Written by 4:23 pm abroaden weekly insights

Will tourist apartments actually save the economy?


This is a re-post of our 9th issue of our “WTF is going on with the Economy?” newsletter which talks about the saving grace of tourist apartments. You can read the original here. Get future issues delivered directly to your inbox. Sign up here.

Once upon a time (i.e., before March), we took traveling for granted.  

During this magical period, we discovered new cities. We learned about the world around us. We did new things, and we had new things done to us (sometimes).  

It felt like with each year passing from the last financial crisis, traveling was becoming more accessible and effortless than ever before.  

12 years ago, though, there was a spark that put it all into overdrive.

In 2008, a trio of roommates built a website allowing people to rent an air bed in their living room to guests.  They called it “Air Bed And Breakfast,” or what we now call Airbnb. 

The concept spread like wildfire, radically disrupting travel as we know it. While at first, the concept centered on renting out spare rooms, it quickly transformed to cover everything from apartments to tree houses. Today,  short-term rentals are mainstream around the world. The trend was so popular that, in addition to competing platforms emerging, hotel booking websites also jumped into the fray.

Of course, it hasn’t been smooth sailing for this niche.  The recovery from the 2008-2011 financial crisis was uneven. Inequality grew along with explosive demand for housing in many of the world’s most famous cities.

Zealous politicians took note. They made these platforms their scapegoat for years of poor housing policies. Airbnb bore the brunt of these attacks, with the company fighting town halls and governments worldwide.

Of course, all of that changed in March 2020 when tourism stopped overnight.  

As expected, Airbnb’s value dropped substantially, along with that of its competitors.

So with tourism all but dead at the moment and the economy gravely wounded, is it time to write-off Airbnb and the short-term vacation rental market?

The best investors (and the ones who can sleep at night) invest within their risk tolerance. Do you know yours?

Not at all. In fact, this tourist apartments could power our economic recovery. Here’s how. 

People will start traveling again soon. We don’t know what that will look like yet.  However, it’s safe to say that social distancing and increased hygiene will shape how we travel.

For overnight travelers, they generally have two lodging choices:

Stay in a hotel or book a short-term rental.

Hotels are always busy. Guests traverse hallways, eat at buffet-style dining halls, and congregate in lobbies. Personal space is at a premium. Elevators are a mainstay and you have no idea when that weirdo in the pool took his last shower.

Tourist apartments and houses offer the opposite experience. Guests have their own private kitchens and amenities. The living room is their own, devoid of strangers (unless invited in. See above: “new things done to us.”).

While tenants do come and go from apartment buildings, they do so at a much lower volume. Since there are fewer common spaces, maintaining a sterilized environment is much easier than in a hotel.

If the goal is to practice social distancing and keep things sterile, rental units win, hands down.

Numerous studies are now showing that this virus spreads in intimate situations far more than out in the open air.  A rental unit helps minimize the time in close contact with strangers, while still making tourism and travel possible.

The summer holiday season is right around the corner. Here in Europe, going on vacation is practically a human right.  Families traveling together can “self isolate” much better in an apartment or cottage than in a hotel.

Right now, governments face a huge dilemma: their economies need to reopen but not at the sacrifice of their healthcare systems. Unfortunately, you can’t fund a healthcare system without a functioning economy. Some of the hardest hit countries in the world like Spain and Italy generate significant tax revenues from tourism.

Considering the public health benefits of short-term holiday rentals, services like Airbnb will be crucial for the economic recovery. 

More importantly, tourism is what economists call a “discretionary” industry. In other words, people only travel for leisure when they both feel comfortable and have extra money. 

The return of tourists, therefore, represents two significant indicators: 

  • People have money to spend which means there’s growing confidence in the economy as a whole; 
  • People feel physically and mentally safe to venture outside of their bubble. 

This second part is vital, as its impact extends far beyond tourism.  Stores and restaurants are reopening as you read this article but that doesn’t necessarily mean consumers will visit them. 

We’re still all in mental shell shock from this virus. Many people are uncomfortable if not terrified of going into public spaces. This reluctance speaks volumes about how consumers will behave as we loosen restrictions.

If more people travel for leisure, then we can say that they’re confident in public safety. In turn, they consume more, powering the economy in the process. How fast this confidence returns will determine how quickly we get back to business as usual.

Here’s what to look for at home.

In addition to general consumer prices, there are a few indicators worth watching. 

First, many tourist rentals can quickly enter the long-term market. This flexibility allows the supply to rapidly meet demand. A recent article on the Barcelona tourist apartment market (English translation) stated that 40% of the short-term units are looking for longer-term rentals. If more tourist flats leave short-term platforms, then we could say that travel isn’t recovering.

Second, AirDNA — a company specializing in short-term holiday rental data  — has an index of bookings and prices for many markets around the world. If you’re curious, check out their freemium dashboard here as well as their COVID-19 tracker.  If reservations are going up, then the tourists are coming back.

Finally, the old eye test can tell us a lot. If you live in a place where you know that there are many tourist flats, then look around. Are they occupied? And if so, for how long? 

Together, these indicators should give us excellent insights into travel and how consumers are reacting to the new normal. In many ways, they should write a convincing story about the upcoming recovery and what to expect soon.

Tourist flats are a hot button issue, especially in dense, popular places like Barcelona. Their impact on housing markets is worth an entire article (coming soon, I promise!).  This summer, though, they’ll be a welcome change for the global economy. 

Disclaimer: The author does not own any rental property.  I live full-time in the apartment that I own. I have no skin in the tourist apartment game. 

Abroaden is a company for expats, digital nomads and other world citizens looking for low-cost and transparent financial advice and investment management.

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