Fastest-growing Airbnb market at risk as lodging-scarce Japan cracks down

by and

Bloomberg

Aileen Jeffery arrived in Tokyo two years ago and spotted what she thought was the best opportunity of her career: Hotel rooms in the capital were scarce and a boom in tourism was exacerbating the shortage.

The 26-year-old former real estate analyst took a 21st century approach to the business, investing in condominiums tailored for customers of Airbnb Inc. rather than travelers inclined to stay at traditional hotels. That let her offer rooms in residential neighborhoods and sidestep the nation’s strict and peculiar 70-year-old rules for hotels, which dictate everything from the length of reception desks to the color of pillow cases. Jeffery’s bet seemed like a good one at the time: Japan is Airbnb’s fastest-growing market.

Perhaps not for much longer though. Under pressure from the hotel industry and a populace concerned with the surge of foreigners in their neighborhoods, Prime Minister Shinzo Abe’s government has released guidelines for home-sharing — called minpaku in Japanese — that could make most Airbnb rentals in the country illegal. Airbnb hosts would only be allowed to rent to guests who stay for a week or longer, a minuscule slice of the market. The national guidelines only become law if local municipalities decide to ratify them, but that is beginning to happen. Jeffery is rethinking her expansion plans, while Airbnb is seeking ways to hang on to its business.

“If the government is serious about fixing the accommodation shortage before the 2020 Olympics, it can’t place minpaku operators at a significant disadvantage,” said Jeffery, who analyzed hotel and residential properties for a London investment firm before moving to Japan to be with her fiance and starting her rental company.

Airbnb, now the third most valuable startup in the world, was founded in 2008 and has encountered far fewer obstacles on its path to global acceptance than the app-based car service Uber Technologies Inc., its companion in the so-called sharing economy. Even so, there have been assorted battles, including clashes over the rules for home rentals in New York and San Francisco.

But Japan shows potentially serious stumbling blocks as the company expands further abroad. Ota, one of 23 wards within Tokyo, became the first municipality to fully adopt Abe’s proposal last week. Osaka, the country’s third-largest city, will begin implementing the laws in April. More authorities plan to follow, possibly including the Sumida Ward in Tokyo where Jeffery is nearing completion of a seven-story building.

That crackdown comes as Abe is trying to draw more tourists to boost the economy, and as the nation prepares to host the Rugby World Cup in 2019 and the Olympics. His policies that have weakened the yen and the relaxing of visa requirements pushed tourists to a record 19.7 million last year from 8.4 million in 2012 — and made Tokyo hotel occupancy rates tighter than Paris, Hong Kong or New York. The number of visitors will hit 35 million by 2020, according to an estimate by Goldman Sachs Group Inc.

Ruling Liberal Democratic Party lawmaker Masaaki Taira acknowledges the new rules may create “severe restrictions” for hosts of the 26,000 properties in the country, but says the guidelines are a reflection of the competing interests of his constituency.

“The hotel industry had very serious concerns, so we set the minimum number of nights at a level that lowers the chances for competition,” said Taira, who was directly involved in drafting the government’s guidelines. “Of course, there’s a possibility we may shorten that minimum going forward.”

Japan Accommodation and Lodging Foundation lobbyist Taito Itoh said allowing more direct competition would be unfair to hotels, which unlike Airbnb operators have to comply with the lodging laws. Any hit to profitability would remove incentives for hotels to keep investing in properties, undermining Abe’s ultimate goal of creating a robust infrastructure to accommodate the tens of millions of tourists in the coming decades.

Yasuyuki Tanabe, who runs Airbnb in Japan, is pushing back against new restrictions on his business. The company will not directly enforce the new rules, he said, though it will ask property owners to adhere to local regulations. He added that hosts may be able to avoid the rules in certain circumstances, without specifying how they would do that.

Tanabe said the government should create new laws specifically for the sharing economy, rather than employing a modified version of lodging rules that are almost 70 years old. The number of Airbnb guests in Japan soared more than 500 percent last year, the highest rate in the world, he said.

