Deep Dive on the Short-Term Rental Market with AirDNA’s Jamie Lane

Welcome to the Top of Mind podcast from Altos Research. This is the show where we talk to real estate industry insiders and experts about the trend shaping the market today. Enjoy the show.

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Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. If you follow along with Altos Research, you're familiar with our weekly market data video series with the top of Mind podcast. We'd like to add context to the discussion about what's happening in the housing market from leaders in the industry every week. Of course, Altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. And we make it available to you before you see it in the traditional channels. People desperately need to know what's happening in the housing market right now. And so if you need to communicate about this market with buyers and sellers with your clients, go to altos research.com, book a free consult with our team, we'll review your local market and teach you how to use market data in your business.

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Alright, let's get to the show. Today we're doing a deep dive into the short-term rental market. This is a market that didn't even really exist like 15 years ago and now it's a huge force in real estate and really the future of housing. And if there is a company that is the perfect analog to altos research the data and analytics we do in the short term rental space, it's a company called Air DNA. And so I have the perfect guess to teach me about short-term rentals, the economics of short-term rentals and about Air DNA Jamie Lane. Jamie is the chief economist at Air DNA, the go-to source for short-term rental data and insights. His background is with many years of experience as an economist in the hospitality industry and Jamie's research and leadership has really helped the whole STR industry understand the drivers of success. Jamie and Air DNA are the source for data on the short-term rental market. And so we're going to geek out on all the data today. So Jamie, welcome to the show.

Awesome, thanks Mike for having me, a longtime listener of your show, so this is really excited.

Excellent. I'm a fan of the stuff you're putting out too, so we're going to explore all the pieces today. So let's start. I like to start with a little bit of background about you and Air DNA so people know who we're talking to.

Yeah, so I'll start with myself because it sort of bleeds into our DNA. So I spent 10 years as a hotel economist originally with a company called PKF Hospitality Research that was acquired by C-B-R-E-C-B-R-E for your listeners that maybe not know is the world's largest commercial real estate company, over 110,000 employees and hundreds of offices around the world. So by the end of my time there I was overseeing all forecasting across all commercial real estate, so office industrial, retail, multifamily and hotels. But my real love in data is in the hospitality industry. And back in 2015 while I was at CBRE actually became one of the first subscribers of Air DNA data and we used it to bring into our hotel forecast of like, how is this burgeoning short-term rental industry impacting traditional hotels? And then fast forward five years later, the CEO of the company, Scott Shafford reached out saying, Jamie, this data better than anyone else in our own company, please come and lead our research group.

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So join the company in October of 2020. And Air DNA in it's like Ethos is a data company. So they've been tracking every single short-term rental around the world since late 2014. And it's the main metrics that you'd care about. So occupancy, a DR, revenue supply demand, so how many units are out there, how many are getting booked, what the revenue associated with those bookings are. And then we've created all sorts of product to serve and all different types of people in the industry. So from in one unit, investors or no unit investors looking to buy their first unit to a large institutional ownership groups looking to expand their portfolio and sort of really anything in between.

That's a terrific story. I really appreciate it. I know there are definitely customers of the Altos data who know the data better than I do. I'm like, Hey, wait a minute, I totally understand that because you're the use cases. Right. Alright, so you said a few things in there that are really cool. I'd love to dive in. So when you were at CBRE and you're consuming the air DNA data, and you said that you wanted to understand what impact short-term rentals have on hotels. So my question to you is what impact do they have?

And it was really interesting at that time in the hotel industry because occupancies reached all time record highs from 2016 to 2019. So on the surface and the question, and I got asked constantly and Airbnb's growing exponentially, vrbo iss there, booking.com, you've got all this new short-term rental supply and yet hotel occupancies are hitting record highs. How can these two things be happening at the same time? And a big piece of it is just travel and the experience economy was growing so much and people were spending more on travel and the pie was just getting so much bigger that it allowed both aspects of those short-term rentals than it and hotels to continue to grow. But then once you dig in sort of one level deeper, you see that actually where the impact was happening wasn't necessarily an occupancy, but it was on pricing where, and you see it in all sorts of industries that the supply dynamics can really play out because when we looked at traditional hotels, you have a whole lot of new supply coming into the market that can really create negative price pressures. And in the markets where short-term rentals were growing the fastest, and in markets like New York where there was and 25,000 new short-term rentals that essentially appeared overnight, you saw pricing power in those hotels, which was essentially non-existent. And where pricing was essentially still at great financial crisis levels from 2009, 2010. And while the rest of the industry was sort of growing rates, they had no pricing power, ADRs were stagnant and a lot of that could be attributed to the growing short-term rental industry.

