What the Hell is Going on with the Price of Airbnbs? (And What You Can Do About It)

Things are brutal in the short-term rental market right now. But there are still ways to get great deals.

With friends on the roof-top deck of our Airbnb in Mexico City

It’s not your imagination: Airbnb prices really have gone up lately — in many cases, dramatically.

Airbnb is, of course, the online marketplace that connects short and medium-term renters, usually travelers, with individual properties throughout the world. Average prices have always varied by location and season. Also, the “hosts” of the different properties typically offer substantial discounts for weekly and monthly rentals.

All these factors make direct price comparisons difficult.

That said, evidence of recent and dramatic price increases abound. In America, Airbnb rentals are, for the first time, more expensive than hotels, even for larger groups. In one area of London, prices have reportedly gone up 41% in just the last six months.

And almost every long-term traveler is saying the same thing: Prices are climbing at a dizzying rate.

Vicki Webb, a 59-year-old American who recently became a full-time nomad, stays in a lot of Airbnb listings. But in many cities, she’s finding it increasingly difficult to meet her $50/night budget — at least for places where she feels comfortable.

In cities where she rented just two years ago, she says, “Monthly rates seem to have gone up two to three hundred dollars a month for a decent place, and five hundred dollars a month for a really nice place.”

In May, Airbnb renters vented their frustration in a social media backlash — complaining about rising prices and hidden fees. Airbnb, which declined to be interviewed for this article, issued a statement defending their fee structure but also promising a future “review.”

“It's clear that the golden age of Airbnb, at least from a value perspective, is long gone,” says Nate Hake, founder of the online travel guide, Travel Lemming.

But why? And how did it happen so quickly? And is there any chance prices will go down again?

I’ll try to make sense of it all.

And no matter what happens in the future, I’ll also have some specific strategies to make Airbnb-type rentals more affordable right now.

What Exactly is Going On?

We’re currently in the middle of a “perfect storm” of rising prices, with lots of factors contributing to the increase.

Let’s look at each factor in turn.

Covid, Covid, Covid

For the past twenty months, we’ve been in the middle of an international pandemic. Did anyone notice?

With border closings, city shutdowns, and terrified travelers, Covid devastated the global travel industry. As a result, some Airbnb hosts transitioned to long-term rentals, pulling units from the short-term rental market entirely. Then, when travel rebounded this previous summer, demand may have exceeded supply.

Arguably, Covid also hastened a “remote work revolution” that was well underway even before the pandemic.

“With white collar remote workers now easily able to switch to another city or country, that adds significant demand to the platform,” says Travel Lemming’s Nate Hake. “Consider that a single remote worker booking a month-long stay consumes as much inventory as ten reservations by vacationers booking three-night stays. All that demand is going to drive up prices for everyone, and it's only going to continue.”

Indeed, these newbie nomads may not know what an Airbnb “should” cost in different cities, and the newer higher prices can still seem like a bargain compared to the even-more-insanely-priced tech hub they left behind.

Finally, Covid added pressure for “enhanced” cleaning services. It’s debatable how much of this cleaning was real or merely performative, but it was at least an excuse for many hosts to greatly increase their cleaning fees.

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Speaking of Rising Fees…

Many people are unhappy with Airbnb’s seemingly exploding fees.

The owners of individual Airbnb units all set their own rental prices, although most take advantage of the company’s dynamic pricing algorithms, or “smart pricing,” which take present and future demand into account.

Hosts also have the option of charging a cleaning fee, which they set, and they can also decide if they or the guest pays the local taxes. Finally, they have some say in how to split Airbnb’s service fee — the amount that goes to the company — which runs around 15% of the rental price.

Technically, this service fee percentage has always been about 15%, but until recently, that tended to be split between the host and the guest.

But now the company is aggressively steering more hosts to a “simplified” fee structure, where the service fee is essentially paid entirely by the guest. This results in making it look like the fee is higher. And if the host doesn’t lower the overall price in response to this shift, the guest really is paying more.

Meanwhile, as Airbnb becomes an increasingly larger player in local economies, some cities and building associations are restricting which properties can operate as short-term rentals, making them scarcer (and, therefore, more expensive). Local governments, pressed by the hotel industry, are also becoming much more aggressive about demanding and collecting lodging and occupancy taxes.

Previously, many owners “forgot” to pay these taxes, or weren’t aware of them, making the prices even more artificially low compared to hotels.

Finally, as with service fees, many hosts are deceptively hiding price increases by keeping the price-per-night the same but jacking up the cleaning fee.

The Booming Economy

The entire economy is undergoing massive changes right now. Has anyone noticed that too?

Inflation is rising quickly — not just in America but all over the world. Cities in particular have become much more expensive.

All this puts even more upward pressure on the price of Airbnb rentals.

“It appears demand is up and supply is down,” agrees Michael Campbell, co-author with his wife Debbie Campbell of the book, Your Keys, Our Home: The Senior Nomads’ Incredible Journey, about the couple’s multi-year travel adventure living exclusively in Airbnbs. “That’s the most simple explanation for prices going up.”

At the same time, Campbell notes, given the exploding stock market, many personal portfolios are up too. "We love living our lives around the world in Airbnbs, and we are willing to pay for it. That could change if prices continue to rise.”

