Screen shot from Airbnb website.

In Tel Aviv, Airbnb May Have Revealed Its Darkest Side Yet

The city has become the world leader in the number of tourists who stay in Airbnb apartments. As a result rents are rising, tenants are being evicted to make room for tourists and the authorities are turning a blind eye

The figures are mind-boggling: 800 people rent out 5,000 of the Airbnb apartments in Tel Aviv. In other words, two-thirds out of the total of 8,000 apartments in the city currently offered for short-term rental have now become purely business propositions. So long, communal/joint/collective economics and youthful naiveté, hello real estate sharks and black-market dealers.

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Tel Aviv's Gordon beach. Moti Milrod

Another fascinating statistic was revealed in a survey conducted by the Tel Aviv municipality: The number of rooms rented in Tel Aviv through Airbnb is comparable to the number of hotel rooms and hostel rooms combined. This is apparently a world record. In other big cities where Airbnb has flourished, about 30 percent of accommodations are rented through the platform, while 70 percent are rented out by hotels and hostels. In Tel Aviv, the balance is at 50-50. Over the past two years, Airbnb’s volume of business in Tel Aviv has doubled. All of these new tourist apartments didn’t just fall from the sky; they were removed from the long-term rental market. So is it any wonder that long-term rental prices are soaring?

Not so long ago, Airbnb was touted as the salvation of budget travelers. It was at the forefront of a tourism revolution that made it possible, as part of a sharing economy, to find accommodations in big cities without having to pay for an expensive hotel. But lately something about the company’s image has changed. It has become a platform in which many of its landlords are seasoned traders and expert tax-evaders.

Today, just one-third of the apartments advertised on Airbnb in Tel Aviv are still the kind of property where an innocent owner is just trying to rent it out to earn a little extra income. All the rest are being rented by people who’ve made it a business. They earn an income that is several times higher than what they could fetch for long-term rentals, and many don’t pay taxes, are not subject to any regulation (regarding fire extinguishers, exits, etc.) and use false profiles to depict themselves as friendly college students and the like.

Equally surprising is that the Tourism Ministry is encouraging this activity. Many other countries impose restrictions on these sorts of platforms, but that is not the case in Israel. Tourism Ministry director-general Amir Halevi explains the ministry’s position “Our goal is to increase the supply of rooms. This year a record is going to be broken with more than 3.5 million tourists coming here,” he says. “We need as many accommodations as possible. We will work toward this on all fronts, including converting office buildings into hotels. Right now, Airbnb is a good solution for us.”

Tourist in Tel Aviv. The hotels and the short-term rental platforms coexist just fine. Eyal Toueg

The authorities, and hotels, play along

Professor Aliza Fleischer of Hebrew University’s Environmental Economics and Management department says the tourism sector is experiencing a boom. Hotels are consistently at near-full capacity (Tel Aviv reported 75-percent capacity in the past six months). And the good times for the hotels are not coming at Airbnb’s expense. “If not for the supply of Airbnb rooms, these tourists who come here on low-cost flights wouldn’t come at all,” says Fleischer. “Tel Aviv is perceived as a very attractive city for young people of Generation-Y. This is the message that it projects, and the demographic of young travelers looking for low-cost urban tourism fits well with Airbnb. This is not the same crowd that’s going to stay at expensive hotels.”

Tel Aviv. So long, communal/joint/collective economics. Tomer Appelbaum

For a long time, most people thought that rental platforms like Airbnb were the hotels’ big competition. Even now, hotel rooms in Tel Aviv are very expensive compared to European cities and elsewhere. Airbnb offered an inexpensive alternative. But a review of the latest figures shows that the hotels and the short-term rental platforms coexist just fine in Tel Aviv, and both are flourishing. Someone else is paying the price. Long-term apartment renters in Tel Aviv appear to be the main victims.

To understand the sea change wrought by Airbnb over its eight years of existence, it helps to first take a good look at the statistics. For the past year, the best source for figures on the rental platforms has been a company called AirDNA. The very fact that this company was founded attests to the major impact Airbnb has had on the international real estate market.

AirDNA, based in Denver, Colorado, was established in order to monitor and analyze Airbnb statistics. To the best of my knowledge, it is not connected with Airbnb. Every day, AirDNA surveys three million properties advertised on Airbnb in 25,000 different markets.

