Too Many Rich People Bought Airbnbs. Now They’re Sitting Empty

Airbnbs are empty. At least that’s what it seems like to some Airbnb hosts, even though the company reported its “most profitable quarter ever” on Tuesday.

Some social media users have been speculating for weeks that the “Airbnbust is upon us,” as one viral tweet read. The conversation has swept across a number of social platforms, from Twitter to Facebook to Reddit, and it includes other short-term rental platforms like VRBO, too.

Their concerns have merit—some short-term rental hosts are weathering a steep decline in occupancy rates as the holiday season approaches. But it’s not because people don’t want to travel. Instead, market analysts say many U.S. Airbnbs are sitting empty because so many wealthier people and investors listed short-term rentals on the site, in the wake of a pandemic-fueled boom.

The number of available short-term rental listings in the U.S. skyrocketed to 1.38 million in September. That’s a 23.2% year-over-year increase, according to rental analytics firm AirDNA.

That means hosts are feeling the pinch of a high-supply market—and consumers could be poised to get better deals, after months of soaring prices for lodging.

Explaining the soaring supply

“2021 was a bumper year for short-term rentals in the U.S., largely thanks to pent-up demand after lockdowns giving a huge boost to domestic travel,” says Jamie Lane, AirDNA vice president of research. “Over the past few months, supply has increased to catch up to and even overtake demand growth, pushing occupancy down as bookings are spread across more properties.”

This is due in part to the number of wealthier homebuyers who purchased a second home since the start of the pandemic. Bolstered by then-low interest rates, extra savings, and the ability to work from anywhere, white-collar workers turned out in droves to buy vacation properties in the last two years.

A report this week by property broker Pacaso found that sales of luxury second homes and investment properties were up approximately 235% from April to June of this year compared to pre-pandemic levels. Those are homes that sold for $1 million or more that are designated for seasonal or recreational use. Pacaso’s researchers found that sales of these properties had increased nearly 25% year-over-year in that time period.

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Last year, months of pent-up travel demand triggered a major spike in short-term rental bookings in many second-home hotspots. These occupancy highs resulted in a surge in short-term offerings, as former long-term landlords shifted to short-term in pursuit of higher returns and institutional investors began scooping up masses of properties to rent out on Airbnb and other platforms.

“A lot of the supply in these markets shifted away from the for-sale market and long-term rental market towards the short-term rental market amidst a surge of demand for Airbnbs and other vacation rentals,” says Taylor Marr, deputy chief economist for real estate brokerage Redfin.

Now, Marr says, things have changed: ”The rapid surge in mortgage rates and the resulting fewer homeowners motivated to sell now have kept home prices high and the affordability crisis raging.”

The deal with high demand

Hosts complaining of low bookings weren’t imagining things: Occupancy rates fell in 31 of the top 50 largest U.S. short-term rental markets from July through September, according to AirDNA. In August, AirDNA reported that markets where supply had grown by more than 50% had an average occupancy decline of over 10% and saw revenues drop by 8%. “Properties that are in markets with the greatest supply growth are seeing the biggest declines in performance,” Lane says.

But as some Airbnb hosts experience declining occupancy rates—and as the country’s economic outlook is uncertain—Airbnb is by and large having a banner year.

“Demand is still rising every month, and so are Airbnb’s bookings and revenue,” says Lane. “Although hosts in some markets are seeing a correction after a pandemic-driven boom, on the whole, demand remains very strong and we aren’t yet seeing an ‘Airbnb bust.'”

Airbnb itself says that in turn, hosts are finding success booking guests on the platform. “Amidst new economic pressures, more people are looking to leverage the space they have to earn extra income, and quickly, with most newly activated listings getting booked faster compared to a year ago,” says Airbnb spokesperson Liz DeBold Fusco.

However, even though people still want to book Airbnbs, there are far more to choose from. This has resulted in lower occupancy rates in certain markets putting the squeeze on some hosts.

Jim Ewing is an Airbnb host whose social media post about his property’s occupancy rates sparked the original viral tweet about an Airbnb bust. He’d posted to an “Airbnb Superhosts” Facebook group about his struggles. Ewing told TIME that his property in Desert Hot Springs, Calif., dropped from 80% occupancy to 0% this past spring—and hasn’t rebounded since. “We haven’t had a single booking since June,” he says.

The city of Desert Hot Springs, where Ewing began listing his Airbnb property last October, is located in Coachella Valley. That’s one of the markets where occupancy rates have fallen by the greatest percentage in the past three months, according to AirDNA.

“When we first listed last October, we had every weekend covered. And then November through April, we had anywhere from 70-80% occupancy every month,” he says. “This year, we’ve had no one in October and we have no one booked for November…So it’s been extremely slow.”

The upside for travelers

For now, the high supply of Airbnbs hasn’t dropped vacation rental prices for travelers. AirDNA reports that, in September, average daily rates posted their largest year-over-year growth rate since April. September also marked the first month since April where average daily rate growth outpaced the inflation rate.

However, in mountain and lake destinations where occupancy rates have dropped, daily average growth rate was significantly lower in September. According to AirDNA, that means that if occupancy rates continue to drop in more destinations, price rates are likely to be pushed down as hosts bid to get more bookings.

The short-term rental market is far more competitive than it used to be, says Neal Carpenter, the owner of short-term rental consulting service The Air Butler. Carpenter has been an Airbnb host for eight years and currently hosts 17 units all located within 10 minutes of downtown Nashville, Tenn.

“In Nashville, a listing that may have performed pretty well five years ago probably isn’t competitive anymore if the host hasn’t made updates to the property, the amenities, the photos, all those sorts of things,” he says.

For travelers, increased supply means the ability to be more discerning about the properties and, by extension, hosts they’re giving their business to. If a host is being unfair to guests by assigning them menial chores or making them pay unreasonable fees, it’s not going to benefit their business, Carpenter says. “If you [as a host] are asking people to do more than what’s fair and reasonable and common, that’s a problem,” Carpenter says. “If you’re trying to charge exorbitant cleaning fees and profiting, that’s questionable behavior.”

Providing personalized customer service will have a knock-on effect on future bookings as guests will always look for properties that have great reviews, Lane says. “We are seeing properties with good reviews, reasonable cleaning fees, and popular amenities able to maintain and even grow their occupancy levels,” he says. “It’s becoming more important for hosts to pay attention to their performance and guest reviews.”

What’s next for Airbnb prices

If interest rates continue to rise, investing in short-term rentals will become an increasingly less-attractive prospect, Lane says. That could result in the supply growth rate slowing, which means that this oversupply could be temporary.

“The growth of short-term rental listings is causing nightly prices to fall and reducing the profitability of owning these vacation rentals, which should result in more long-term rental supply, helping to bring rents back down,” Marr says.

In the meantime, Neal says that Airbnb hosts need to “put [themselves] in travelers’ shoes” if they want their property to stand out in a crowded field. “If you’re noticing a dip in bookings, look at your competition and make consistent updates to your property,” he says.

For some hosts, this tougher landscape means it’s time to get out of the short-term rental game. Ewing says that he’s currently looking for a long-term tenant for his property instead of continuing to rent it out for shorter periods on Airbnb.

“It seems like a lot of people are kind of fed up with Airbnb and they’re angry about how some hosts treat them now,” he says. “I’m curious to see if my timing for leaving the short-term market is the right move, and if in six months or 12 months, Airbnb becomes a bad investment for people.”