The fact is, collective wealth is greater than ever in America and Western Europe. With all this extra money sloshing around the system, and affluent people eager to travel again, it makes sense that we are all collectively bidding up the prices of Airbnb units.

A Maturing Market

The most important reason Airbnb prices have risen so far so fast? It was always inevitable as the company — and the market it had created — matured.

Airbnb was founded in 2008, and like Uber, it was part of a new “gig” economy — a revolutionary business advancement created by digital technology that connected individual contractors with clients eager for a better user experience.

Just as Uber completely disrupted the taxi industry, offering a better experience at a much lower cost, Airbnb disrupted the tourist industry, offering an arguably better lodging experience than hotels for less money.

But the prices on Airbnb, like the prices for Ubers, were always artificially low, in an effort to get people to buy into this new business model.

Now that these and other gig businesses have firmly established themselves, they’re aiming for profitability.

And it’s working: since going public last year, Airbnb’s profits are up, and investors are bullish on the company.

If Airbnb’s fees aren’t technically rising, their “smart pricing” algorithms are getting much more sophisticated, trying to wring as much profit out of the market as possible — for both themselves and the hosts, which, in turn, will draw more properties into the system, expanding profits even more.

“Airbnb hires really smart people,” says Your Keys, Our Home’s Michael Campbell. “And with all their experts, it seems they’re getting better and better at figuring out the price-point that will optimize their return and the return for the hosts. They’re always thinking, ‘How do we nudge this up a bit?’”

In addition, there are now lots of online resources for individual hosts. There are a zillion online guides offering ways to maximize profits — including some that suggest unethical bait-and-switch practices.

The conventional wisdom among hosts right now is that rock-bottom prices attract bad guests, and that means less money upfront and higher cleaning and repair costs if their unit gets trashed.

But unlike Uber, Airbnb offers guests the option to contact owners before committing to a rental and negotiate on pricing.

In other words, there are online resources (like the one you’re reading right now) that help the guest get a better deal.

With more such negotiations going on behind-the-scenes, some hosts may be anticipating extra discounts — and even raising their prices in expectation of them.

All this means that in a market as mature as Airbnb’s, you’re at a serious disadvantage if you don’t come equipped with full knowledge of exactly where things stand and how things work.

The view from the balcony of our Airbnb in Puerto Vallarta, Mexico

You Get What You Pay For

If prices and fees are rising so fast, why in the world are people still using Airbnb at all?

Because travel is popular, and even now, Airbnb is offering a fairly unique and pretty amazing product.

Consider these benefits:

• A wide variety of easily accessed listings in virtually every country in the world.

• Unique, distinctive units that, unlike most hotel rooms, often include well-equipped kitchens, washing machines, and separate bedrooms; it’s far more comfortable for longer-term lodging.

• Verified listings — and, increasingly, verified photos — so what you get is what you see.

• Detailed, vetted reviews.

• Increasingly sophisticated hosts that often speak English, and instant online translation services even when they don’t.

• The ability to pay safely online in the currency of your choice.

• Increasingly robust customer service to solve any disputes or problems — and the might of an extremely powerful industry player on your side.

• An increasingly user-friendly online experience, with new features constantly being added — for example, wifi speeds now being noted in listings’ profiles.

In short, Airbnb is easy and extremely convenient.

And that ease and convenience is exactly what a lot of people are willing to pay for. As with almost everything in the travel industry, the easier something is, the more expensive it’s going to be.

Michael Campbell thinks that what Airbnb has done in a relatively short period of time — how they’ve completely transformed the travel industry — is nothing short of extraordinary.

“Airbnb has taught people all over the world how to be hosts,” he tells me. “If you pick semi-carefully, the guest gets a good product. These hosts have thought about what you want, what you might need. Many hosts have become really adept at this. Airbnb has done a wonderful job of letting people like you and Michael, or Debbie and myself, be nimble and go to Prague or Split, Croatia, or wherever looks good. It’s unbelievable.”

Campbell admits that he and his wife are sometimes accused of “drinking the Airbnb Kool-Aid,” but he’s not wrong about what Airbnb offers.

Airbnb made a name for itself providing what was often a cheaper — and, in many ways, better — experience than a hotel.

These days, the experience isn’t necessarily cheaper than a hotel. And let’s face it: hotels do still have some advantages. Daily housekeeping anyone?

But Airbnb absolutely still offers a product with a lot of value.

Will Prices Go Back Down to What They Were?

The short answer is: almost certainly no.

As the Covid craziness wanes, and the economy reverts to normal-ish, prices could stabilize or even go down a bit, especially if Airbnb starts to lose market share to hotels and competitors like Booking.com. But it’s extremely unlikely they’ll go back to what they were.

“The reality is that Airbnb's moat is probably too big for any competitor to challenge them in the near future,” says Travel Lemming’s Nate Hake. “Hopefully in time, we will start to see boutique hotels shift to serve the apartment rental market better. But that requires major remodels or new constructions, which isn't cheap or fast.”

In addition, he adds, off-season travelers may even benefit from Airbnb’s rapid growth. “More hosts will be lured to the platform by astronomical high-season prices,” he says. And the rest of the year? “That should create more inventory — and opportunities for deals — during the off-season.”

In the meantime, I have some strategies on getting a much better deal at Airbnb — and also some cheaper, surprisingly simple alternatives to that platform.

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