Click for crash: How online vacation services are killing Tel Aviv’s rental market

The Italian Canary

Recently, I stumbled on a very heartfelt and aggressive post created by a local Venetian, aimed at clients of services like Airbnb, HomeAway and other online holiday rental sites, warning that these services are poisonous to the former city that’s already on the verge of extinction.

While the case of the municipality of Venice with a population of less than 60,000 is unique, the words “drive away residents away from this city, leaving only an empty shell” rang far too close to my city of Tel Aviv, 400,000+ people strong.

As a renter myself, I can’t help but feel like Venice is the canary in the mine, whose death is a warning for all other cities that haven’t started regulating this industry.

Welcome to Venice – Enjoy Your Stay in our Former Homes.

The first step is admitting you have a problem

But does such a problem exist? How many homes-turned-hotels are even out there? Everyone seems to have a different number — Tel Aviv’s municipality officials claim that these numbers are negligible, while Eli Gonen, the chairman of Israel’s Hotel Association, claims that the number is 6,500 apartments and that Airbnb are claiming for 8,000 properties.

To further measure this damage, we need to see how big the actual market is — the last number of apartments for rent is officially stated at 88,348 (as a part of a study done in Hebrew on rent control for MK Stav Shafir based on data from 2011), the current numbers, in today’s age of illegally-split apartments and urban renewal plans is possibly closer to 95,000.

It would be safe to assume that even when deducting one-time renters and occasional posters, this issue affects at least  5 percent of the entire market.

There are a few other things you need to understand about these vacation apartments to grasp the damage they cause:

1. They are all of above average quality (and some at genuine “boutique hotel” standards). Each apartment is estimated at roughly 8,000 NIS on the rental market.
2. They could have gone to locals desperately seeking a place to stay in the unregulated jungle that is the Israeli rental market, an almost pristine land, safe from governmental supervision (it has only 2 laws, both from the 70s, one is technical, the other applies to 35,000 properties country-wide).
3. They are evading taxes. While hotels pay up to 50% in taxes, these landlords don’t even report regular rent (Eli Gonen claims roughly 300M NIS annually in unreported earnings).

Opening the floodgates

Tel Aviv and Venice are not alone in this fight, and in fact, many cities have already noticed this issue affect housing prices, black economy and taxation. Cities like Santa Monica, which cut down Airbnb rentals by 80%, cities like New Orleans, which is pushing for legislation, and cities like Berlin, the latest to join municipalities that fine individuals opening such “hotels” (and even raised the bar on fines with a whopping 100K euro ticket starting this May).

Being pushed out of your house is no excuse for Comic Sans

The main question remains — what would happen if Tel Aviv’s municipality (or the Israeli tax authority) would pick up this fight? What would happen if a fine so heavy would be incurred that “hotel” owners would decide it’s not worth it? Well… it’s hard to say.

Here’s how I picture this scenario: the day after they pull the trigger on a crippling fine, the floodgates open. 2,000 new apartments in above-average condition appear overnight in the under-stocked market, off-setting the annual rent rise (around 10%), 1,000 apartments, bought specifically for long-term rental investment, will be sold at a profit (while also favorably affecting the housing market, which is suffering its own ailments), 50 new legal “boutique hotels” will open overtly, taxes and insurance included. And the rest of the apartments? Disappear into the night, convert into different illegal businesses or just be put on ice.

Tel Aviv’s municipality, Israeli tax authority, concerned citizens — Venice is sinking. We need to do something before the floods come our way.