“Rather than concern ourselves with hotel laws, we’d like to think about creating a new rule from scratch that applies to platforms like Airbnb,” he said.

The first properties approved in the Ota district last week belong to Airbnb’s local rival Tomareru Inc. Spokesman Takuya Kawamura said that while it’s unclear what impact the six to seven night requirement will have on business, the company decided to go ahead and win whatever business it can.

“While its better not to have that handicap, rather than thinking of it as a big hurdle we think of it as something we’ll have to get over,” said Kawamura. “The reality is that tourist demand for six to seven night stays isn’t zero.”

Airbnb’s Tanabe has the backing of some of Japan’s biggest tech firms. The Japan Association of New Economy, headed by Hiroshi Mikitani of online retailer Rakuten Inc., argues it makes no sense to regulate Internet businesses with laws drafted when computers did not exist.

Even if the government, hotels and sharing-economy businesses find common ground, there are still neighbors unhappy with the new rental practices. Lawmaker Taira says a major concern is that foreign travelers will cause trouble in residential areas. The guidelines he helped draft require aspiring Airbnb hosts to first inform neighbors of their plans.

That has done little to comfort people like Daisuke Hoshikawa, who heads a resident association at a 33-story condominium in Tokyo. He said not only does Airbnb undermine security, it also means common facilities like the gym and swimming pool can used by “an unknown number of people.”

“It just ruins the atmosphere,” said Hoshikawa, whose building banned Airbnb and other hosting sites last April. “It’s great the government is promoting tourism, but they need to do so after thoroughly taking care of many things from the start. We understand it may help some people, but we’re opposing it.”

Terrie Lloyd, who heads online travel portal and consulting firm Japan Travel K.K. in Tokyo, said Airbnb and other home-sharing businesses may find ways to avoid restrictions even if they become law. For example, an apartment owner could book a guest for a full week, but then require the person to stay for only a couple of days.

“Airbnb doesn’t want to do those work-arounds, but the people who run the actual places may end up doing that anyway,” he said.

Aileen Jeffery does not want to build a business dependent on skirting the law. As she closes in on completion of her seven-story building, she is scrapping her original plans for mostly Airbnb rooms and converting more than half to standard apartment rentals, replacing magnetic key card readers with traditional steel locks.

“It’s difficult to work around details that are constantly changing.”

  • GBR48

    What rarely gets mentioned in this debate is that minpaku are simply better options than Japanese hotels for many guests, particularly Westerners, creating a more diverse and inviting tourist landscape for potential visitors.

    I booked four nights in the last Japanese hotel I was due to stay in, but left after one. The ambient temperature was maintained at something like ten degrees warmer than was comfortable. I had to strip off when I got into the room and stay stripped. My non-smoking room, like all the others, was on a corridor with a communal smoking room, 6ft away from my door. It was intolerably hot and it didn’t smell very nice. I’m vegan, so my chances of eating in the hotel were virtually nil.

    Minpaku apartments have kitchens. You control the ambient temperature and you have a proper front door. And as for the local residents, they are actually safer having a six foot gaijin nearby, as I would always intervene to help someone who was having problems, not avoid becoming involved.

    Japanese hotels fear competition because the genuinely impressive omotenashi of their staff doesn’t paper over the cracks. The hotel industry here is insular and rooted in the past. Those that run it simply don’t go abroad, experience Western hotels and check out the boxes they should be ticking in their own establishments.

    To be fair, the overwhelming percentage of guests, and the most economically important ones, are the Chinese shoppers, who may well be happy with what is on offer.

    The government are going to be losing out on a massive opportunity though. So many of the world’s exotic tourist locations have vanished from the map in the last few years courtesy of Islamic extremism, disease and political unrest, that Japan could be absolutely minting it, especially from an increase in Western guests. These are internet-savvy people for whom AirBnB is now a first and natural choice when booking a holiday, leaving large parties of Chinese shoppers to block-book the traditional hotels.

