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…