The Lex Newsletter: New York officials take on San Francisco’s Airbnb

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Dear reader,

Pity poor Airbnb hosts. For years they’ve faced complaints from neighbours, competition from fake listings and miscreant guests intent on throwing wild parties. Now they must contend with city crackdowns and entreaties to lower their prices.

Last month, New York began to enforce an existing ban on short-term lets. Local Law 18 requires hosts to register properties or face fines. It is a direct challenge to the prevalence of platforms such as Airbnb. The result has been a dip in the number of properties available.

Airbnb has long been blamed for exacerbating housing shortages around the world. Of course, low interest rates and lack of new stock are culprits too. But Airbnb is a more convenient villain than impersonal economic forces. Canada also wants to address what it calls rental unit shortages. Florence has recently banned new short-term lets. Other cities may follow.

Airbnb chief executive Brian Chesky claims the result will be higher costs all round. That rings true. Without Airbnb competition, hotels will feel free to raise their rates. Short-term rental costs seem to be drifting up. Data from analytics site AllTheRooms shows that Airbnb prices have already increased in big cities. In New York the average price for short-term stays is $258 a night, up from $211 at the start of the year. In London it has jumped from $207 to $289 (look at the post-pandemic jump in summer 2022 when international travellers arrived back in the city too).

There is a chance prices will fall further. One of Airbnb’s goals is to boost the supply of listings and improve affordability for guests. Chesky has promised as much on social media platform X, formerly Twitter. Airbnb recently released tools that let hosts see listings nearby to compare, and hopefully lower, their own rates.

Airbnb was born in the wake of the financial crisis as a way to connect visiting guests with spare beds. But it quickly outgrew its coach-surfing origins. Hosts went professional. Instead of sleeping on pullout sofas, guests may now find themselves in minimally furnished properties purchased as rental investments. Prices are comparable with hotels, particularly when much-hated cleaning fees are added in.

Around the world, Airbnb lists about 4.5mn hosts. The question is how many more it can attract. Adding more properties is a priority. Note the rise in marketing spend. Sales and marketing costs rose nearly 28 per cent in the first six months of this year compared with the previous year. Instead of search engine ads, Airbnb is raising its profile with promotions such as free nights in a real-life version of Barbie’s Malibu Dreamhouse.

Airbnb is doing a good job of keeping costs down. That means high margins. It has only been profitable since 2022, which helps to explain the big year-on-year jump in net income. But the net income margin of 26 per cent is also up.

Now the bad news. Airbnb’s share price has sailed past the S&P 500 index this year. But it is down 43 per cent from its November 2021 high point. Look closely at second-quarter results and a slowdown in domestic market growth becomes apparent. Yes, revenue rose 18 per cent in the past quarter. But in the US, revenue increased less than 9 per cent. Last year it was up 33 per cent.

When a $78bn stock is priced as a growth company investors should do a double take.

There is one potentially easy way to raise revenues and margins. Like Amazon, Uber and Netflix before it, Airbnb could add advertising. Charging hosts to promote listings would increase sales. If domestic growth does not pick up, expect ads to appear.

Elsewhere in tech

Venture capitalist Marc Andreessen thinks the tech sector doesn’t get enough plaudits. He has used an extremely long manifesto to explain why tech is the “glory of human ambition and achievement” and will make us all rich.

Social media companies are struggling to contain misinformation emanating from the war between Israel and Hamas. Meanwhile, Paddy Cosgrave, the founder of Europe’s largest annual technology conference, has resigned after making comments on the conflict.

Not a tech story exactly, but I loved this tale of the “uncontacted” inhabitants of North Sentinel. It turns out the islanders were once contacted by “civilisation” in the form of a Victorian explorer and don’t intend to let it happen again. Good call. Link via journalist Helen Lewis’s excellent Substack.

Enjoy the rest of your week,

Elaine Moore
Deputy head of Lex