That is fascinating. So the real impact of short-term rentals was on pricing, not occupancy level. People are still traveling, they just had more choices and more people were traveling. So actually maybe if hotels were already at their peak, they maybe having the short-term rental helps create a real spiral, a real cost challenge for travelers.

And then fast forward to the pandemic, everything changed and overnight and travel essentially came to a stop for both hotels and short-term rentals. I remember my job was forecasting the hotel industry and occupancy went from 66% down to 10%. And it was a time, I'm sure in your space sort of analyzing data and just seeing how Covid was changing things. And we went from updating our forecasts every quarter to updating them every week because it was just such a dynamic. And we all became experts on the virus and weekly trends on how many cases were coming in and which countries were getting impacted next. So it was really an exciting time and from my advantage point, and obviously there was a lot of pain happening in the hotel industry, there was millions of people getting laid off from their jobs. But what we tried to do was sort of provide a roadmap for these owners and operators of like, okay, how is occupancy going to come back?

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What are the factors that are going to get people comfortable traveling again? And one of our thesis was that short-term rentals we're going to actually see a boom because of the distributed nature of them of people are going to be much less willing to get in a hotel with 200 other people. But if you could rent your own home and that would actually be something that you'd be willing and able to do. And that's exactly what we saw and in the data is like you got to May and June of 2020 and demand just started roaring back for short-term rentals where it took another two or three years for hotels.

Wow, okay. That's amazing. And it brings up two other questions. The first one is, is it possible, so we said pre pandemic hotels were maximum occupancy record, level of occupancy and the Airbnbs were exploding. And is it possible that the addition of short-term rentals actually grew the market, made more people travel because it was cheaper or easier?

Yeah, absolutely. And you look in most of the major cities, you look at how many nights were being stayed on a nightly basis, how much was being rented, and then what the total hotel supply is and how much demand was coming into those hotels. The pie expanded so much. Hotels in New York run 90% occupancy. And then you look at the price point that most short-term rentals come in at urban areas. At the time it was 30, 40% below the average hotel room rate. So short-term rentals in a market like New York or San Francisco, la, almost half the supply was in private rooms. So people renting out literally an extra room in their home and at a significant lower price point than the hotel. So it really was expanding the travel pie, getting more people traveling, more people experiencing these different cities and was a big part of why I wanted to dive into it was because it is changing the traveler landscape and opening up travel to so many more

People's. Amazing. It brings up the second one and is, I was going to maybe get to this later on, but we'll hit it now. I have a hypothesis, I have a hypothesis about the New York STR ban that we've seen. And so I'll tell you my hypothesis and you can reject it. Give me the thumbs up the thumb. So New York has done a pretty substantial ban on short-term rentals in the last, I think year, right? Last six months or something. Maybe

Last four months. Yeah, four months.

And my hypothesis, and this is ostensibly to help for sale inventory, homes, for sale and for rent. And my hypothesis is that we will see essentially no change of available inventory of homes to buy, but we will see increase in hotel costs. So we ban the SDRs ostensibly to help people live cheaper, but we won't see any more inventory, but we will see more expensive hotel costs. That's my hypothesis. What do you think?

Absolutely. You would think it would be obvious, but when looking at New York politics, it's not always. So we had maybe at the peak, 40,000 short-term rentals in New York, there's 3.5 million housing units in that market. There's 120,000 hotel rooms. So reducing the number of short-term rentals maybe has a minor impact on the overall housing market. You can do the math on what that is, but it has a really significant impact in the overnight accommodation industry in New York and just through December, we're already seeing an 8% year year rise in hotel room rates and a 6% increase in occupancy. So that's something that I don't forecast anymore, but if I was forecasting New York room rates that I would've significantly raised my outlook for the hotel industry in New York, which I think is probably part of what happened there. The New York Hotel lobby is a very powerful group in that market

And there's an intuitive fear in tight housing markets like, oh, well these people are there and they're renting out, they're buying these houses for a short-term rental. Now you can't have a long-term resident there and that's bad. So it's an easy criticism.

Yep.

Tell me what you think about that criticism or how I should think about it.

