REVIEW #5: Airbnb: A Convenient Scapegoat for Budapest’s Property Squeeze

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Tourism is traditionally limited to the confines of highly regulated and high-barriers-to-entry sectors – such as the hotel industry. It has its beneficiaries and its negative externalities (noise, parking, drain on public services, etc.). The sharing economy unleashes the price effect of tourism on properties that would otherwise stay residential. By lowering the barriers to entry for hosts Airbnb does provide an opportunity for landlords to reap some yield on their property value – which should not be taken away from them just because the hotel lobby feels overregulated in comparison.

However, while Airbnb and the arrival of the sharing economy to the Budapest property market has provided owners with opportunities, it has also linked Budapest homeowners to the global tourism bloodstream – in a new way. Airbnb consolidates the opportunity cost of housing toward the higher end of the price scale – globally.

Complaints regarding Airbnb can be split into two distinctive parts. One part is regarding noise, disruption of local communities and other externalities. These complaints are legitimate, but relate to tourism in general, not to the sharing economy in particular – as evidenced by the fact that some heavy tourist destinations are introducing measures against them as well.

The economic impact of the sharing economy on the Budapest property market are as follows:

1. It caters for a more affluent demand than the long-term, local tenants, thus pushes opportunity costs higher.

This impact is, however, of a short-term nature. Since around 2015, a massive gold rush seems to have appeared in Budapest. But the get-rich-quick Airbnb market is unsustainable and will cool down (especially in the highly speculative rent-to-let sector).

2. More troubling impact is that the gold rush puts extra psychological pressure on an already overheated property marketas evidenced by the gap between offer prices and the number and price of actual deals closed.

This market rally, however, is not the result of Airbnb – even if the media is fixated on that. As it will be later pointed out in detail, the property market boom is a result of the combined impact of a coordinated government effort to increase property prices, a new subsidized loan program for home buyers, and an investment rush into the property market from both locals and foreign investors. This, in turn, is the consequence of an ailing real economy, stock markets, extremely low interest rates, and cheap mortgages.

3. In the long run, Budapest property market will be permanently changed – not due to the current wave of sharing enthusiasm, but the regulatory light shed on the commercial property sector.

Long-term property rentals are in the gray zone of the Hungarian economy for historic reasons. Statistics are unreliable and taxation is unenforceable. This, in turn, leaves tenants in a peculiarly shaky position. Airbnb can rectify that. It has brought this market into the forefront of authorities’ attention – triggering retroactive tax inspections and a whitening of the rental market in general. In the long run, taxes built into the rental prices will push prices up for long-term tenants as well. Moreover, it also provides the sector with much-needed transparency.

THE SIZE OF THE RENTAL MARKET

According to the National Office of Statistics, 89.7% of Hungarians lived in owner-occupied properties in 2010.1 That is a huge number – but unlikely to be correct. The real number should be more in line with other European countries. According to the Eurostat the EU-28 average was near 30% – with 19.1% of the population being tenants with a market price rent, and 10.8 % in reduced-rent properties or in free accommodation in 20142.

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1 Társadalmi helyzetkép (2010) by the Hungarian Office of Statistics (KSH). Available [online]: https://www.ksh.hu/docs/hun/xftp/idoszaki/thk/thk10_lakas.pdf
2Housing statistics of Eurostat (2014). Available [online]: http://ec.europa.eu/eurostat/statistics-explained/index.php/Housing_statistics#Tenure_status
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