At my request, Abigail Long of AirDNA’s marketing department provided the following figures on Airbnb’s activity in Israel: In September, nearly half the 16,196 Israeli properties advertised on Airbnb were in Tel Aviv – 7,976 rooms and apartments. 3,983 property owners are active on Airbnb in Tel Aviv, but 5,000 of the rental properties are in the hands of about 800 people.

The figures supplied by Long show that Airbnb’s activity and supply of rooms has doubled in Tel Aviv in just two years. In October 2015, 83,000 places to stay were on offer (in all the properties and throughout the month), and of them, 49,680 rooms were rented. Last month, 109,000 of 185,000 advertised rooms were reserved.

The center of Tel Aviv. Controlled by landlords. Eyal Teoug

Another tidbit: Average capacity for Airbnb apartments is 60 percent, at an average price of 160 dollars per night. It would be hard, maybe impossible, to find a room in a good hotel for that price.

Many in the hands of the few

Alma Igra and Avner Barak are an Israeli couple who live and work in New York. Barak is an urban planner who specializes in socioeconomic surveys, mixed-usage design and transportation planning. Igra is a doctoral student in history at Columbia University. For some time now, they have been jointly tracking Airbnb’s activity in general, and in Tel Aviv in particular.

Welcome to Tel Aviv. A whole new Airbnb culture. Tomer Appelbaum

Tel Aviv is not that big of a city, they say, and has a smaller number of apartments compared to other major cities, but for a place of its size, it has many more Airbnb properties. Compared to high-demand areas in New York, Tel Aviv has 3.1 times more Airbnb properties relative to the total number of properties in each city.

As for Airbnb’s influence on the rental market for Tel Aviv apartments, Igra and Barak stated: “A recent study done by Dr. Yoav Kerner quantified the effect as an increase of 324 shekels in the rent for a 1.5- to 2-room apartment. This finding is not very surprising, because at least 4.5 percent of the apartments in the city are rented through Airbnb. This is a huge percentage, considering that a healthy housing market requires a ratio of available properties of about 5 percent, and the percentage of available properties in Tel Aviv is estimated to be just 3 percent. In addition, a whole new Airbnb culture has arisen where landlords are ‘evicting’ long-term tenants to free up the apartments for tourist rentals.”

Brian Chesky, CEO and co-founder of Airbnb, speaking at the New York Stock Exchange in New York, March 13, 2017. Michael Nagle/Bloomberg

To what extent is Airbnb’s activity in Tel Aviv business-oriented, i.e., done by people for whom this is their main income, as opposed to the sharing economy of the kind that was touted in the beginning?

“The extent of the phenomenon of people renting out more than one entire apartment – as opposed to those who rent out just a room in an apartment, either their room when they’re away or a room that is always unoccupied – is just astounding,” they replied. “82 percent of the Airbnb properties rented in Tel Aviv are whole apartments. Two-thirds of the activity is by people who are renting out at least two properties. And there are also real estate agents who’ve switched to just managing Airbnb properties.”

They add: “The branding of the sharing economy as something intended to generate some side income for those who really need it is no longer relevant. Many Israelis have the sense that Airbnb is an easy and almost passive way to add some income, but if you look at the figures, for the most part this is an unfulfilled fantasy. Even though more than 40 percent of the properties are offered for rent at least four months out of the year, their capacity rate is only 54 percent, much lower than other major cities in the world. But the hype is still very strong, and property owners think they’ll do well to turn their apartment into an Airbnb property. The risk is creating a situation of ‘ghost apartments’ that are taken out of the normal rental pool.”

An Airbnb rental in Tel Aviv. Airbnb

Who’s in charge?

Abigail Long of AirDNA confirms that in Israel there is no regulation or restriction of Airbnb activity. The two natural candidates for doing so would be the Tel Aviv municipality and the Tourism Ministry. The ministry said this week that it is not involved in any regulation of Airbnb.

The Tel Aviv municipality commented: “It’s up to the government to determine any regulation of the matter and the municipality will act accordingly. In light of the expansion of the practice, the municipality has decided to undertake a professional study of the phenomenon and its implications. Subsequently, recommendations will be submitted as to what steps ought to be taken. This is in recognition of the importance of promoting supplementary options to the hotel business.”