Yeah, so I think about it in two different ways and I think you've got to bifurcate the type of market. So you've got large urban markets like New York, Atlanta, Dallas, San Francisco, the largest metros in the country. And when you look at short-term rentals, on average, they make up about 0.5% of the existing housing sock. So less than 1%, less than half of 1%. And you look at how these markets are growing their supply, and you probably know this data better than most of these markets are growing their overall housing stock by what, one 2% a year with new homes coming in, being built, new apartments coming in, being built. So the impact that short-term rentals are having on the overall housing market is immaterial. The supply demand dynamics that are happening that are sort of driving home values up, driving rents up, driving rents down are just, and I talk with housing economists every day, I'm sure a lot of them ask how many of them actually include a variable of short-term rental inventory and their models on what's impacting home values. And I would suspect if you talk to 20 of 'em, none of them would actually have short-term rentals in their model,

In their model because it's not material, it's a corner. But that actually gets to the other big social media headline, which is it's easy to vilify short-term rental investors taking housing stock. And then the next step, the intuitive step is that, okay, when the market turns, the travel market turns, suddenly these people are going to lose their revenue and they're going to sell their homes and then we're going to have a flood of, and that's going to crash the market. This is so-called the Airbnb bust. Tell me what you think about it. How should I think about that? Is there, what kind of risks? What should we think about here?

Yeah, and it actually goes into the other phase of how I think about other housing markets is a very large percent of the existing short-term rental supply is people with second homes that for the longest time and census this sort of counts. Second homes sort of vacant homes, seasonally used homes, there's what close to 5000002nd homes out there, short term rental. So when people, someone has a second home, maybe they're using a few weeks during the year and that's been happening, that's happened for years. You think a market like Veil, Breckenridge, Destin, those type of markets are primarily the primary use of the housing stock is for people's second homes go on vacation. And what the short, short-term rental industry did was open up an ability for people to generate revenue off of those homes when they weren't using them. And I see that as an economist, as a massive waste of underutilized housing stock.

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And the short-term rental industry all of a sudden gives you a way to unlock revenue for yourself, but also for the community of more travelers coming on spending on ancillary services, going to restaurants, going to grocery stores, generating tax revenue in those areas without changing the overall housing market. Like the number of second homes and vacant homes as tracked by the census has actually gone down since Airbnb came onto the market in 2008, 2009. So over this time where we've seen and now go from zero units on Airbnb in 2008, about 200,000 on VRBO to the US short-term rental industry has 1.5, 1.6 million units. We actually haven't seen any increase. We've actually seen a decrease. We've seen home ownership rates go up over that time period. So the rise of the short-term rental industry is not causing more people to take homes out of the full-time housing stock. So that sort of argument I think is more of a whatever

You can understand where it comes from it, it doesn't happen to be founded in the data,

But moving into there Airbnb bus, like a big calculus, yes, during 2023, we've seen a decrease in the revenue that these owners could earn as a short-term rental, but only a small percent is actually investor based. A lot of it's these people with second homes that if all of a sudden it's earning 7% fewer revenue, it's still this year it's still earning 20% more revenue than 2019. And for most of these owners, if it started earning 30% fewer revenue or 50% fewer revenue, it's not going to cause them to sell that home. It might not be worth it for them, the hassle of renting it out anymore, but it's not going to change their overall use case of that property because prior to Airbnb and VRBO coming online and it was just sitting empty and they weren't earning anything off of it.

Right, exactly. So it's all gravy.

It's all gravy.

And in the last few years you refinance whatever mortgage you have on that second home down to 2.8%. And so

Your cost basis is so low, low, we're still earning significantly higher revenues than we were pre pandemic. And you look at defaults in the housing market, they're at what record lows. When we look at churn in the short-term rental industry, and it's a metric I look at every month of just do we see more owners calling it quits over time of saying, I'm going to de-list my property and move it into some of the other use case. There's always a relatively high level of churn in the short-term rental industry, just the nature of it. I'm going to do it for a few months, maybe I'm going to try it out between two long-term renters, but we've actually seen a decrease in the amount of churn as a percent of the overall stock over these past couple years. And it's not increasing at any meaningful rate as we go from 2022 into 2023 and 2024.

Wow. So in short-term rentals in general, the market as a whole revenue's up and churn is down in the last 23.

In the last four years, revenue per available listing is down in 2023 it was down about 7%, but that was after it increasing 10% in 2020 and another 20% in 2021. It was roughly flat in 2022 and then decreased 7%. That's a whole nother line of questions we could go down on just what happened and short term rental performance over this past five years, but it's been a wild ride.

Okay. So yes, we actually want to do that. But before we get the, so the question I do have is about, alright, so let's look at 2024, but before we dive into 2024, you mentioned the stats and your occupancy rate and revenue per unit. And so what stats are the most meaningful for tracking this space and what are they telling us right now?

