Major hotels moving in on gig economy

May 21, 2019—At the end of April, one of the largest hotel chains in the world, Marriott International, announced its new program that will compete with Airbnb and other short-term rental companies – Homes & Villas.

The offering will initiate with 2,000 premium and luxury homes located in more than 100 destinations across the U.S., Europe, the Caribbean and Latin America.

“The launch of Homes & Villas by Marriott International reflects our ongoing commitment to innovation as consumer travel needs evolve,” said Stephanie Linnartz, Marriott International global chief commercial officer. “What started out as a pilot a year ago is now a global offering, providing our guests with the space and amenities of a home backed by a trusted travel company, and the very best in loyalty benefits.”

The hotel spared no expense in making its home rentals luxurious. Some examples of the homes that will be offered include:

  • A four-bedroom cottage on six private acres of California wine country
  • A six-bedroom villa in Sorrento, Italy with an infinity pool overlooking the Mediterranean Sea and a wood-fire pizza oven
  • An oceanfront villa in Anguilla with private beach and a personal butler and house staff
  • An 18th century Irish Castle that sleeps 17 and features a private lake for boating and fishing
  • A six-bedroom townhouse in London with a children’s playroom and climbing wall

The company uses property management companies to provide its guests a professionally cleaned home with 24/7 support, high speed Wi-Fi, premium linens and amenities and family-friendly conveniences upon request.

“Our approach to home rentals allows us to curate an incredible collection of homes that deliver an elevated travel experience,” said Jennifer Hsieh, vice president of Homes & Villas by Marriott International. “By working with a select group of professional management companies that understand and operate in this dynamic landscape, we are able to focus on what we do best – selecting a breadth of homes in inspiring destinations, setting standards for responsive service and designing a seamless booking experience that helps our guests navigate an increasingly complex and uncertain set of home rental choices.”

And this form of expansion makes sense, as short-term rentals from the gig economy are currently the highest competition for hotels.

Shawn Tully, writer for Fortune, writes:

The most obvious threat to the traditional hotel industry, of course, is the rise of Airbnb and other home-sharing businesses that allow travelers to bask in a local scene by booking, say, a family’s flat on the Seine or a condo in Miami Beach. Since its founding in 2008, Airbnb has recorded more than 160 million “guest arrivals” and now has over 3 million listings worldwide in some 65,000 cities.

And this is only the beginning.

“The housing market has yet to truly experience its Airbnb, Uber or Amazon moment,” said Senior Advisor to Proxy Pics David Stevens, CMB, former CEO of the Mortgage Bankers Association and former Federal Housing Commissioner under President Obama. “New technologies and capabilities will meet the demands of a younger demographic to evolve away may of the high friction, human interaction and slow processes of the traditional system.”

And the implications of Marriott’s launch are huge.

Marriott is one of the largest hotel chains in the world. It encompasses a portfolio of more than 7,000 properties in 30 hotel brands spanning 130 countries and territories.

The impact on the housing market

The hotel began this pilot last year as a pilot program under the brand extension Tribute Portfolio Homes. Of the guests who booked a home during the pilot, which was only available in select European cities, more than 75% were traveling for leisure with family and friends. During the pilot, the average guest stay was more than triple the typical hotel stay. These insights played an important role in guiding the selection of luxury and premium homes, as well as the key leisure markets available at launch that complement the core offerings of Marriott’s hotel portfolio.

So now, the hotel is expanding its program with more homes and more markets.

Many have criticized home sharing sites such as Airbnb or others for their impact on the real estate industry, other homeowners and neighborhoods.

Some of the complaints against short-term rental sites include:

  • Noise from weekend partiers staying on the properties
  • A reduction of home values due to more homes in a neighborhood being used as rental homes
  • Less affordable homes available on the market as investors buy home homes to use as short-term rentals

Because of these and other complaints against Airbnb, many cities have risen up to make short-term rentals difficult or even, in some cases, illegal.

In New York City, for example, a battle is raging in the courts for control over host activity information. The city wants short term rental sites to hand over details on their hosts to see who is following the city ordinances surrounding short term rentals – a move Airbnb and other sites such as Homeaway are challenging.

But, on the other side, some argue that short-term rentals can help homeowners afford a home they previously couldn’t have by allowing them to pull in income by renting out extra rooms.

Marriott’s move, however, provides no such relief, and would be more similar to the effects of investors buying up homes. By offering homes for rent in addition to hotels, Marriott could open the door for it and other hotels to begin buying up homes and inflating home prices as less become available for single-family homebuyers to purchase.

For now, there isn’t a need for alarm as the program focuses on luxury homes, where there is not a shortage, but it does have the potential to create several problems.

  1. Inflating the luxury market

Marriott’s program could lead to a shortage of homes in the luxury housing market if it continues to expand, or if other hotels follow suit in order to compete. This would lead to even higher home prices.

  1. Less affordable homes built

In today’s market, affordable housing is facing a shortage in many markets across the U.S. But many experts have determined that the solution to that shortage is for builders to produce more affordable homes. With the current cost of construction, lumber tariffs and even high labor costs, it is already hard to convince builders to build more affordable homes. If they have investors and hotels buying up luxury homes, there will be even less incentive to focus on more affordable housing.

  1. Begin to buy affordable homes

Airbnb and other rental sites rent out homes of all shapes, sizes and price ranges. As the gig economy continues to be a looming threat to hotel chains, and depending on the success of their newly launched home rentals, the temptation could soon arise for them to expand their home rental program to include more affordable homes.

Effect on gig economy

It’s clear that this move has the potential to significantly impact housing markets, but what would it do to the gig economy?

Currently the gig economy is rising in strength and threatening, or even succeeding in surpassing, traditional companies.

For example, in markets such as Dallas, where no one rides in taxis, companies like Uber and Lift are taking over, and instead of calling a taxi, a college student trying to earn some extra money might take you from one destination to the next.

But in markets like New York, taxi drivers are increasingly leaving their companies to work full time for Uber or Lift.

The same could be said of Airbnb, Homeaway and other short-term rental companies. As homeowners look to make an extra buck, others dedicate themselves to renting out homes as a full time job.

It’s because of this flexibility and popularity, the flexible pricing and the enticement to travelers to have the option to take up an entire home in any location that makes it such a threat to the hotel industry.

Now, as Marriott moves into the home rental space, it could change the game.

Because it is only available in certain markets and only in the luxury market, it may not heavily compete with the gig economy right away, however if it continues to expand or if other hotels jump on board with the idea, then sites like Airbnb may soon have a force to contend with.