Gone are the days when hostels and hotels were the only options for travelers. Now, sites like Airbnb, TripAdvisor, and even Couchsurfing are connecting travelers with potential hosts, allowing them to see properties, and providing reviews to help anyone find the perfect vacation spot.
Technavio research analysts expect the global vacation rentals market to grow at a cumulative average growth rate of 7.59% from 2014-2019, eventually reaching a total value of $169.7 billion.
But despite these strong projections, there are still some challenges affecting market growth.
And while we should stress that most of the time these kinds of rentals are perfectly safe, there are enough cautionary tales to give most travelers pause before diving into online vacation rentals.
Lack of proper regulations
The market is largely unregulated, which has created problems for both hosts and guests ranging from inconvenient to downright illegal. A few examples include:
- Restriction on the rental period: There are laws prohibiting apartment rentals for less than a fixed period of days. For instance, in 2014, San Francisco limited renting homes to a maximum of 90 days annually (unless occupied by the hosts).
- Illegal vacation rentals: These are rentals that do not follow the legal requirements to be considered a vacation rental, like holding necessary licenses or permits from the municipality, and even evading tax by making the renter look like a family member. For instance, in Monroe County, New York, there were more than 1,000 vacation rental homes in 2013. However, only 50 of these have permission for short-term rentals.
- Most insurance companies do not cover property damage by renters. While there have been efforts to fix this issue, (Airbnb has created Host Protection Insurance, which provides coverage for Airbnb hosts) they are limited to the US.
- In some cities such as San Diego, the law neither specifically bans vacation rentals nor clearly defines what they are.
To circumvent some of these issues, hosts and guests have gotten creative. For example, some AirBnb hosts will ask guests to say they’re friends staying for a weekend if confronted by a landlord.
But despite these little bluffs, the lack of proper regulations and more restrictions are expected to stymie market growth.
Avoidance of commission payments
The market is witnessing an expansion of online channels with relatively new players launching online-only businesses. However, despite the expansion of inventory in the online space, bookings are often shifted offline. In a lot of cases, homeowners deal directly with the renter, either via phone or through email.
To put this in perspective: In 2014, vacation rental listing sites were responsible for nearly 54% of reservations. However, only 7% of customers reserved from booking sites. A large number of transactions taking place offline translates into missed opportunities for online vacation rental market growth.
Source of reservations in 2014
Source: Technavio, 2015
Inconsistent quality
With more than a million properties listed, it’s impossible to expect consistent quality across an entire site like Airbnb. The rental listings can include couches to crash on, rooms in a house, and entire apartments for long-term stays.
Similarly, every host is different, with the quality of communication, property, and service varying greatly.
And while there is a general agreement that you accept a certain amount of risk when booking via Airbnb, for some consumers the risk isn’t worth ruining their vacation. This uncertainty has led many people to turn to trusted hotels instead, which has impacted the growth of the vacation rentals market.
Fraudulent vacation rental homes
The issue of fake vacation rentals has been rising in tandem with the market value. Despite stringent efforts by companies like Airbnb and HomeAway—which provide user reviews, secure payment, and ratings—a large number of scams have victimized vacation renters and damaged the market’s reputation.
Fictitious properties, where renters are shown one property and routed to another, and double booked properties are other issues driving away potential customers. Additionally, phishing scams have dampened customer trust when it comes to making payments online.
Like the quality issues mentioned above, these risk factors could result in customers turning to other forms of accommodation, resulting in losses for the market.