Yeah, one is supply growth in the housing market so much impacts an investor making decision to actually bring a new listing online. So we reached record high earnings and mid 2021, so revenue per available listing peaked then and anything interest rates were at very low levels then home values hadn't yet really started taking off yet. So it became an amazing opportunity for new investment in short-term rentals. And during the pandemic we had actually seen a decrease in the number of listings throughout 2020. We saw a 20% decrease in the supply of short-term rentals in the us which I don't think was as widely reported as should have been. But as we started growing supply, it took a full year and a half, two years to just get back to pre pandemic levels of supply. So a lot of this growth that we were seeing with new investors coming in was just replenishing the supply that was lost.

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And a lot of the outperformance that we saw in 2021 wasn't a demand driven sort of just people trying short-term rentals and record levels and it was sort of a bubble to pop. It was that 20% of the listings had disappeared, demand came back to 2019 levels and that just caused occupancies to reach record highs because there's just a scarcity of listings to stay in. So record high revenues in 2021, that led to really high supply growth in 2022. So overall we are seeing about 25% increase in available listings in 2022. We all know what happened in 2022, interest rates increased. We had reached record highs in terms of home values, short-term rental revenues started to plateau and that meant investment slowed very materially. So throughout 2023, we only saw about a 10 12% increase in number of listings, which was down and significantly from the 25% growth the year before. And many markets, the economics didn't make sense for new investment. Just a lot of the coastal mountain markets there were sort of covid darlings to go to invest in to shut up shop in, I want to live there, I can work remote. And it just didn't make sense for investors to and buy new short-term rentals there and they weren't.

Okay. Wow. So there's a lot of data there. So the number of units up by 25% in 2022, that's a big boom.

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And so you could imagine that the headline fears like oh, a ton of new supply, but some of that was still gaining back from losses in 2020, but it's still a big year growth. And then 2023 down to 10% or 10 to 12% increase in listing volume, but meanwhile revenue's declining. So those are kind of bearish signals for short-term rental. Right supply is way up over the last couple of years and revenue has peaked peak two years ago and is now on the way and has been ticking down. So what does that say about 2024?

Yep. So 2024 our sort of tagline is the year of normalization and it sort of brings to another data point. I hope your listeners like data they do

It turns out they do. Yes,

Because occupancy I see is that sort of variable that's going to vary around the mean. So there's a long run average occupancy when occupancy gets high, new investments going to come in when it gets too low and investment's going to slow. So 20 18, 20 19 average occupancy was around 55%. We reached 60 north of 62% in 2021 and 2022. And now full year 2023 occupancy was back down to 55%. So we saw sort of the rise and then the fall of occupancy and now we're in a very normal level in terms of what people should expect occupancy to be for short-term rentals. And the fact that now we've seen investment slow and it's continued to slow throughout 2023, we still see very strong demand signals. So yes, occupancy dropped, but demand for short-term rentals reached an all-time record high in the US in 2023 and every subsequent year, 2021 was a record, 2022 was a record, 2023 was a record.

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There are more people staying in short-term rentals than every before and we'd expect that to continue to grow throughout 2024. People are still prioritizing travel travel's, taking a bigger share of their overall wallet and short-term rentals and long-term travel. So travel more than three or four days is continuing to expand and once you sort of reach that four day period, people have a much higher propensity to stay in a short-term rental and the flexibility that we all still have to sort of maybe not work remote, but still the flexibility to do a four or five day weekend and work some of that period is there and we're seeing that continue to add to demand. So our expectation is that supply and demand will finally be in balance in 2024. Occupancies will be about flat and we will start to see some growth again and the average daily rate to the rate that guests are charged, where last year was down, people got a good deal in 2023 or at least were paying less than they were in 2022. And that's going to lead to and not positive growth for revenues again in 2024.

Okay. So right, so A DR is average daily revenue growing this year and so let me make sure I got it right. So because we have 10 to 12% more properties this year, even though occupancy per is down, the total number of stays is climbing, people are into short-term rentals more and more every year. I love this equivalent here. Long-term travel equals short-term rental. And that as a trend is growing. And I mean I'm a huge fan. I love to go or plan a Europe trip this summer and we'll almost exclusively stay in Airbnbs and hang out for six days in the city and work a little bit and go find a neighborhood. So I get it. But I like that as a rule of thumb. And it's interesting to know that trend is increasing so that as a result you're expecting average daily revenue four units US is going to climb in 2024, is that right? That's a DR climbing a DR climbing in 2024. Okay.

A DR is climbing occupancy roughly flat and overall average listings going to earn a little bit more in 2024 than it did in 2023.

Okay, that's good to know. That's really fascinating. Do you have views about, in your work, do you forecast recessions and those kind of business cycles?

