The Global LHR Market Growing Fast
Robert Rosenstein is chairman and founder of Agoda and strategic advisor to the CEO of Booking Holdings. Peter L. Allen is the managing director of Agoda Outside, Agoda’s public affairs division. Agoda is the Asia-based subsidiary of Booking Holdings, the world’s leader in online travel. Allen can be reached at peter.allen@agoda.com. -- Ed.
Around Asia — and indeed around the world — the market for local host rentals (LHRs) is continuously growing. Despite very substantial demand though, an increasing number of restrictions are popping up against LHRs. You might be surprised to learn, for example, that many home rentals are illegal in Thailand, that Singapore’s market is extremely restricted, and that Taiwan has been stepping up pressure and fines on both individual properties and platforms. On the other hand, after a recent change of law in Korea, local travelers will be able to enjoy the benefits of LHRs, which is a step in the right direction.
Reasoned legislation is needed, of course, to prevent abuses, such as landlords driving out tenants to convert their units into LHRs, but legislation should take a light touch and respond to the needs of all stakeholders. LHRs offer a broad array of unrecognized benefits to every stakeholder including travelers, local communities, and entrepreneurial local hosts. If regulators recognize this fact, they will surely be more open to finding good solutions.
These benefits fall into three major areas: traveler choice, income to hosts, and jobs and tourism dollars for communities.
1. For travelers, LHRs offer access to more choices.
For travelers, LHRs offer the variety and flexibility that travelers want. Parents traveling with kids can rent homes with separate bedrooms, washing machines, and kitchens – amenities that most hotels are not designed to provide. Independent travelers can have a more local experience with direct access to hosts’ knowledge and the local culture, and for many, LHRs offer a better financial deal -- something Agoda’s data shows to be a top traveler priority. With more diverse choices and better value, people often stay longer.
2. For hosts, LHRs help improve their quality of life.
Hosts benefit, too, by earning additional income, which, research shows, often goes towards improving the property through upgrades and renovation, helping with mortgage and rental costs, daily living expenses, children’s education, and retirement savings. LHRs help hosts live better and make more efficient use of the real estate assets they have – with relatively little need for government support.
3. LHRs help communities thrive.
Neighbors and communities often lead the charge against LHRs, but in fact they benefit from these rentals. LHRs bring more people — and more tourist dollars, RMB, euros, and yen — to neighborhood businesses, as travelers spend money on food and drinks, shopping, local transportation, and entertainment. LHRs create jobs not only for hosts but also for people who provide necessary services, such as checking in and out, cleaning, laundry, home-cooked meals, and a wide range of experiences (from athletics to wine tasting). Restaurant spending by LHR travelers in five Asia Pacific cities increased by $240 million in 2017, compared to the previous year, according to one LHR platform. And while some complain that LHRs destroy neighborhoods, in fact many hosts depend on the income from their rentals to stay in their homes. Rather than compromising communities, LHRs can help keep communities together.
There are other significant benefits to cities that welcome guests in LHRs. These distributed accommodations ease overcrowding in tourist areas, bring revenue into local communities, can increase sustainability, and provide valuable tax income that can help meet civic needs, from basic services like fire and police to destination marketing support, or even fostering the arts, education, and housing for the homeless.
In addition to these benefits, it is important to recognize that the local host rental segment is already large, and it is growing fast. (The reason is simple: people want to travel this way!) By the end of 2020, the LHR market will reach US$194 billion, Skift predicts. This style of travel is particularly attractive to millennials – a huge group (400 million in China alone) that is spending vast amounts on travel (US$1.4 trillion by 2020). Seventy-four percent of U.S. millennials have already used LHRs for business travel. In China, the Wall Street Journal reports that Tujia has received US$300 million in investments, and Xiaozhu has received US$270 million in total funding. Both of these companies now qualify as Asian unicorns, with values above US$1 billion. To repeat, the market is huge and growing fast – particularly among the rising generations.
The key to harnessing this success is good regulation. If licensing and laws are prohibitively complex — or if rentals are banned outright — communities will miss out on all the benefits we have just explored. And while some LHRs will disappear, others will go underground, compromising the safety of travelers. But appropriate and well-designed licensing rules and regulations will increase safety and manage markets in ways that benefit communities. We recognize that local host rentals are a relatively new way for people to travel and experience destinations, and that new models can sometimes disrupt existing infrastructure and process. But good, balanced licensing and registration requirements and processes can help prevent these problems.
Change is disruptive: We know this very well from our experience at Agoda, a leading digital travel technology company. But ignoring change does not make it go away. Depriving many people of the benefits of change to protect the interests of a few is not economically beneficial, nor is it democratic or fair. We urge governments and citizens to find ways to manage it well. If they do this and do it right — everyone — guests, hosts, neighbors, cities, and even tax collectors — will be better off. And who can argue with that?