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The cost of housing in many of the most popular tourist destinations is now out of the reach of many residents. In Venice, Italy, the growth in tourism has been so strong that many housing units that once provided homes for residents are now rented to tourists. The residential population of Venice was just under 56,000 in 2015 and has been on the decline since 1952. The daily tourist population in Venice was 67,000 in 2015, and the number of daily tourists recently surpassed the residential population in 2011. The goal of our project was to help establish a balance between visitors and residents so that both can stay sustainably and affordably in Venice.
To accomplish this goal, we assessed the availability and cost of housing and short-term tourist rentals in Venice. We used this information to develop a sustainable model for an average Venetian couple to buy their own home by leveraging income from short-term tourist rentals. Our study showed that this model is feasible in Venice’s strong market for tourist rentals. Income from short-term tourist rentals could cover the gap between what a typical Venetian couple could afford and the cost of a mortgage for a typical €300,000 home.
This model will provide the foundation for a new startup in Venice known as Casa Peota. The income from tourist rentals is strong enough for residents to repay a loan for the 20% down payment to Casa Peota and to repay a loan for the typical mortgage of 80% of the purchase price. We also developed the online prototype for Fairbnb, a new short-term rental platform, that provides the functionality of Airbnb as well as social contributions to the local community.
Housing Market and Mortgage Analysis in Venice
Our assessment of the housing market in Venice included the availability and cost of housing as well as its affordability for Venetians. In Venice, we examined the market of units for sale with multiple bedrooms in order to identify units suitable for short-term housing rentals. The median price of a home in Venice is around €300,000. The average Venetian couple with two incomes makes €44,000 per year. Financial planners recommend that such a couple only pay 30% of their monthly income towards housing, which means the average couple could afford to buy a €180,000 home. The difference between the average price of a home, and what the average Venetian couple could afford is a gap. The goal of our project is to close this gap using the income from tourists who stay in rooms in these units using short term rentals. The gap is illustrated in Figure I, below.
Figure I: Gap Short Term Rentals Plan to Fill
Given the median prices of the Venetian housing market, our analysis concluded that homes with two or three bedrooms and one or two bathrooms represent the best values available. We identified these type of units as optimal since they represent around 2,410 listings around the median price (€300,000), and these homes offer comfort, space, and some offer room to grow for a Venetian couple. This inventory does not take into account potential restoration costs.
Figure II: Homes for a Good Value for a Venetian Couple
Casa Peota aims to fill the gap between what is available and what Venetians can afford. Purchasing a home requires a down-payment of 20% of the purchase price, with 80% financed by a mortgage. As illustrated on the left-side column in the Figure below, a monthly payment of €1,800 is required for a mortgage for 80% of the purchase of a €300,000 home.
Figure III: Mortgage Structure with/without Down-Payment Loan
In this figure, the right-side column shows that the monthly payments for the entire mortgage would total €2,300 per month (to cover both the traditional mortgage and the downpayment).
Thus, the typical Venetian couple earning a combined €44,000 per year could afford a monthly payment of €1,100 per month, resulting in the gap that Casa Peota aims to fill.
Figure IV: Monthly Mortgage Payment Gap
Since the goal is for residents to pay only 30% of their income, the gap shown in red is €1,200 per month. With the help of Casa Peota, this gap can be filled using tourist vacation rentals.
Short-Term Rentals Analysis: Inside Airbnb
In order to afford a mortgage for a €300,000 property, residents must earn an additional income of €1,200 per month through vacation rentals. We analyzed data from Inside Airbnb, created by Murray Cox, about listings on Airbnb Venice from October 2016 to September 2017. The average price per night is €100 for a Private Room across the city, as shown in the figure below, with some variation by neighborhood.
Figure VI: Average Price per Night of Private Rooms in Venice
The separate sestieri are all around €100 per night, indicating that the specific location within Venice is less critical in providing an income to Venetians from short-term tourist rentals.
At an average price of €100 per night for a private room, residents must rent out the room 12 nights per month (40% of the year) in order to earn an income of €1,200 per month. This is one of the central findings of our analysis, which found that this target is feasible, as the average annual occupancy in Venice is 51%. Significant seasonal variation, as shown in the figure below, influences when these nights might be rented to tourists.
Figure VII: Average Occupancy Rate by Month
Put another way, the target of renting a room 12 nights per month in order to pay the mortgage can be met in every month except for December through February, when only 9 nights per month are rented out, on average.
Figure VIII: Average Occupancy Rate by Number of Nights
Despite the lull in rentals from December through February, the overall annual goal for the number of nights rented can be met by renting a room at the average occupancy rate for the other eight months (March through October). The income from tourist rentals required to pay the mortgage can be met by renting for parts of the year only. If the room is rented out at the average occupancy rate from March through October, the resident can live tourist-free November through February.
The length of the mortgage affects this analysis. The examples above assume a mortgage of 15 years. If the duration of the mortgage is lengthened, then the occupancy required to meet the target goal changes. When the mortgage plan is faster, this means that there must be more tourist in their home to fill the gap due to a higher monthly payment.
Figure IX: Required Occupancy Based on Mortgage Length
The number of nights that a tourist must stay in the home decreases as the length of the mortgage gets longer. If the residents wanted to own the property in 10 years they would have to rent a private room for almost half of the year. With a 30 year mortgage, the residents would be required to rent out a private room for under two months.
Fairbnb: Equitable Short-term Rentals
Any online rental platform could potentially provide income from short-term rentals to pay the mortgage. Airbnb charges a 15% commission on the cost of rentals. Our project also developed the prototype for a different online platform that also had a social purpose, Fairbnb. Fairbnb is similar to Airbnb, but reinvests at least half of the commissions from online rentals in local projects to support and revitalize the local community. Additionally, Fairbnb would have restrictions on what and who could list properties, including: the host must be the resident of the home being listed, the listing must be a private room, and the host can only list one home at a time. During the course of this project, we created a non-functional mockup of what the Fairbnb website could look like. The main features we want to showcase are how a host would add a listing, and how a guest would book a listing. The mockup is only scripted to demonstrate the main features a fully implemented Fairbnb website should have.
Figure X: Airbnb vs. Fairbnb
Summary
Based on the analysis of the housing market and short-term rental market through Inside Airbnb, we create an affordable mortgage plan in which tourists provide the resources for Venetians to afford to buy a home in Venice. The affordable mortgage plans included two options. In one, the purchaser of the property rents a private room and maintains occupancy at 12 nights per month throughout the whole year in order pay off the mortgage. In the second, residents could rent the room at the average occupancy for the months that are most in demand and still meet their target. Casa Peota could help provide resources for a mortgage plan that includes a down payment. Fairbnb could help Venetians to rent to tourists and support local causes. Both Casa Peota and Fairbnb are feasible startups and we recommend that plans proceed so that both tourists and Venetians can afford to say in Venice.
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