Airbnb vs. Hotels: An Overview
Airbnb, the largest peer-to-peer exchange service for hospitality around the world, has disrupted the hotel industry. Some have argued that Airbnb rentals should be regulated like hotels and Airbnb providers should be subject to hotel occupancy taxes.
Airbnb argues its business model merely connects hosts who rent out their private property to short-term subletters. And though in the past, some hotels, such as Hilton, have insisted that there is a difference between Airbnb and its hotels, claiming Airbnb is a lodging company whereas Hilton focuses on hospitality, the differences between the two is closing.
In the age of Internet disruption, however, and the fact that another option to hotels now exists, one might assume the hotel industry has been negatively affected by the rise of Airbnb.
Understanding price structure, Airbnb's primary demographic, and a variety of other factors will illuminate the fundamental differences between the hotel industry and Airbnb.
- Hotel lobbyists and state governments continue to try and impose taxes and regulations on Airbnb.
- With a market cap of over $109 billion (as of January 2022), Airbnb is valued more highly than several individual hotel chains.
- Without directly providing a good to consumers, Airbnb has dipped into revenues of lower-end hotel groups.
- As the sharing economy continues its quick ascension, Airbnb has disrupted high-end hotel revenues the way other sharing economy services like Uber did to taxi services.
Airbnb has seen rapid growth from its inception in 2008. With revenues of $3.4 billion in 2020, Airbnb has established itself as the largest peer-to-peer hospitality service. It has, however, struggled in the wake of the COVID-19 pandemic that has severely limited travel around the globe. This is witnessed by a 29% decline in revenues from 2019 and an 8% decline from 2018.
Airbnb’s business model focuses on a marketplace platform where hosts and guests exchange housing for money. Throughout the application process, hosts and guests can find reviews and social media connections to build trust among users in the marketplace.
While valuable, this approach is not unique to Airbnb. With the influx of digital technology, users can dictate their experiences and affect future consumers' choices through a number of online platforms. While board review systems are not available directly on all hotel websites, third-party platforms such as Yelp or Expedia provide the same service.
While Airbnb provides a platform for peer-to-peer exchanges, it does not have a direct effect on the prices of lodging offered by hosts. Airbnb hosts follow guidelines similar to those used by hotels when renting their homes.
Guests seeking short-term lodging under seven nights are likely to pay a premium compared to those seeking longer-term stays. When listing their home on Airbnb, hosts have the liberty to set prices for individual nights, weekly stays, cleaning fees, weekend prices, and additional guests.
Like in hotels, rooms can fetch a premium price on weekends, holidays, and when guests exceed the number of beds. However, hotel visits do not charge a cleaning fee as most hotels have on-staff cleaning services. Furthermore, hotel rooms and Airbnb lodgings are more expensive in higher-demand areas such as in major cities or near tourist attractions.
Airbnb has been fortunate to avoid many rental and hotel tax laws thus far. Regulations and property laws can be a major concern for hosts. In many states, there exist squatter laws in which visitors occupying a space for more than 30 days by law attain tenant rights for the rented space.
Furthermore, in certain states, it is illegal to sublet a residential space such as a home, apartment, or room for fewer than 30 days unless the resident is present at the same time as the guest.
In major cities, rent and cost of living are much higher, thus hosts and hotels must factor the rents of a premium location into their prices. However, a major hotel chain maintains a pricing scheme that meets consumer demand, while Airbnb hosts have the liberty to charge what they deem appropriate.
In many cases, prospective consumers find that Airbnb offers a less expensive alternative to many hotels.
An average hotel room offers consumers a bed, bathroom, and closet with varying levels of comfort. Alternatively, an average apartment offers the same luxuries plus a kitchen and a larger living space. For families or groups on vacation, hotels can be limiting while an apartment can be more accommodating.
Airbnb in recent years has focused on the luxury market, launching Airbnb Luxe, competing with the high-end hotel market. So while initially, hotels had a safe space that did not compete with Airbnb, the differences in offerings have started to slim and Airbnb is now able to offer a much greater variety than hotels.
A primary difference between the hotel industry and Airbnb is the presence of taxes and regulations on short-term rentals. In New York, the term "hotel" includes hotels, motels, inns, B&Bs, apartment hotels, and condos. Rentals in this category require operators to collect an additional sales tax based on the charge of the room. Furthermore, hotels in New York City must charge a hotel unit fee of $1.50 per day and additional occupancy taxes.
As a prime point of contention, Airbnb has not always been subject to occupancy tax laws and has at times forgone paying the local government’s sales tax.
Like a hotel, though, Airbnb incorporates a value-added tax within its service fees. A value-added tax (VAT) is a tax assessed on the final sale of goods and services typically associated with accommodations within the European Union. Due to different tax laws, Airbnb and hotels do not charge a VAT to every guest.
Why Is Airbnb Illegal in Singapore?
Per Singapore's housing laws, "Housing Development Board" flats require a minimum rental period of six months and are not allowed to be rented out to tourists. For properties that are private, the minimum rental period is three months. As such, Airbnb's business model does not fit into the parameters of Singapore's housing laws and such short-term rentals are illegal.
Is Airbnb Cheaper Than Hotels?
Depending on the type of Airbnb apartment and the hotel, Airbnb can be cheaper than hotels but can also be more expensive. In general, Airbnb is cheaper than hotels because Airbnb does not have to pay for the overhead costs of a hotel or the general management of such a large operation.
Is Airbnb Safe?
Yes, in general, Airbnb is safe due to its verification process of the individuals that rent out their spaces. Before anyone can rent out their space on Airbnb, they must verify their identity through a process of steps. There are also plenty of user reviews for most properties that provide a general idea of what the place and the individual renting out the property are like.