Short-term rentals (STRs) facilitated by online platforms like Airbnb have been the subject of intense debate in the United States. Local governments around the world, including several cities in the United States, have responded very differently to STR regulations. Most cities have not regulated these platforms significantly, but a limited number of cities have recently implemented severe restrictions.
The truth is that opposition to multi-family home sharing is colliding with powerful demographic trends and market demand. And while the pandemic was an inflection point, changes were already underway in the multifamily sector. Studies indicate that this “living as a service” model has already proliferated multifamily properties across the country, albeit “under the radar.”
In fact, a study by NMHC found that 65% of all nights booked on Airbnb were in multi-family buildings. Resistance to this trend has only led to riskier practices with less control and governance over the activity. Now, Migo by RealPage® is blazing a new trail by bringing the sharing economy the tools and levers to streamline the homesharing process and make it safer for everyone involved.
That said, resistance to multifamily home sharing has affected the ability of multifamily property owners in New York, Boston, Chicago, Miami Beach, San Francisco, and other major cities to offer home sharing as a convenience in their communities. For example, San Francisco imposes a 14% hotel tax (i.e. a transitional occupancy tax) and a ceiling of a maximum of 90 rental days per year. Other cities have banned “absentee homeowner” rentals, which defeats the whole idea of home sharing for those who want a flexible living option.
While all of these facts represent strong support for home sharing, public policy needs to catch up. Licensing and regulatory regimes need to adapt to the new reality – that home sharing is on the rise, largely because Millennials and Gen Z renters focus on flexible living, fueled by a pandemic-induced shift to “work from anywhere.” Licensing and regulation must therefore be flexible – a quality not always associated with property laws.
In 2019, Warton School of Business at the University of Pennsylvania expressed the view that “the sector will continue to grow, much faster than the traditional rental economy”.
Furthermore, they believed that employment will continue to evolve and that “governments that anticipate and adapt to these developments will reap substantial benefits for their economies and communities”.
Since its inception in 2008, Airbnb has laid the foundations of the STR model,
which now applies to home sharing through the company’s partnership with Migo. Over the years, Airbnb has strengthened its ability to verify guest identities and perform background checks, which has led to greater security in the STR process.
Additionally, Airbnb has put travelers at ease with local hosts and shared accommodations. And, in 2018, while the company operated approximately 500,000 average stays per nighton 65% of these reservations were in multi-family buildings.
Now, Airbnb has partnered with the gold standard in multifamily technology – RealPage – specifically to be more aligned and integrated with multifamily systems and practices.
The Changing Employment Landscape
In the pandemic-accelerated world of remote work, “office” has become synonymous with “wherever I choose to work”, with Zoom, Slack, Teams and other cloud-based platforms providing tools for virtual office connectivity and collaboration.
As a result, young career professionals are no longer hampered by the need to reside within a commutable radius of their employers.
Changing Tenant Preferences
Millennials and Gen Zs prefer renting. Job hop millennials therefore appreciate flexibility, both in their careers and in their place of residence, which is why they are mobile. A recent survey revealed that 73% of millennials said they would move in the next 10 years, and 33% say they are delaying homeownership because they are “not ready to settle into a more permanent lifestyle.” This is why Millennials are more likely to rent and will continue to do so.
Another reason why Millennials and Gen Z generations prefer renting is the high price of buying a home, which reduces their living options. In California, the third largest state in America, the the median price of a home in 2020 was $600,000 — almost 88% higher than the national median.
In 2021, the median price of a home in California has risen to $725,000. This high price has convinced Millennials and Gen Z renters that buying a home is, for the foreseeable future, beyond their financial reach. That’s why, in recent surveys, Millennials and Gen Z respondents indicated they would likely extend their rental period and delay homeownership.
In fact, although the vast majority of Millennials want to own a home, 12.3% of them say they plan to “always rent”. And Gen Z renters view home ownership as something that may never happen to them. As a result, there will be sustained demand for multi-family rentals in the future, especially those that offer flexible living options.
Warton identified millennials as a key supporter of this growing STR sector, citing that 7 in 10 millennial business travelers want to stay in local guest rentals, not hotels. Additionally, they cited an Expedia survey, which found that 62% of Millennials are willing to extend their trip after a business trip to experience local life.
And Millennials are “the most sustainability-conscious generation”. In fact, sustainability is a top concern for this generation of renters. They are heavily influenced by trends such as the shift to “sharing instead of consuming” through peer-to-peer economies. For multi-family landlords, co-tenancy increases the sustainability of properties by keeping units occupied at often above-market rental rates.
The changing multi-family landscape
New short-term rental analytics tools provide multi-family property owners and investors with real-time insight into their properties’ income potential versus seasonally adjusted income from nearby rentals. For residents, shared accommodation not only offers flexible living, but also the possibility of offsetting the rent by up to 20%. Part of the profit goes to the owner, so it’s a win-win all round.
And with the kind of transparency and control levers that Migo brings to colocation, the headaches of tenant turnover are alleviated and short-term rental properties quickly become one of the most successful aspects of a portfolio. investor.
Additionally, Migo allows multi-family owners and investors to use concurrent listings to dynamically adapt to market demand for STRs, ensuring their properties are always listed at ideal prices and lengths of stay. And by concentrating a small portion of their less popular or more frequently vacant units in the STR niche, investors will quickly build a more diversified portfolio and realize better margins with little or no “entry” costs.
Home sharing is becoming a global norm
Given the underlying market factors, demand for DOS is strong and looks set to stay. And the practice goes far beyond our national borders. Multi-family home sharing is becoming a global norm as “work from anywhere” offers workers the opportunity to travel and explore new places.
As Francis SC Yeoh, Lecturer in Entrepreneurship at the National University of Singapore’s School of Computing, notes, “It’s a big wave – a tsunami – coming, and you have to recognize it, recognize it, and deal with it. It is futile to try to fight.”
Clearly, there’s no better time for multifamily owners and investors to jump into this burgeoning flexible living trend and meet the future of multifamily real estate where it is.