On the 8th of March, the RBA raised interest rates again for the 10th time in a row. Across Australia, the average home loan amount is approximately $600,000. With the increase in rates, repayments have risen dramatically across the board, with an alarming amount of households at risk of falling off the ‘fixed-rate cliff’ in the coming months. You can read more about these two topics here:
Realestate.com – How much is the average mortgage in Australia in 2022?
CoreLogic – Five things to know about the ‘fixed-rate cliff.’
Add in the increased prices of power, gas, petrol, and groceries as well as the negative ramifications of inflation, it’s safe to say the cost of living has increased and that we are all feeling the financial pinch. As operators of Airbnb properties who have to pay for utilities, cleaning, and maintenance, the central question is how the current environment is impacting the short-term rental market. How is this affecting occupancy rates? How are people managing and taming their operational costs?
Ask Charlotte
Are people seeing less income from their short-term rental properties?
Overall, yes, given all of the points above, it’s true that people are spending less on travel as household budgets tighten.
There are some exceptions for holidays that were planned and paid for long in advance, the Formula One this weekend is an excellent example. People have saved money with the explicit intention of spending it on an event they have been looking forward to. We’ll keep seeing this for special occasions, and once the cost of living pressures come down, I’m sure that we’ll gradually see a return to people spending money on holidays.
On the other hand, international travel has increased because airfare costs have come down. This means that even though some people from Australia are travelling overseas, many others are coming to Australia for holidays too. This places short-term luxury rentals in a solid position to capitalise on the trend.
Have there been any changes in customer behaviour related to renting properties out? Who is renting properties?
The important point is that we have no data to suggest customers are seeking a discount even with the additional financial pressures. People still expect to pay a premium price for a premium property, and those who can afford to travel are still booking high-end short-term listings.
But again, for many people, as the cost of living has increased, the budget for non-essential travel has decreased for the time being. Some people experiencing these pressures but who still want to travel will seek cheaper accommodation alternatives such as lower-priced listings or budget hotels.
However, this is nothing new. Even when there are fewer financial constraints, there are always people who are very price sensitive and will look for the cheapest deal. Customers seeking premium listings do not have this mindset as they see the value in a property’s location, amenities, size, and unique features.
How are people handling their rental properties during the financial crisis? How are people saving money?
As mentioned, premium properties are still being booked, but this isn’t guaranteed. This is why the team and I have been working hard to target insurance companies and corporate relocations, and it is something we can do through our network. Leisure bookings might be down, but corporate and insurance clients are still strong, so we are focusing on ensuring all of our properties are being booked out as much as possible.
As far as saving money is concerned, the obvious idea is that to increase bookings, you have to cut the price of the listing. We instead have focused more on ensuring each property is priced accurately for what the market is looking for and that this figure adjusts dynamically based on new market variables.
Ask Farah
As a result of the increased interest rates, has there been more competition between short-term and traditional rental properties?
So to add some nuance to the question, I’d start by saying that rental properties are tough to come by. Many people are moving to Melbourne from overseas, which is driving a steady demand in the leased property market.
Also, because of the difficulty in securing long-term rentals, people are turning to short-term rentals to navigate their situation. For instance, there are a very limited number of six month leases available in the current climate. Add to that the housing shortage, and you have a steady demand for larger Airbnb properties listed for short-term rental. We’ve seen an uptake in long-term bookings in areas such as Malvern and Glen Waverley due to their proximity to schools.
What’s BNB Butler doing to help?
Because we manage a number of properties, we have a clear picture of what’s happening in the market and keep a close eye on what can be done for the benefit of our clients. Out-of-the-box thinking isn’t new though, since we had to navigate the chaos caused by the pandemic years and keep the business going through very tough times.
On this occasion, we are being proactive in a different way, focusing on pricing and setting up systems to make sure our support can scale. The two main areas we are investing in are pricing and optimisation software and targeting properties for insurance purposes.
Pricing & Optimisation Software
We are implementing pricing software. This will allow us to analyse a property and the current pricing strategy. We will also be able to add data points such as occupancy rates, major events, and the rates of similar properties in the area to price our listings at the most competitive amount dynamically.
Our system monitors these variables and automatically suggests pricing changes for each property we manage. We combine this system with our continual analysis and understanding of the market. However, we are also in the process of going a step further by partnering with a Pricing Specialist to ensure the prices are the most competitive as possible and most beneficial to all our clients.
The system and methodology are still in progress, and we’ll keep everyone informed as this project progresses.
BNB Marketing Strategies
Our second area of focus is to adjust our marketing strategies and target insurance companies who need housing for their clients – for example, for people who have gone through a flood event and need emergency housing. This type of demand is still consistent. As Charlotte mentioned, we are also reaching out to our corporate partners to ensure properties are fully occupied as often as possible.
