Airbnb
Faces Major Threat in Japan, Its Fastest-Growing Market
Japan government guidelines
could make most rentals illegal
Nation
needs more rooms to cope with growing tourist demand
Yuji Nakamura
Maiko Takahashi
February 19, 2016
Aileen Jeffery
arrived in Tokyo two years ago and spotted what she thought was the
best opportunity of her career: Hotel rooms in Japan’s 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
Japan’s strict and peculiar seven-decade 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 in the world.
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.
Stumbling Blocks
But Japan shows
potentially serious stumbling blocks as the company expands further
abroad. Ota, one of 23 districts 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
district 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 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.
Country Manager
Yasuyuki Tanabe, who
runs Airbnb in Japan, is pushing back against new restrictions on his
business. The company won’t 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 didn’t 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’s 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.”
Work-Arounds
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
doesn’t 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.”
(An earlier version
of this story corrected the spelling of Jeffery in the second
paragraph.)
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