Over the next two months, I’m going to be writing about a magical transformation that is taking place on this planet that you may not have noticed: the peer-to-peer revolution. Like all good revolutions, this transformative change is taking place from the bottom-up: it is driven by the people, not the powerful. In fact, in many cases, it is shifting control and influence from the powerful to the people. While I like to arrogantly or accurately believe that I am helping to lead this movement in one way or another, my purpose in writing is not so much to toot my own horn, but to point out to you that transformation is already happening. I intend to give you concrete examples to bring you hope for the future and hopefully inspiration in creating your own ventures.
There are several industries, very important ones, which I will be writing about in the weeks to come: housing, transportation, energy, finance, entertainment, media, mental health, and education. Yes, these massive industries are all being transformed as we speak in a way that not only reduces costs and raises output, but also empowers the average person.
Today, we begin with Part 1: Housing. While the transformation in the housing market has not yet had an impact on the poor and homeless, I am ultimately interested in how these changes will effect them. Keep their perspective in mind as you read on.
The unfortunate fact is: some people sleep on the streets, in the woods, on the beach, or in shelters. If you are not interested in these venues, you have a few options: own a home, rent a home, or stay in a hotel (which is basically a short-term rental). Mobile homes or house boats may appear to be an extra option, but those also fall under the category of home ownership. Each of these approaches has their own benefits and pricing models. Owning a home means you can make it your own, you get comfort, you own land, you don’t pay rent, you have security for you and your family, and maybe enough extra space that you have extra rooms and bedrooms that you don’t even use… but you also have taxes, mortgages, maintenance headaches, and may not have much extra room at all – you may have multiple people sharing rooms or even beds. Some people are fortunate enough to own multiple homes which are vacant most of the year. We also have rental properties (homes and apartments); some are rented, some are vacant. And then we have hotels – some are rented, some are vacant.
We have an excess of places to sleep and yet people are homeless. In the U.S., that number is around 3.5 million. The United Nations puts the number at about 100 million worldwide. I think most people would agree that homelessness is bad. Yet we have all these extra rooms? Easy solution: let them stay in some of the empty rooms. Yeah… but… but… you see, Jim, that’s not a real solution…. don’t you understand… that’s just not reality, you see…. You’re such an idealist, get in touch with the real world… I’ve heard these excuses. We know letting people stay in empty rooms is a solution, the most obvious one, but it feels impractical, because… well… people suck. How many would be willing to bring someone into their home? Why not? Are we afraid they will hurt us? Are we afraid they will steal from us? Are we afraid of their odor? Are we afraid of what the neighbors will think? One possibility, and one that I admittedly have thought of when I’ve let people stay with me, is – how long will they stay for and if it becomes a problem how will I get them to leave?
I don’t have answers to these questions. Most of them have answers that are more rooted in societal views and trust in strangers than in physical problems. So the homeless go on ignored. Fortunately, and with some hope in mind, I see a hopeful future that is already manifesting. All thanks to the peer-to-peer revolution.
The current leader of this revolution for the housing market is AirBnB, which stands for Air Bed and Breakfast. For those of you not familiar – it is a website which is allowing people to rent rooms out to others with ease. Just post some photos and a description of your room, link your account to your social media profiles for people to verify you’re not crazy, and set a price. At the click of a button people can rent your room and Airbnb takes a service charge. I should clarify, you also have the ability to rent not just a room, but your entire home. Sound crazy? Just to give some scale – over 40 million guests have used Airbnb worldwide. There are 1.5 million Airbnb listings on the site in 190 countries and over 34,000 cities. For comparison, Hilton, InterContinental, and Marriott, the largest hotel chains in the world, have less than 1 million rooms each.
Most people’s biggest concern with a venture like this is safety. After all, craigslist has had listings like these for years, but not nearly as many people have used them due to the trust factor. Craigslist has listings with mostly anonymous emails, little verification of the owners, and at best a few photographs. To alleviate safety concerns, the Airbnb hosts’ profiles are linked to their social media profiles, like facebook and Linkedin. You can also see reviews from people who have stayed at their home before. By the way, as a visitor to an Airbnb, you must also link your social media profiles and receive reviews from people you’ve stayed with. Hosts also have the right to turn you down if they don’t find you a good fit for their home.
I don’t believe it is legal everywhere, but it is hard for the police to intervene and people are using it nonetheless. Having laws which cannot be enforced generally makes them useless. Just for fun, I’ll share an experience I had which involved the police showing up to an Airbnb I was staying at. Sorry to disappoint, but for once, I was not the reason they were called!
My girlfriend and I were staying in a room in someone’s Boston apartment through an Airbnb arrangement. We had planned on spending a week during our transition into the city, maybe longer. We were surprised when we showed up to find out the couple we were staying with also had a baby. Admittedly, I gambled it up on an Airbnb listing that had no previous reviews… I’m cheap and adventurous! On our first night there, our hosts got in an argument and the man stormed out of the apartment. When the argument started, I was just jumping into the shower and actually thought it was kind of cute listening to the bicker, and heard no more noise when I was out of the shower. My girlfriend was in the bedroom with a window air conditioner on and heard very little of the argument. I mention that our hearing was impaired to emphasize how surprised we were when we were awoken by four police offers banging on our bedroom door an hour later.