I've tried to stay out of the job of forecasting recessions. We do leverage Oxford economics for the economic data that goes into our models. So I'm not just putting my finger up in the air and saying what I think. I've got a team of PhD economists and we actually create econometric models to try to forecast this, actually tease out the relationships of what's causing people to stay in shortterm rentals. What's going on in terms of jobs GDP? So Oxford is not forecasting a recession for 2024. They've got slow growth first two quarters of the year essentially going to be flat for GDP and then moving north close to 1% by the end of the year. But we do then forecast a range of scenarios, so an upside, a downside and a severe downside scenario. So what would happen if we went through a recession and that would pull RevPAR's revenue per available rental south for the year. So if the sort of slow growth turned into a slight decline, and that could mean another year of declining revenues if things turned out significantly better, our outlook actually isn't that much better. And a big piece of that is we actually think supply growth would be meaningfully stronger and sort of outpace and the growth and demand. So it would be slightly better on a RevPAR basis, but not, and there's much more downside risk for 2024, then there is upside risk.

Okay, interesting. And just for a quick reference, did Oxford economics have a recession call for 2023 or did they say no recession?

They did have a recession call for 2023 and our demand forecast for 2023 meaningfully outpaced what happened. So because of that recession call and we were expecting occupancy to actually fall more than it actually did, but it great. It's always great when it's a little bit better than you said then a little bit worse. Yeah,

Yeah, yeah. Okay. And I mean that's really useful. The same thing happened to me. I don't forecast recession, so I'm just watching everybody else. I have no capacity to forecast for recession, but then you try to think about the likelihood of that impact on housing inventory and those things. So okay, so that's really fascinating. We actually can see the growth in the year. There's less upside growth because you think there's supply basically waiting to come on, people will go like, oh, people are traveling, the market's kind of booming. I'm going to list this one, and therefore the revenue per isn't going to grow as much. We've talked a little bit about the investor side. A lot of the short-term rentals as you point out are second homes, vacation homes that like, okay, I'll make a few bucks on my asset, but let's talk more about the investor class. The short-term rental investor class. It was a boom, you pointed out it was a boom in 2021 because revenue skyrocketed, but supply hadn't yet. So people were really buying a lot and it made a lot of sense at that moment. Those deals went away pretty much last year. They don't pencil out as much, especially at six or 7% mortgage rates. So what, what's 2024 and beyond look for short-term rental investors? Is it a sustainable class of investor

And one, I think it is a sustainable class and a big part of that is growing demand and the rates that people are willing to pay. So on a unit economic basis, running a short-term rental is a profitable endeavor. What has been tough to really make work is operating and owning short-term rentals at scale. So I wouldn't say easy to do, but we've seen a lot of examples of sort of profitable enterprises from that sort of 20 to a hundred unit ownership syndication like operating in a couple markets. But once you get larger than that on both the management side and on the ownership side, when you start spreading across multiple markets trying to manage these, and this is hospitality is not a passive asset class by any means, and you've got people checking in, checking out on every day people trying to figure out how to work the tv, you've got trash that you need to get to the street, you've got to clean these units, you have things being broken, you've got a day in between turnovers to get the shower fixed that someone broke. You talk with any operator in the short-term rental space, they'll tell you it is sometimes just a nightmare. And that's something that we try to help investors just understand is that it is a different animal than a long-term rental where yes, there's headaches that go along with long-term rentals as well, but it gets a little bit more hands-on with short-term rentals. And it is a hospitality business is a hospitality class asset and there's additional work that goes along with it.

Yeah, hospitality is not passive income.

Yes.

Takeaway from That's great. I love that. It's funny, I guess probably a couple of years ago now, year and a half maybe I was in Nashville and I was with a group and we had an Airbnb close to downtown and there were townhouses that they were throwing up quickly and you could tell that they were like one Airbnb after another because they all had the light up Nashville sign on the wall and you could see that, and I'm looking around this neighborhood and is this sustainable? Is this a good thing? So it was really great for our group of eight people, it was exactly what we wanted close to downtown, we go make some dinners in the kitchen, we could go down to a restaurant. It was exactly what we wanted for that group. But is that a good thing?

Yeah, so I sort of see it in the long-term rental market where, and that sort of became an asset class, what, 20 10, 20 11, where it really sort of came on the scene and now build to rent is a much bigger and piece of that where we're creating dedicated homes for rentals. And when a builder is creating a dedicated home for a long-term rental, things are going to done slightly different. Now we're seeing dedicated build to rent for short-term rentals. And with those assets things are going to be different. And a lot of times with those type of town homes, they're making them to expand from, I can sell each one individually. I can maybe have an adjoining door or adjoining back porch that could make it easier to host larger groups across multiple properties. So we're seeing, because there's been so much interest in short-term rentals and especially in markets like Nashville or Phoenix or Austin, where you have this really neat mix of both business leisure group travel that really prefers the short-term rental type product for bachelor parties and bachelorette parties in Nashville or tech groups in Austin where it's like I want to travel with 10 people and all stay in one house.

