Caribbean Short-Term Rental & Property Regulation Update: July–December 2008

Six Things to Know

• Airbnb founded August 2008 as AirBed & Breakfast; begins as a niche San Francisco service
• Lehman Brothers bankruptcy September 15, 2008 triggers global financial crisis and credit freeze
• Jamaica tourism year 2008 approaches approximately 1.77 million stopover arrivals before crisis
• VRBO and HomeAway maintain undisputed Caribbean vacation rental platform leadership in 2008
• Winter 2008–09 bookings impacted as US consumers react to financial crisis uncertainty
• Caribbean vacation rental regulation: no change, no proposals, no government attention

Airbnb’s Founding: A Quiet Beginning in San Francisco

In August 2008, as the US Democratic National Convention was being held in Denver, Colorado, two San Francisco designers named Brian Chesky and Joe Gebbia found that their city’s hotels were fully booked and launched a simple website — airbedandbreakfast.com — offering three air mattresses and home-cooked breakfasts to delegates needing accommodation. The response was encouraging enough that they recruited a third co-founder, Nathan Blecharczyk, a software engineer who helped build the technical infrastructure for what they envisioned as a broader platform for connecting travellers with homeowners willing to rent accommodation space.

The timing of Airbnb’s founding was, in retrospect, fortuitous in an unexpected way. The platform launched into a recession environment in which cost-conscious consumers were actively seeking accommodation alternatives to expensive hotels, and in which the broader sharing economy concept — the utilisation of underused private assets to generate income — had a natural appeal to homeowners facing financial pressure. The founders applied to Y Combinator in late 2008, were accepted into the accelerator’s Winter 2009 cohort, and relocated to Mountain View to refine their product with the guidance of Paul Graham and the Y Combinator network. The company that would eventually reshape the global accommodation industry was, in the second half of 2008, a small experiment with a few thousand dollars in revenue and a handful of listings.

In the Caribbean, there was no awareness of Airbnb’s founding. Jamaica’s villa rental agencies, resort operators, and tourism officials were focused entirely on the established distribution channels — VRBO, HomeAway, travel agents, tour operators, and direct marketing — and on the more immediately pressing concern of the financial crisis that was unfolding in US and global markets in the final quarter of 2008. The idea that a San Francisco spare-room rental platform would become the dominant accommodation marketplace in Jamaica’s north coast resort corridor within fifteen years was not a thought that occurred to anyone in the Caribbean tourism industry in 2008.

The Lehman Shock and Caribbean Tourism Forecasts

The bankruptcy of Lehman Brothers on 15 September 2008 — the largest corporate bankruptcy in American history — sent immediate shockwaves through global financial markets and, within weeks, through the consumer confidence and spending expectations that underpinned the Caribbean’s leisure travel market. The crisis that had been building for more than a year in the US subprime mortgage market had now reached a systemic level that threatened the stability of major financial institutions and created genuine uncertainty about the near-term economic outlook in both the United States and Europe.

For Jamaica’s tourism industry, the Lehman collapse in the middle of the peak advance booking window for the 2008–2009 winter season created a significant commercial challenge. The period from September through November was typically when travel agents and individual consumers made their bookings for the December to March holiday season — Jamaica’s most important tourism period. The financial crisis created hesitancy and, in some cases, active cancellation of advance bookings, as consumers who had made plans under pre-crisis financial assumptions reconsidered their commitments in the light of suddenly changed economic circumstances.

Jamaica had been on track for approximately 1.77 million stopover arrivals in 2008 — a solid performance in an increasingly competitive Caribbean destination market. The full-year figures would reflect the resilience of bookings made in the pre-crisis period, and the impact of the crisis on bookings made or cancelled in the final quarter would not fully manifest in arrival data until the 2009 figures became available. The immediate commercial concern for Jamaica’s accommodation operators as they entered the winter booking season was the level of advance booking demand and the pricing adjustments that might be needed to maintain occupancy in a suddenly more uncertain market environment.

VRBO and HomeAway at the Peak of Pre-Crisis Market

In the second half of 2008, VRBO and HomeAway were operating in what would prove, in retrospect, to be the final year of pre-crisis growth before the recession’s dampening effects took full hold. HomeAway had, by 2008, assembled a portfolio of approximately seven or eight vacation rental platforms covering North America and Europe, with VRBO as its flagship North American listing site and a collection of European brands serving their respective national markets. The company’s listing base numbered in the hundreds of thousands — substantially larger than any competitor — and its brand recognition in the vacation rental consumer market was strong and growing.

For Caribbean vacation rental operators, the HomeAway and VRBO platforms were the primary online distribution channels, supplemented by individual agency websites, relationships with specialist Caribbean travel agents, and direct marketing to past guests. The established Jamaica villa rental agencies had, by 2008, built sophisticated online presences that combined HomeAway and VRBO listings with professional websites, high-quality photography, and direct marketing databases. The agencies that had invested most consistently in these distribution capabilities were reaping the commercial benefits in the form of higher enquiry volumes and stronger booking conversion rates than operators who had been slower to embrace online distribution.

The Caribbean vacation rental market served by VRBO and HomeAway in 2008 was a professionally managed sector characterised by staffed villa rentals at premium weekly rates, specialist agency management of properties for absent owner-investors, and a distribution model built around dedicated listing platforms rather than the commission-based instant-booking model that Airbnb would later introduce. The operational norms of this market — weekly rather than nightly rentals, direct owner-guest relationships, offline payment processing, no platform commission — would persist for several more years before Airbnb’s growing influence began to change industry expectations and practices.

Regulatory Landscape: The Pre-Platform Status Quo Intact

The regulatory environment for Caribbean vacation rental accommodation remained entirely stable through the second half of 2008. No Caribbean government had enacted, proposed, or publicly considered any regulatory framework for the vacation rental sector. Jamaica’s private villa rentals operated without licensing requirements, without mandatory safety inspections, without any obligation to collect or remit GCT on rental income, and without any registration or reporting obligation to any government authority. The Jamaica Tourist Board provided voluntary promotional support for the villa sector through its marketing programmes but exercised no regulatory authority over the sector.

The broader regulatory context in 2008 was one in which the platform economy that would eventually create the political pressure for vacation rental regulation did not yet exist in any meaningful form in the Caribbean. Airbnb had just been founded with a handful of listings. The sharing economy debate that would eventually animate city councils in New York, San Francisco, Barcelona, and Amsterdam — and eventually reach the Caribbean — was more than five years away from producing any concrete regulatory response in those jurisdictions, let alone in the Caribbean. Jamaica’s vacation rental sector would continue to operate in the regulatory vacuum that had characterised it since the first holiday villa was let to an international visitor, with no indication that this situation was about to change.