficult. The change from short- to mid-term rentals is what seems to be happening during the current pandemic. In the report How Mid-Term Stays May Rescue Short-Term Rentals the consultancy company AirDNA shows that more than 50% of nights booked worldwide on Airbnb in April 2020 were for stays of more than 2 weeks. AirDNA also advises offering discounts for stays of more than a month, with the intention of renting properties for a few months and then eventually returning to the tourist rental market. However, AirDNA only has data on Airbnb activity, and this is far from the total reality of the market. The situation is more complex as I will explain below.

The second point to highlight is the appearance of short-term rental management companies and how they position themselves in the current platform capitalism. These are companies that manage properties for third parties. The activity has professionalised, and it is very difficult for an individual host to compete in the market, which means that they have many incentives to hand over the management of the apartments to these agencies. The growth of these companies has been exponential - there are 40 in Lisbon alone - and many of them have become transnationals due to the financial aid provided by investment funds. For example, companies like Hostmaker, Sweet Inn and Guest Ready have a portfolio of thousands of apartments across Europe. The important point regarding the current situation is how the management structure of these agencies allows them to advertise the apartments on different digital platforms simultaneously. To do this, they use channel managers, which is a technology used for years by the hotel industry to sell the same product (apartments in this case) in different channels like Airbnb, Homeaway and Booking.com. Although these are the 3 best-known platforms in the tourist apartment market, there are companies such as Rentals United ​​that offers channel managers that market each apartment on more than 60 platforms. When a reservation is made on one of them, the program locks the apartment on the other platforms. The truth is that these management programs already included before the pandemic the possibility of advertising the apartments on mid-term rental platforms such as Soptahome (minimum 30 day stays) or Uniplaces (focused on the international student market). The spread of this type of platforms comes to further reinforce the neoliberal utopia where rentals with stable contracts are no longer necessary and the consequent loss of the social function of housing. Inspired by Airbnb, all of them work for payment in advance; without the possibility of visiting the apartment; usually without a tenancy agreement; they are for short- or mid-term stays; and the prices are exorbitant. The current pandemic is accelerating the move of apartments between different platforms and the new thing is that short-term rental management companies are using their channel managers to advertise properties on platforms that were in theory for long-term rental. For example, Hostmaker has included in its channel manager platforms such as Idealista in Spain and Portugal and Rightmove in the United Kingdom, but the listings indicate that the rent is for a short period of time. The consequence is that the intrinsic flexibility of tourist apartments, digital platforms and the use of technologies for real estate management allow owners to speculate on assets for a few months while waiting for the market to re-emerge, as this seems to be the case at least if domestic tourism is finally allowed.

Given the current crisis in the rental housing market, which will be reinforced by the economic consequences of the pandemic, we simply cannot wait for the market to adjust to existing demand and for short-term rentals supposedly to return to the residential market. Landlords want by all means to avoid stable leases, so an alleged transfer of homes to long-term rentals will not occur as a general trend. The neoliberal utopia of tourist apartments and digital platforms for transient consumers have increased the vulnerability of tenants as never before to such an extent that housing has lost its social role. The only way to achieve a balance between property owners and tenants is with the intervention of the state, and in view of the fact that the “efficiency” of this market is simply the opportunity it offers to speculate, this intervention must be immediate. In other words, while there is an opportunity opened by the pandemic, it is time to act. In Spain, for instance, short- and mid-term rentals are backed by the Urban Lease Law that allows rentals for “uses other than housing”, with housing defined as a permanent residence. In other words, this figure allows “seasonal leases”, and using this figure property owners avoid making long-term contracts. This law has to be redefined immediately. Admittedly, the initiative taken by platform capitalism skips and invalidates existing regulations, but in the face of this speculative offensive the state cannot simply observe how the market is reorganising. We are at the beginning of an unprecedented crisis and courageous measures are necessary to recover the social function of the thousands of tourist apartments that today await the return to a supposed normality.