(39:33)
That stuff is being developed purposely for it and I see that as a great evolution. It is just going to work better. You're not trying to take a square peg into a round hole and make that existing home work as a short-term rental. You're developing it specifically for it. So instead of maybe having one master and three small bedrooms, you're doing three masters in a home because you're appealing to three couples to come in and use that property and no one wants to have the sort of get the smallest straw when renting it out. So we're seeing great innovation happening in the development space now that short-term rentals is an evolving asset class that people really want to invest into.

Fascinating. So build to short-term rental. Has legs.

Has legs

And is legitimate. Alright, that's really fascinating. So let's talk about risks. So risks to the industry or to the housing market or what risks are we facing?

So one, I've studied hospitality now for 15 years. The hospitality sector is very cyclical. It is a consumer discretionary spinning item. People travel more when times are good and they travel less when times are bad, there's no getting around that. And the demand associated with travel is going to go up and down in recessions and that needs to be underwritten when looking at this asset because when you look at long-term rentals, a lot of that is countercyclical of you actually see more people looking to rent during a downturn because maybe they've lost their home or maybe they're lost their job and they need to downsize. And it can be very much a countercyclical industry, but short-term rentals and it's going to go up and down with the overall economy. So we advise people to very much look at the downside scenarios that we're looking at and understand what it could earn in that downside and also underwrite. If you had to look at it as a long-term rental, what would that be? Or if you just had to exit it altogether, what would that look like?

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And fortunately, a lot of these assets, they've got great other use cases, maybe less so in a market like a Destin where in most of the homes are second homes and you're going to be looking for in another investor or someone looking for a second home of which that sort of demand can go down significantly and just for investor side in a recession. But as long as people are underwriting with that downside risk in mind that they're going to be able to weather a drop in revenues, what that scenario could look like, we think most people are taking that into account and can weather it. That said, this industry has been growing so much and demand for short-term rentals are growing so much. If we went through a recession, what more than likely would happen is we'd have a year of no growth in demand and not actually see a decline in overall demand for short-term rentals. So you marry that with what could be some people pulling out like what happened during the covid pandemic and could mean that occupancies and the downside scenario might not actually be that bad given that supply actually moves along with demand during these cycles.

Interesting. Yeah. And I was going to ask you that given that the travel has been growing and outsize growing and long-term travel has been growing, do you see those as persistent trends beyond the recession cycle or are they the first to go? Does it get accelerated because of the recession cycle? But it sounds like persistent is your take.

Yeah, typically travel is the first thing to get cut at a start of recession and the last thing to come back. So which makes it a great leading indicator. So one of the metrics I look at most closely every week, every month is new nights booked. We track every night that gets booked in a short-term rental around the world and it gives us a great indicator of the health of the consumer. Are you willing right now to make a bet that the economy is going to be good in August when you take your family trip because people are making those bookings today for travel come July and August and are they doing that more less than last year or the year before 2019? So we've got a great sort of real time pulse of how the consumer's feeling. I

Love it.

And there's some things that you wouldn't have necessarily guessed that would've caused people to pull back. But when the Israel Hamas war started in October, we actually saw a pretty significant pullback in bookings. It didn't go negative, but things were sort of running 10, 15% growth and all of a sudden we had a period of three or 4% growth and it was like, oh, this really did have a change in everyone's psyche of let's pause for a second, see where this goes, and then decide if I want to book that trip. And we eventually saw the catch up in the few weeks after of 20, 25% growth and people eventually made those bookings, but there was a couple week window where people really pulled back a bit in terms of forward bookings.

Okay, so that's awesome. I love New Knight's booked as an economic leading indicator and the health that consumers. So two questions on it. One is back at the beginning of 2023 when Oxford economics, your input source was saying, yeah, we're still looking at recession coming this year, what did your new knight's book say?

It was very strong and a piece of that was the year over year comps. So when we were sitting at the beginning of 2023, we were looking at comps from early 2022 and that was around the, I think it was Omicron then. So we actually saw a really big bump in bookings because with, if you think back to the covid waves, that was playing with sort of booking dynamics so much and you can track each wave along with booking activity. So that was a whole nother time I love. And then in 2022 you actually saw a decline in 2023, you saw a decline in year over year bookings when you saw the resurgence after Omicron where everyone started booking again in March where they would've been booking in January. So lots of noise in the data, but as of then it was sowing good. And as of now the December numbers demand was up, knights booked, were up 11%. So we as we look forward for the year, are not seeing any slow in terms of booking activity. Yes, it's down from some of the recovery years, but we're seeing a very healthy level of new bookings as we look forward to 2024.