    This is a vast revenue stream that AirBnB has laid on a plate for Japan to exploit, at a time when the numbers in so many other sectors are turning red. All of those English-language signs, all of the preparation for tourists, this is what it has been for. The perfect storm of free money from a range of different visitors with a range of different needs.

    Westerners like to zip about staying a few nights here, a few nights there, on absurdly complex itineraries. The minimum stay of a week kills that business stone dead for minpaku properties, as does forcing them to close simply because a near neighbour has watched a few too many episodes of CSI New York and goes into a blind panic at having gaijin nearby. As if the crime news wasn’t filled with local people doing hideous things to each other, as it is all over the world.

    So the regulations will suffocate minpaku lets, making Japan ‘special’ again, as the only place where you can’t book 21st century style holidays. What then for the Olympics? Create massive hotel capacity for two weeks in 2020 and then be left with vast numbers of empty rooms?

    Minpaku are different and flexible. Managing them deserves its own division of government and its own rules, devised to safely encourage them, not a wish list written by the brown-envelope-full-of-yen wielding hotel lobby, looking to kill competition and protect its own bottom line at the expense of the national economy.

    Mess this up and Japan’s reputation as a great tourist nation gets flushed down the high-tech washlet, those who have been earning an income and paying taxes from that income have their businesses destroyed, and Japan’s tourist income will be well below what it otherwise might have been. What a waste of a remarkable opportunity.

    Of course after 70 years it really is time that the government updated hotel regulations. If hotel operators are willing to play nicely and not crush the minpaku industry, I’m sure that the government could ease some of the restrictions placed on their industry. They could also assist them in checking out the standards required in a 21st century hotel. Adding free WiFi to a hotel ostensibly unchanged since the 60s or 70s, is not a recipe for success.

    • Pink Floyd

      unfortunately Japan doesn’t live in the 21st century, they live in the 19th century like some kind of Twilight zone scenario ..

  • Mark

    As everything else in japan. People conservatism and difficulties to change old habits it’s what destroying this country economy and will continue to do so. While all other sectors are falling, the Japanese economy having at least one thing that going up, and that is the growing tourism. Lots is the result of weaker Japanese yen, abenomics and the up coming Olympic Games. But the effect of Airbnb and and other related sites on the growing tourism in japan is greatly underrated!!
    The vast majority of Japanese people are not even close to understand what foreigners will consider comfort holiday. But many of the Airbnb operators, which are foreigners living in japan or Japanese who has solid experience living overseas, do. Japan was always one of the most difficult country for foreigners, especially western travelers. And as oppose to what most Japanese people will think, it is not because of the language barriers but rather many other things which the page is too short to explain.
    Japanese hotels -like many other organizations in japan, can provide excellent service and value but they will never be able to make foreign travelers easy,comfortable and warm trip like Airbnb operators. Restricting Airbnb in japan even more than what it is already restricted at the moment (by buildings property management ect), will kill it. Maybe not right away but give it a year or two and this sector will go down as well.

    Hotel lobbies, like most other big organizations in japan, are way over powered. The system is created in a way that theoretically encourages small businesses and entrepreneurs but in reality the buerocracy and regulations restrict 98% of the population from ever becoming one.

    Take Airbnb new regulations for example:
    The one week minimum requirement is not even the biggest problem here. The biggest problem is that in order to operate, the host will need property management approval and neighbors approval. But in 98% of the buildings in central tokyo (there are almost no private houses In central Tokyo, especially the popular areas) the neighbors will never approve such a thing.
    First of all because Japanese in their core are still racist and consider all foreigners as trouble makers (even that the actual perecentage of trouble makers is actually very low), second because the property management companies who are greatly connected to hotels will recommend the neighbors not to approve such a thing and third, because this is the way they Japanese people are. They are afraid of changes l, want to stay in their comfort zone and will never want to take even the smallest risk. No one of the neogbours will consider the potential loss of tourism in japan. Everyone will just say: so let other buildings approve it, not here.

