Mid-term = flexibility, which can be worth a lot in the world of housing rentals.
Mid-term housing is the next iteration in the market around rentals. We saw how Airbnb created a new category with short-term rentals last decade, taking on hotels and revolutionizing travel in the process.
Now the question is, what will mid-term housing look like as we fast forward into the future?
Flex Housing Business Model
- There is a generational shift in housing towards more flexible solutions
- The business model for mid-term platforms is NOT based around roommates, it is more like an Airbnb platform model
- A large amount of housing supply could be unlocked in the mid-term housing market due to the flexibility it offers versus long-term stays and the fact it is not a short-term stay
- Looking at Future Trends, we can see the intersection between Mid-term Housing and a lot of other concepts in ‘Flexible Living‘
Not everyone wants to sign a long-term lease and stay put, nor does everybody want to live as a digital nomad year round.
Mid-term Rentals Business Model
Mid-Term Rentals Value Proposition
- Value Proposition is flexibility: typical contract length is 1 – 6 months
- Generate Revenue by marking-up the lease price by 8 – 25% depending on the specific model of the company;
- Additional Revenue Streams in value-added services such as amenities, service bundling, tie-in to specific programs (ie. Study Abroad, Work Placement, etc.)
- Customer Segments typically include Digital Nomads, mobile Professionals, Students and more
- Cost Structure is driven by the cost of the lease/mortgage and then the operational costs to manage the unit(s). Many such mid-term housing providers rely on software to manage tenancies across multiple jurisdictions
- Partnerships can including housing suppliers, REITs (Real-Estate Investment Trusts) and/or platforms who can help
Mid-Term Rentals Business Model Canvas (Mockup)
Example Mid-term Housing Providers:
- SpotAHome – “find and book your ideal place for months”
- Flatio – “a few months living”
Reference Business Model: Airbnb
Airbnb pioneered the platform model of short-term rentals. Their business model includes a ‘Service Fee’ of somewhere between 10-15% on top of the nightly rate, the vast majority of which is paid by the Guest (Host usually pays 3%).
Airbnb now offers Hosts the ability to create “Long-Term Stays” of 28 days or more, which have different terms of cancellation, etc. compared to short-term stays. As such, Airbnb is itself competing in the mid-term housing space, but is still not branded as such.
Monthly Stays – Business Model Innovation
Airbnb’s explosive growth in the 2010s helps inspire other players in the mid-term to become ‘the Airbnb of mid-term housing.’ It’s important to remember that Airbnb created a viable business on top of a short-term rentals platform at a time when Couchsurfing was the dominant model for finding short-term rentals in new cities.
Mid-term housing platforms are not roommate platforms. The business model is not based on clicks/ads, it is based on quality of the accommodation and the ability to drive consistent/high-quality occupants.
The upside for landlords is that they can mark-up the cost of their accommodation somewhere between a short-term Airbnb price and a long-term stay. Furthermore, there is a lot of supply on the market that is not used for short-term or long-term accommodation. Growth in the mid-term housing market can help solve some housing supply issues.
Future Trend: Flexible Living
Former WeWork Founder Adam Neumann’s new venture – Flow – is focused on the ‘future of living’ through a property management/software lens. In a blog post describing the problem Neumann is solving, the lead investor had the following to say:
Many people will live in places far away from where they work and many more will shift to a hybrid environment. As a result, they will experience much less, if any, of the in-office social bonding and friendships that local workers enjoy. For many of these people, increased screentime and reduced in-person interaction will cause challenges that are not just limited to work, such as alienation and loneliness. This is not a good path for anyone and it needs to be addressed directly, right now.
A16Z
The inexorable link between the future of living and ‘flexible living‘ has a lot to do with the state of the world we live in and the drive for social experiences in an increasingly technocratic society.
Lease-Free Models Are Part of The Future
Restlessness – whether in a job, relationship, or environment – leads to the desire to up-root and explore somewhere else. At the same time, home is home. Not everyone wants to sign a long-term lease and stay put, nor does everybody want to live as a digital nomad year round.
But if ‘flexibility’ is seen as the ultimate luxury in terms of living, then the market for rentals in the ‘flexible living’ space will be priced as luxury. It is hard to see how this can scale.
Mid-term housing needs to scale enough so that its pricing is not luxury. If ‘flexible living’ becomes a luxury good, then those who purchase it will expect something resembling more of a membership; this is exactly what WeWork was.
But housing is much different than work space, and so we don’t expect the translation of flexibility to scale in the same way between living and working. The economics of renting are very price sensitive and most people will make their rental decisions based on dollar value.