I think that is such a brilliant insight for the consumer, the consumer side of the economy, the travel side of the economy. Everybody was worried about recession the beginning of 2023 and the new knights booked, the consumer actually was rolling, and right now we don't see slowdown either. That's really, really interesting. Do you have any sense on the length of leading this of that if it were to turn south? When does your recession call come?

Yeah, so that's something we actually track is lead times because lead times how far in advance you're willing to make that booking and can give you a sense of confidence for the consumer. So if you're booking really far in advance, you're feeling really confident if you're waiting, waiting, waiting to have that booking and shows less confidence and it's actually terrible as a host, as an investor, you're like, I don't know how to change my prices. If I know that booking's going to come in, then I'm willing to hold my price, but there's only so long I'm willing to hold that price before I'm just like, alright, I'm going to cut because I need to get someone into that unit. So last year, 2023 with the falling occupancies consumers actually started waiting to book and we saw the average lead time drop by about a week. That led a lot to the falling rates that we saw in 2023 of the average revenue manager being like, all right, I'm going to cut my rates to make sure I still get my unit occupied.

(49:26)
So that's one indicator that's still not flashing green yet and it's still sort of red to orange of lead times have not fully came back. They were looking really good in 2021 and 2022 because of scarcity, people sort of realizing I need to book advance if I'm going to find anything because occupancy got so high. But now that that's not a problem anymore, people have started waiting and it could be something that continues to trend down. So the lead times for short-term rentals are much longer in advance, much further in advance than traditional hotels. People tend to book hotels like two, three weeks a month in advance. Short-term rentals, it was like two to three months in advance. So now, and it could be as these two types of lodging and merge or the type of users that are using them, start looking more and more the same, that short-term rental lead times could just get shorter and shorter as the industry evolves.

That is awesome. Awesome. So what we are seeing is that consumers are still spending the money right now, new night's booked is up, but they're waiting longer. So they are showing some cautiousness, but they're still spending, okay, so everybody's on pins and needles basically. You know what, I'm still going, I still have my job. I look around, am I still employed today? I am doing

This. And this is an election year. So there's more uncertainty than ever. And I think in the eyes of the consumer, and as I said, if people can wait to make a decision, they typically will if they can. So it could be a year that the uncertainty persists.

Fascinating. Alright, those are terrific. So these are signals, actually signals in the short-term rental data that tell us about the future of the economy, which is super cool. Are there signals in the data that you see that tell us about the future of the housing market more specifically?

Yeah, one I think gets back to looking at short-term rental stock as a percent of overall sort of overall housing stock and overall second homes. We see short-term rentals as a percent of the overall housing stock continue to decline. Housing stocks growing faster than overall short-term rentals in terms of total number of listings, short-term rentals as a percent of number of second homes continues to decline. But short-term rentals as a percent of overall second home and vacant housing stock continues to increase and increase substantially. So I see that as a great indicator of one, a better utilization of our existing housing stock if we just got everyone using the stock that was out there in a more efficient way.

(52:31)
And I think short-term rentals can be a big piece of that. We're going to see, because we can see in the hotel pipeline data, there's going to be the next two to three years of almost no new hotels being built in the long run total lodging demand grows about 2% a year. So hotel occupancies are more than likely going to reach new record highs again over the next two to three years because demand's growing and there's not new hotels being built. And that's going to give more and more opportunity to short-term rentals as well as the ability to really react to traveler demand fill in where people are wanting to go, where there's not enough hotel supply and continue to support those travelers. So I am very much both near and long-term bullish on short-term rentals on travel and on just the housing market becoming much more efficient in the use of the existing stock.

That's a terrific insight. I wasn't familiar that short-term rentals as a percentage of the stock is actually declining. We're building more and then we are adding STRs in there. That's good. But short-term rentals as a percentage of second homes is climbing, which means market share. People are taking advantage of the revenue opportunities for their second homes homes, it's probably getting easier and more comfortable for second homeowners and there for the growth.

And we're seeing a DU laws change, we're seeing density loss change and there is a lot happening on the policy side that's sort of supporting and better use of land, especially in cities where it can support more density and maybe you restrict short-term rentals and primary homes, but allow it in an A DU. So if you want to be able to earn additional revenue off of your primary residence, yeah you can build a DU and rent that out as a short terminal as an alternative.