Igra and Barak put it this way: “Israel is leading a trend of nurturing Airbnb and not reining it in, so on the policy level, it’s definitely about expansion. The problem is most urgent in Tel Aviv, but similar figures are coming up in other places, notably Jerusalem, so it’s a nationwide issue. Also, you have to take into account that the official policy of the Tourism Ministry and Tourism Minister Yariv Levin is to expand and encourage the growth of Airbnb, so the potential for damage is even greater than what we see at present, and we’re likely to see more serious damage to the housing market in the coming years.

“At the same time, the Tel Aviv municipality certainly has a responsibility toward the residents and should use the tools it has at its disposal to rein in the phenomenon, using bylaws or at least by creating incentives for long-term rentals.”

What’s the right model?

When searching for the right model for legislation about Airbnb, people usually look to New York. Igra and Barak agree that the New York model is very interesting. They point out that the law was enacted by the state of New York and not the city of New York and that it places the responsibility on the people renting out the properties and not on Airbnb. The law prohibits rental for a period of less than 30 days when the property owner or main tenant is not present in the apartment. Despite doubts about how the law would work in the absence of real enforcement mechanisms, the number of active Airbnb apartments in the city has decreased significantly since it went into effect. But the number of rentals in New York continues to rise.

An Airbnb apartment in Telv Aviv’s Neveh Tzedek neighborhood. Airbnb

For the past year, the city of Barcelona has required people who wish to rent out their apartment to obtain a special license to do so. They say that this condition balances out the competition between hotels and private apartments. In this way, the income is taxed and the city has also upped enforcement. In Paris, legal rentals are promoted on a map published by the city, and the number of rental days allowed per year is limited.

The regulation in New York, Berlin and Barcelona is positively affecting the housing market, but researchers Igra and Barak say legislation is needed that is directed not just at the property owners but at Airbnb itself. “It’s important to remember that Airbnb is not a passive player in this whole thing,” according to them. “To a great extent, it created a new economy of short-term rentals that has reached an unprecedented scope. When you think about it, it’s absurd that when a place like New York is trying to undo the damage caused by the platform’s activity, Airbnb is the only player involved that doesn’t have to bear any responsibility.”

Airbnb did not respond to questions for this report as of press time.

Flat hotels

In the past there was also much talk about how the spread of Airbnb was negatively impacting local residents – from noise and littering affecting the regular tenants in a building with many tourist rental units, and about how it also impacted the fabric and character of a neighborhood. Social infrastructure intended for long-term tenants (such as playgrounds, neighborhood schools, community centers and so on) that hold no special attraction for tourists are hurt when an entire area becomes a center for short-term rentals.

Professor Fleischer notes that when it started, Airbnb’s message was “connecting people.” In those days, the platform marketed its product as a way to share the urban experience and not just as a way to find a place to stay. She says this message gradually weakened as the short-term rental properties grew more similar to hotels. One example of this: Originally, a large picture of the host appeared on each rental property page, and today that has practically disappeared.  

The Israel Hotel Association says: “We are not opposed to short-term apartment rentals, for periods of up to two months, through Airbnb or other sites. However, when the rental exceeds the limited period, as with apartment rentals to students or families, and becomes a business for investors who take over thousands of apartments, the conditions change completely. Today there are dozens of businesspeople who are essentially managing ‘flat hotels’ in Israel – who are not subject to any regulation and who do not pay taxes. In other places around the world, people have come to realize that when it goes beyond a short-term rental to become a business, the field has to be regulated.”

The Income Tax Authority says: “The authority is taking steps to enforce lawful tax payments on short-term rentals, in part through audits in which property owners who failed to report income of tens and hundreds of thousands of shekels were discovered. Renting out an apartment not for the purpose of residency but for short, occasional periods, either by the owner or the tenants is akin to renting out a tzimmer or any other business. Therefore the law requires that taxes be paid and that the income be fully reported.”

Brace yourself for more

The latest big thing from Airbnb (which as of this writing, had not responded to our questions) is that they are now pitching restaurants and experiences, and not just places to stay. This hasn’t come to Tel Aviv yet, but Tokyo, Barcelona, Paris and other cities are already offering the Airbnb Experience – an expanded version of the site, where you can find suggestions for guided tours, cooking workshops, pub crawls and more. All for a fee, of course. In the near future, it should be possible to organize an entire visit to any city through Airbnb. Then, no matter how good your service might be, if you aren’t on the platform, you might as well not exist.

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