    I actually do agree with the 1 week minimum requirements (I personally think it should be 5 days) because you do not want to create backpacking atmosphere in residential buildings. I also think that depend on the size of the apartments their should be regulations on the number of guests allowed in each apartment. Moreover I think that maybe Airbnb hosts should be slightly higher building management fees, to make it fair for the other tenants. But, I don’t think the neogbours should have the power to approve or decline a request because it will alway be a decline.

    If they will go ahead with the those new “recommended” regulations, eventually only buildings which most of units are fully owned by big company/rich individual will be able to get this permission. Which mean that most Airbnb operations will run like hotels by a very cold systematic management teams without owners/host personal touch and caring. Moreover, in terms of fair competition they will further limit the average person possibilities and will further rich the richer organizations such as hotels and big real estate companies.

    This is wrong on all fronts and I hope someone one the government will wake up and will shout:
    “The king is naked”

  • Pink Floyd

    Xenophobia, fear of change and sheer ignorance is what is destroying Japan , but no one really wants to look at the elephant in the room… this AirbnB issue highlights that perfectly, as is the case in many other situations in Japan.

    • GBR48

      Tourism is so important for Japan that they cannot lapse into the old ways on this issue and mess it up. This industry can act as a model for how to go forward with a process of reform that permits change. Do it right and it may offer some incentive to migrate such reforming methodologies to other areas. One can only hope.

  • RGW

    Finally!

    Air Bnb is nothing but another international corporation that cares NOTHING about its negative impact on local communities or even the safety of it’s users. There is no regulation, no way to protect neighbors from constant noise and steady stream of strangers into a supposedly secure building.

    I’ve used airbnb in the past but I won’t use it again, now that I’ve experienced first hand how it affects the neighbors and community. Airbnb’s unregulated “hotels” are unsafe for everyone involved except for the owners, of course.

    Funnily enough, in Japan the most enthusiastic supporters of airbnb seem to be foreign property investors like the one featured here- who could give a rat’s arse how their mercenary activities are affecting the locals.

    • GBR48

      I’m not defending large corporations, I’m defending the model, which works, and will become a fundamental component of future tourism, whether people like it or not. And no, I don’t own any property. I do know some brilliant hosts who have demonstrated genuine care and commitment, including helping me to A&E and then returning to collect me, care you would be hard pushed to get from hotel staff in the middle of the night.

      The model incorporates feedback. It isn’t foolproof, but it does allow both hosts and guests to be rated. That doesn’t happen with the hotel model, where guests cannot be rated. Ratings for hotels, in online reviews, are variable to say the least.

      Like other so-called ‘disruptive’ new businesses, this is adding to the industry of letting to tourists, offering new options and raising the bar on expectations, something hotels, especially ones whose management are resistant to change, will not like.

      And in an economy that has kissed goodbye to jobs for life and embraced ad hoc, part time and low security employment, it offers a means for individuals to obtain the income they need to survive from multiple sources. It is already a crucial component of any tourist economy.

      I’m sorry if you have had bad experiences. Human nature means that there will be some bad apples. All I can suggest is that you look for hosts with good reviews and be a good guest yourself. The combination in beneficial for everyone.

      Regulation is not a bad thing, but it needs to be done with the best interests of hosts, guests and neighbours at heart, and not derived from the wish list of the hoteliers who simply want to crush competition that they fear. Hoteliers who need to learn from the way good hosts operate, and who need to push online hotel booking systems to rate hotel guests the way AirBnB guests are rated.

      You seem very quick to judge AirBnB hosts in a negative way, when so many of them make such an effort to ensure that things go well. These new business models are more personal than the ones they are joining. AirBnB guests and property owners are far more likely to meet and interact with each other. I have never met a hotel owner, only their employees, many of whom seem to be quite low paid.

      • Alfonso

        It’s a good point that some owners of the shared properties work hard to have a good impression from their customers but you are missing more important points .

        It’s a fact that there are many low wage jobs at the hotel industry but at the end is a job and It will only affect the small business because generally the segment that uses the airbnb is not debating to stay at the okura or a near property.