That's great. I was going to ask, it's a great transition into policy talks, but you covered a lot of it already. So the ADUs, we are seeing some policy folks who are interested in adding density to housing, especially in places like California, but a lot of the country. And so ADUs are getting loosening up. So we're being able to add them though we are seeing, we still see, we talked about this earlier, some of the popular or populist views of short-term rental investors are eating up our housing stocks. So we got to not allow them. So New York is a big example. San Francisco has been pretty restricted on short-term rentals for a long time. What is that a global trend? Is that a US thing, that trend to want to restrict the usage?

And it's a global trend and it's a global trend that is really varying in terms of what things different municipalities are doing to try to restrict short-term rentals. And there's some great examples of good laws and great examples of bad laws are just very arcane draconian type restrictions we see in New York. What I think is one interesting, Airbnb hired their first housing economist. So I actually had him on my podcast, the STR data lab a few weeks ago. So Taylor Maher, the former deputy chief economist at Redfin has now joined

My podcast. Yeah,

Yeah. Has now joined Airbnb as their sort of housing economists to give them one an expert in the housing space, but someone that can then go in and speak to the housing issues that are happening in many of these local jurisdictions and help them come up with realistic and reasonable solutions that can actually help as opposed to just using Airbnb as the red herring, the boogeyman and try to restrict it when it's not actually going to help the real issues of housing affordability and housing supply in many of these areas. So I'm sort of trying to change the narrative some in the conversation.

Neat. Yes, exactly. They need to fight that because the conventional wisdom can spiral out of control in the wrong direction. So you mentioned obviously that New York is a draconian bad law regarding Airbnbs and short-term rentals. Who's got a good example of a good law?

I actually like San Diego's. So San Diego realize that they, another great example of a leisure market, business market all wrapped up in one where if you just let short-term rentals run wild, it has the potential to be an issue. Just there's so many people that want to travel and go to San Diego, they realized that travel and staying in homes needs to be a part of their lodging and it can happen in single family homes, but they wanted to put a cap on it. So they said, you know what, we're going issue licenses. We're going to have the sort of limit of 1% of the housing stock in our market that can be permitted as a short-term rental. And they held a lottery to get one of those permits. They spent a lot of money sort of facilitating that lottery and then not nearly the number of spots or permits were actually applied for. And everyone that wanted a permit got one.

(58:41)
So one they way underestimated the number of people that want permits. And I think a big piece of that is how much of the short-term rental inventory is people just doing it part-time of I want to maybe do it for a month or two. It's not housing that would've come into the longterm rental market, not housing that would've gone into the for sale market. It's just like I've got a few months where I'm not using the home. I would typically and want to see if I could just earn some extra money on it as a short-term rental. In that way they understand that some percent can do it. They put a path for people to apply those permits, get it, let the municipality, let the city know who it is, who to call. If there's a problem, they can post that registration number on the front door and it sort of let it happen in a good way.

Awesome. That's really great. So San has done some good thinking on short-term rentals. That's nice to know. San Diego in general seems to have some good governance things going on and they're doing work in ADUs and stuff as well. Jamie, we've blown through an hour already talking about the data, so let's bring it to a close. Is there anything about the market that we didn't cover yet that were like you go, oh Mike, don't forget, this is what I want people to know about.

No, I think we hit on all the highlights. I cover this on a realtime basis on what's happening and I do a blog every week. It's a free blog on our site@aird.co. You can go in and see our latest. We do one on both US and Europe, just all the latest trends, what's happening in supply demand occupancy, A DR, and we try to keep people up to date. So this is the type of thing that people find interesting and want to keep up to date on. Our free blog has all that and you can keep up with it.

Terrific. And you also mentioned your podcast. What's the name of your podcast for everybody?

It's the STR data lab.

We will make sure everybody has links to those and check 'em out. Jamie Lane, terrific conversation is exactly what I wanted to get out of it. It really helps me understand what I should, I tend to form opinions on the things like now it's nice to confirm them or reject them where I need to. So I appreciate your time and expertise for us today. Really, really useful. aird.co is where the blog is and the STR data lab is Jamie's podcast. So Jamie Lane, chief Economist for Air DNA, thank you so much for being with us today. Outstanding conversation everybody. This is the top of mind podcast and if you enjoy listening to the work we're doing here, I would really appreciate a review on wherever you get your podcast. Give us a bunch of stars so that really helps other people find us. And meanwhile we will be back with more data on Monday and lots more guests in the industry to help us understand where the world is. So alright everybody, thanks so much more next time. Thanks for listening to Top of Mind. If you enjoyed the show, I'd really appreciate leaving a nice on your favorite podcast app that helps other people find us as well. Be sure to subscribe so you don't miss future episodes