Apparently, a neighbor heard their argument and called the police. They arrived to find a woman with her baby in one bedroom (the man had left and was unreachable) and my girlfriend and I sleeping in another room. The police arrived and questioned who I was, why I was there, how come I had no lease, etc. The police officers had never heard of Airbnb before. I fully expected to be kicked out. The police had a woman and baby to protect, and while we had paid to stay in the room, our legal basis was loose. They told me to go back in my room and wait… wait for what?? For them to consider their options and consider what precedent they were about to set with their decision. Could they make us leave in the middle of the night? Could they force her to share the home with her baby and two strangers in the next room over? Surprisingly, and fortunate for the officers (and us!!), the wife decided to take her baby to a hotel for the night. The police weren’t forced to make a decision, but it certainly opened the door to a future of legal issues they may have to deal with down the road. In this small case study – it was deemed legal for us to rent the room – it was legally “ours”
But what does the legal paper trail look like? We rented a room from a couple. It turns out they were actually subletting the apartment from another couple – who, of course, was renting from the property owner. And the property owner had a management company handling the actual rental process. Sounds complicated? It is – the original renters had a lease, and our renters had a sublease – but all my girlfriend and I did was punch in our credit card information and click a few buttons on the Airbnb website. Downloading a song on iTunes consisted of more time and paperwork.
I’ve used Airbnb a half dozen times and this is my only bad experience so far. I’m not deterred. I will continue using it in the future. In fact I will be using Airbnb for a week-long stay in Colorado next month. I’m not the only one using it for stays beyond the typical weekend bed and breakfast getaway. A good friend of mine who owns a corporate housing firm says they are currently experiencing heavy competition from Airbnb – people are using it for long-term stays on business trips. This also includes groups such as traveling nurses and therapists who are using Airbnb for months at a time. And myself, being a bit of a vagabond, cannot fathom signing a yearlong lease in a place like Boston, so I look to Airbnb simply for the freedom it offers (and the cheap adventures).
There are two major markets that Airbnb is affecting right now. The first – is the low-rent market. People are using Airbnb because it is cheaper and more convenient than traditional housing. There is also an emerging high-end market where people are renting luxury apartments and homes. The high end market is attracting an older crowd, who have tended to be more fearful of sketchy-seeming internet-driven ventures like Airbnb, bringing their service to the mainstream.
And prices keep dropping. Not only that, but people are beginning to cut Airbnb out of the transaction, driving prices down while creating an even more powerful peer-to-peer network. How do they do this? They use Airbnb to connect and then make cash deals outside of the Airbnb system to reduce prices further. Airbnb tracks the messages between hosts and guests to try and detect phone numbers being exchanged, but the system is easy to rig. “Hi, Mr. or Mrs. Host. My name is five and I’m 5’5” tall. Can I stay with you at your five bedroom apartment with five of my friends? We are each 5 years and 5 days old. Talk to you soon 😉 “ If you are as slow as the Airbnb robots, that’s a hacky way of telling the host your number is 555-5555 so they can call you and work out a cash deal. This essentially turns into the craigslist model (craigslist doesn’t charge), except with the added benefit of having people’s identities linked to their social media profiles. Craigslist has been offering this model for over a decade, but just now the peer-to-peer power is taking over as people are able to trust one another.
Key take home: peer-to-peer transactions are all about trust.
In fact – Airbnb’s actual means of monetizing their site is based on the idea that you don’t trust people. They put money in their pocket when the actual monetary transaction takes place between you and a host. That part that instills the most fear in you. All other aspects of their site are free: look at apartments, see the reviews and profiles of the hosts, and see when they are available… they only get paid when you actually book a room with your host using their system.
When will programmers develop applications in the open-source community which offer these same services without the need for the Airbnb platform? Or an application which relies on an advertising model rather than a pay-per-service model.
So far it looks like Airbnb is doing well. I’m not sure of their revenues, but investors are climbing all over each other to put money into the business. They formed in 2008 and raised about $330 million in investment in the first four years. In 2014 they raised another $500 million with a $10 billion valuation. And this year they raised an additional $1.5 billion dollars in investment capital, valuing the company at $25 billion.
What does this mean to the poor? My vision is that it will lead to more access to affordable housing. Let’s play the slippery slope and juggle with the future. As more people become comfortable with Airbnb, the price of rooms should go up (increased demand). As more people start offering their rooms for rent, the price of rooms should go down (increased supply). This is a juggling act which can have many different long term outcomes. Outcomes which may have an unprecedented effect on the housing market. One that has never been experienced before. And it’s all based on peer-to-peer systems, which are founded on trust.
What happens to rent prices when landlords find out that people are subletting rooms out on the weekends? Or for extended periods of time? What happens to rental prices when suddenly there are countless rooms for rent? What happens to the value of your home when you are now comfortable renting out your extra rooms? And what happens to the value of your home when the cost to have a place to sleep decreases? Or when others have less need and desire to own a property? Will your home be worth more or less? Will you have the same need and desire to own a home? For how much money will you be willing to trust a stranger into your home? And, over time, how will that price change? Will you rent your home occasionally for a high dollar amount or will you rent it out more frequently for less money? Will you charge more money because you want to make more money or as a means to filter out the poor?
These are realistic questions that we will have to ask ourselves in the near future. And the answers to these questions may have unexpected consequences.
What will this mean for the poor? More housing becomes available at lower prices. And people become more comfortable inviting strangers in their homes. We may even find a day where the government offers tax-breaks for people who are willing to let homeless people stay in their homes.
We have reduced prices and increased trust in our transactions. And with that, we have more opportunities for those at the bottom. All thanks to the peer-to-peer revolutions, which, as you will find out, is as simple as trusting strangers.