        So if the model succeed the service will get the same level as the classic hotel you are complaining because there will be more impersonalization of the service like whole buildings just for sharing with a home wifi connection for all users, that will be exactly the same as the one you usually get at hotels.

        For global cities like tokyo if the model success means more than safety concerns for the locals , as you may know much of japanese college students who are from the countryside rent a room or flat in the city , with the spread of this model , it will translate in less rooms available for them because it will be better to rent it for a couple of days to 3 backpackers from arizona.

      • GBR48

        In general, AirBnB expands the amount of property available to rent in any area, and access to it. Combined with Japan’s declining demographics, it shouldn’t put undue pressure on local needs.

        Although it might be more lucrative to rent to Arizona backpackers for 3 days, students represent a long term let, which is generally a better bet than multiple short term lets, usually with gaps in between. Most AirBnB lets are offered at a unit price, whilst multiple students may be charged individually, making the student let more lucrative for the landlord.

        In any area where rentals are in short supply for students, universities usually provide additional accommodation. This is typical when universities are sited in expensive areas.

        Any new business is going to squeeze others as it finds its niche. That is no reason to block it.

    • http://nisekodesign.com/ miso

      You could simply exchange AirBNB for Love Hotel throughout your statement – they don’t appear to have any issues with short stays when it comes to regulation. You can’t be that short-sighted, surely?

    • http://nisekodesign.com/ miso

      You could simply exchange AirBNB for Love Hotel throughout your statement – they don’t appear to have any issues with short stays when it comes to regulation. You can’t be that short-sighted, surely?

    • zer0_0zor0

      Yes, there are reasons for things like zoning laws, which are notoriously lax in many parts of Japan.

  • Alfonso

    They just simply don’t want cheap tourism and risk the safety of their citizens.

    This is not Mexico or any Third world Country used as backyard for the sake of backpackers or Spring Breakers.

    Altering neighborhoods with new strangers arriving every 2 or 3 days it must be unsafe.

    The impact of this kind of tourism is insignificant , only the airline , the owner of the condo and maybe seven eleven ( or any convenience store ) will benefit.

    Please ask someone from Barcelona how the sharing economy of condos altered and destroyed the local lifestyle with foreigners arriving on survival mode , drinking , partying and the impact on economy is invisible

    Reducing the quality of tourism , disturbing the local lifestyle for the profit of just one mega corporation is a more of a economy destroyer rather than a booster.

  • Firas Kraïem

    If I ever spot a AirBnB guest in my building, I’ll tell them to leave at once or I’ll call police. They are trespassing and have no right to be here, both technically and in spirit.

    • Mark

      Well as long as they are not breaking the law, the police officer is not going to do anything about that other than wasting almost a day of your time and their time.
      It is exactly the same as if some Japanese tenant will contact the police just because he doesn’t like you as a a foreigner live in the building. In both situations there is no valid claim.
      Short term leasing may be bridge of contract and agreement in some buildings but it is not a police issue.

      • Firas Kraïem

        Trespassing is very much a police issue, and since the short term leasing has no legal basis, that’s what they would be doing. Yes, really. (And if the guests are inconvenienced enough to post a scathing review, that works for me too.)

      • Mark

        Sorry to say but you very wrong. The Airbnb travelers are not trespassing, they are guests of the host. Same as you may have a guest or two sleeping over at your apartment for few nights, non of your neogbours can claim that your guest are trespassing if you have authorized them to stay at your apartment. You can complain to the community of your building association that someone is on doing Airbnb in the Bldg and they can prosecute the host (if they decide that it is a major issue that worth dealing with) but a police man can not do anything about this issue. Deffinely not to the guest.

      • zer0_0zor0

        It might depend on the contract under which the place being rented out has been leased/purchased in the first place.

        You’re right that the ultimate target would be the host, but to prove that they are illegally operating an airbnb a report to the police that strangers are using the premises against the contract, creating security issues, might be in order.

