Airbnb’s digital platform takes control of Paris short-term rental industry, and makes peace with the city administration

Read about how Airbnb’s online platform has taken over the Paris’ short-term real estate business and sealed an agreement with the City of Paris.

Since January 1st of this year, the San Francisco-based start-up Airbnb continuously makes the headlines in French newspapers, due to its steep increase in popularity both among French landlords and French-bound tourists. Indeed, Paris is now the number 1 destination for Airbnb users with a total of 1.8 million visits since its implantation in the “City of Lights” in early 2012 (Airbnb was founded in 2008). Since the beginning of the year, Airbnb France has welcomed 2.5 million guests.

Airbnb’s business model is fairly simple: it is an online platform connecting hosts (the house or apartment’s landlord) and guests (the tenants), which allows rental transactions to be made without owning the place itself. At first, the business seems similar at first to that of a standard real estate rental agency, and the profit generated by any transaction (3% to the host, 6% on average to the guest) is fairly identical to that of a Parisian traditional real estate agency (around 10% of the price). The main difference lies in the fact that its dematerialized aspect creates new sources of supply and demand, providing more choice to the guest, more chances to realize a transaction to the host, and ensuring more convenience for both parties.

The traditional real estate agencies are not the only ones in line in front of the Airbnb Parisian storm: traditional hotels are very affected by this conversion of potential hotel guests into short-term private renters. The main reason of such a rapid conversion is the price of the rental. With overrated hotel room prices, the Parisian hotel industry has become highly uncompetitive, with rates not corresponding anymore to the quality of the offer. During the first quarter of 2015, the average rate of a hotel room was 181 euros (204 USD), while that of an Airbnb rental is 96 USD.

In response to such a popularity surge of the online real estate rental platform, not only unions and representatives of the above-cited traditional industries in competition with the company protested and turned their attention to the State, requesting a new regulatory framework constraining online renting. Indeed, the City of Paris itself also declared war to the company, claiming the transactions hosted by the digital platform ignored the local lodging tax, bringing about 40 million euros to the city every year. Moreover, the Mayor of Paris’s housing adviser, Mr. Ian Brossat, worries that “We can’t have entire neighborhoods or buildings turned into tourist homes. That’s why we’re fighting to keep Parisians inside Paris and we won’t let tourist rentals eat up their space. It’s simple math: a studio on Airbnb can be 1,000 euros a week. That’s four times the price usually paid by a Parisian. We’re fighting to keep the middle class in town, they are the heartbeat of the city.”

Airbnb finally agreed in February 2015 to comply to French law by promising to chase users who do not comply to the law of short-term rental – declaring this activity to the city administration and paying a fee, on top of the above-cited lodging tax. Moreover, it will start to directly collect the lodging tax from the host at the moment of the transaction, to transfer it then to the city administration. It is although very unlikely that this will reduce Airbnb’s attractiveness in the most visited city in the world: Paris is the first Airbnb city in the world, and the company’s revenue projection for the city in 2015 amount 900 million euros (1 billion USD), a steep progression compared to its 2014 revenues of 250 million euros (282 million USD). This is only the beginning of the nightmare for Parisian hotels and real estate agencies…

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Student comments on Airbnb’s digital platform takes control of Paris short-term rental industry, and makes peace with the city administration

  1. Interesting read as I know Barcelona has similarly called war against AirBnB.http://www.businessinsider.com/barcelona-just-declared-war-on-airbnb-2015-8

    I see this as one of the critical concerns for the company as their continue to expand into new markets and develop its host pool in many places that depend on tourism. Government’s interaction to date is seen as trying to either preserve the culture of a city and/or the existing tourist commercial business. However, I would love to see AirBnB transform counties such as Myanmar where the government and tourist industry are in such close contact that they squeeze out business opportunities for everyday citizens. There is so much potential for this company, yet at this stage of growth it is sad to see capitalism mix with socialism.

  2. Interesting that the price difference between hotels and airbnbs is that great in Paris – I haven’t found it to be true to the same extent in Boston where a couch spot can go for almost $100. Beyond the very interventionist European model, I also wonder about long term regulatory risk for Airbnb as I suspect many of the transactions are not declared as such.

  3. Interesting post highlighting the fact that a business model that functions extremely well in one geography, might be facing serious hurdles in another one. This post brings me back to my recent visit to Salzburg and my unsuccessful attempt to find Uber. I learned that Uber was banned there. AirBnB’s effective approach to Parisian administration could make for a good case study for Uber who has been fighting against various European governments and recently filed a formal complaint with the EU over national bans.

    A key lesson from this post is that no matter how exciting a new technology might be, legal and cultural context in which a business operates, could make it or break it.

    1. Thanks for your post Charles. Indeed, as Airbnb was locking down an agreement with the City of Paris earlier this year, European medias automatically drove their attention in direction of Uber, who did not take the same approach and is currently facing some serious judicial problems: http://techcrunch.com/2015/06/29/uber-france-leaders-arrested-for-running-illegal-taxi-company/#.grjkql:YTJt
      Like for the hotel business, most European taxi markets have enjoyed a monopolistic situation for years, which drove down their competitiveness in terms of pricing, quality, and accessibility (there has always been a serious shortage of taxis in Paris). Online digital platforms enable the “sharing economy” system which is a solution to these monopolistic situations. With the public opinion supporting them, I do not believe European governments will make war to these innovating companies for long….

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