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Airbnb cannot charge for your expensive rentals

Who doesn't regulate Airbnb like he's not. A large number of politicians, European tourist centers and metropolises now follow this motto. The arguments are clear: Airbnb is raising housing and rental prices, worsening the quality of life in neighborhoods and depopulating cities. However, Airbnb regulation will make us all poorer and not solve the problems; it is a manifestation of problems, not their cause.

Airbnb was created in an environment of inaccessible housing, expensive apartments and a regulated business environment in the hotel and hospitality industry. The greatest international expansion took place between 2011 and 2014 (especially), when in the period after the crisis with low interest rates in the EU and the USA came a gradual expansion of mortgages, yet it is most recently heard about it.

Cheap money

With low interest rates and a rise in mortgages, housing prices began to rise across the EU - by an average of 4% in 2017 Q4,5. In the Czech Republic, the situation is extreme and the growth rate is one of the highest - by 8,4% year-on-year in the 4th quarter of 2017; while it was already a slower pace, in previous periods the growth rate remained roughly at 13%.

Low interest rates in the EU and in the Czech Republic remained here as an unprecedented relic after the economic crisis. The large amount of "cheap money" pumped by central banks into the economy had to be reflected in investments, where even those high risk. This generated some economic growth, but also big risks - for example in mortgages.

Securing housing is perceived as one of the basic human needs, so with a low interest rate comes the mortgage boom. However, a large number of mortgages increases the risks of banks - more borrowers means more people who can stop repaying. Interest rates both in response to risk and demand will grow (even at the instigation of central banks, as we can already see).

When the first five-year fixation of cheap mortgages from 2014-2017 ends and borrowers will have to start repaying new - higher - interest rates, what will happen? How will banks cope with a possible wave of people who are not able - either directly or indirectly - to pay their mortgage?

The central banker has depopulated your city

The first apartments that are bought for cheap money are the most promising. In the case of cities such as Prague, this is historical center and tourist sites. These apartments are then bought for investment - their appreciation is exactly the perspective with which they were bought.

In order for the investment to return in combination with high demand due to cheap loans, rents in the center are rising, relocation of the natives and depopulation of the area. Central bankers are the ones who depopulated the center of your city.

Short-term rentals and rapid price growth

How to evaluate an apartment in the center? Renting it in the long run for a high rent is quite complicated. Long-term tenant = long-term worries. You can adjust the rent according to the market only on the given dates (after a year, when changing the contract…), you are not so much flexible and rent per month is a more stable income, but at the same time lowerthan if you rent for a short time for a few days.

In the case of short-term leases, your competitors are not long-term leases in the area, but prices of services for hotel accommodationwhich are high in the city center and in tourist destinations. Regulation of the provision of these services thus helps to increase rents. You are not selling a basic necessity of life, but a broader experience - a holiday, a service.

An apartment bought in the center of Prague, often reconstructed and encumbered by a mortgage, you can rent for a short time. It makes sense especially in an environment of rapid price growth, when with a short-term lease you can react much more flexibly and increase the yield. The rapid rise in prices is what triggers the boom in short-term leases, not the other way around.

Airbnb comes in the end

And where are we now? We have cheap money, a boom in mortgages, purchased flats in the investment center, increased rents, a depopulated center, a spinning wheel of rapidly rising apartment prices, and some flats are starting to be rented short-term to maximize profits in a rapidly changing environment. It doesn't matter if it is or groups on Facebook.

A third person enters into it: someone who brings to this confusion and a rapidly changing environment stability, order (rental rules and guarantees) and facilitate contact between those who want rent and what they rent - intermediary. And it is Airbnb!

First, steps were taken by government authorities to trigger a rapid rise in housing prices. The city centers are depopulated. When prices change quickly, a short-term contract is more advantageous than a long-term one, and short-term leases begin to flourish. Governments are not able to react legislatively, so the market will solve this effectively in its own way and a mediator will come - Airbnb - which will bring stability and rules to the whole situation.

Governments are slow

Compare: how long / lasted to simplify building codes in order to build faster? Land use plans? How long will it take for cities to release (privatize) unused houses / flats, even in dilapidated condition, so that someone can invest in them and thus expand the housing supply? How long will it take for someone to create a legal framework for short-term rentals that still doesn't suit anyone as a result?

Market services, like Airbnb, solves these problems quickly and efficiently; it also develops and improves much faster, responds to market demand. Airbnb helps to calm the situation in the housing market, which is turbulent with the help of harmful government action.

And that's why we want to regulate it, instead of solving the cause of the problems? It makes no sense.

Airbnb can't blame you for your high rents.

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