  • http://adarutovid.com Mr. Chu

    The issue here is that, as usual, some greedy guys could not stop after 1 or 2 condos but had to do 10.
    Airbnb was supposed to be a low-key affair : you rent your house, occasionally.
    But the Man, epitomized by the woman in this article, took over, made it all corporate (“The 26-year-old former real estate analyst took a 21st century approach to the business”) made it too huge to handle and that ruined it for everyone.
    Now pack your stuff, business girl, and head back to your sh*t hole of a country, Japan does not need your kind.

    • Robert Hancock

      Hit the target dead center. AirBnB might once have a place for an occasional householder to let out a spare room once in a while, but as it has evolved into a de facto unregulated hotel industry with developers like the woman in this article trying to get rich quick, it starts bringing social repercussions. Try finding a cheap long-let apartment in London, New York, LA, Berlin, etc., where landlords have realized they can make more and circumvent legal tenants’ rights by moving wholesale to the AirBnB model.
      I’m glad Japan is moving to stop this so-called ‘shared-economy’ business model which is just another get-rich-quick scheme for the business founders who don’t give a damn about the social costs to the city zones they affect.

  • Mark

    Airbnb operators are obligated by taxes same as hotels are. If some particular operators choose not to report their income in order to avoid taxes so this is a crime and they are doing it on their own risk. But to claim that the community will benefit more from hotels because hotels are paying taxes and Airbnb operators do not it is a false claim. If stronger enforcement of taxes on Airbnb operators it’s the issues so governments should solve this particular issue but not restrict operation all together.

  • Jim_Hill

    Air BNB never made sense in most of Japan anyway. There are solid professional aprt-hotels where the whole building is set up for it so you are not disturbing private residences.

    Why would someone want to rent a home for just a 1 or 2 night stay anyway. If you are traveling on the cheap, there are an abundant supply of hostels where you can stay safely for a fraction of the cost of an AirBNB.

    I am wondering when the government will start cracking down on Love Hotels expanding into tourism using online booking sites. Most of them are really nice mom&pop operations that have skirted the Hotel laws by offering “short time” stays. If you don’t mind sleeping in a round bed, they can be a great value.

  • TokyoMommy

    Compared to other countries, Japanese hotel standards are rather pitiful. Expensive, tiny rooms, not family friendly, few options for comfortable bed sizes, lack of hotel amenties most people would expect on a holiday such as swimming pools, cable channels, spa and saunas, few hotels with kitchenettes, early check-in and non-smoking rooms. or motel types where a family can check in at the last minute if stranded. Airbnb fills that gap by providing at least a few other options for a more affordable price. Problems do need to be sorted out but to scrap it all doesn’t make much sense.

    • Mark

      Very good points.
      Even those hotels that have pools charges you surcharge for it. Went to Hilton hotel near Disney resort with my family. Fair price for the room itself (still very expensive in compared to same level apartment) but every thing you want to do has additional charges. Even the pool! In fact the pool cost us 6,000 yen a day!!

  • Mark

    Moreover I will like to add that AIRBNB didnt just help tourism .In fact, AIRBNB and similar websites supported the all Japanese economy!
    Real Estate is a good example, Real estate in central Tokyo was booming for the past 2-3 years. Both for Investment and rental purposes.
    While most Real Estate companies relate it to the upcoming Olympic games and linked issues, I believe that the Olympic games factor is way overrated. The Olympic games will only take place 4 years from now and the games themselves will only last for 1 month! I dont know of any wise investor which will invest on a property based on one month rental (as big return as it may bring). Investors see the potential growth in property rental return because of:
    1- High demand from AIRBNB operators who now want to lease and sublet an apartment. This high demand from airbnb operators elevates the competition and rise the rental prices. Better return for property investors.
    2- The investor may even decide to operate the listing itself and see even higher return if he is knowledgeable and understand the need for those sort of operations.

    In anyway, both: property value increase as well as rental prices.
    Those together with the increase in tourism is a huge boost to the all economy.
    Unfortunately, most locals do not really see all those benefits that such a site like airbnb provided them with. Instead, they choose to focus on the negative of ” some foreigners changes every week at the end of the corridor OR it is not so good for the hotel business…