Dynamically Pricing Short-Term Rentals

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    An analysis of short-term rental (STR) room rates in Austin for the 2016 year clearly shows the interplay of supply and demand. As major events such as SXSW spike demand for rental lodging, prices rise accordingly. These findings further imply that supply was not able to keep up with demand. The SXSW event is so big that Austin only has enough hotel rooms to accommodate half the demand.

    Although STR lodging supply can vary in a way that traditional hotel and condominium supply cannot, the SXSW example above demonstrates that demand is capable of even greater variation. For revenue managers, property management companies and STR hosts, such variations in supply and demand create new opportunities to dynamically price.

    Interplay of hotel and STR prices

    A recent study by STR found that Airbnb’s average occupancy was 22 points less than comparable hotel room sample and Airbnb room rates were 11 per less than the hotel-room rates. Thus, the lower average price point of short term rentals lodging is probably not causing hotels to lose share. The supply and demand curves for STR lodging vary from hotel lodging curves based on the difference in products and services offered as well as variances in preference by different consumer segments. However, the debate on the impact of STR lodging on hotels is far from over.

    In ski resort communities, increasing demand is driving up rental rates of both traditional and residential short-term rental lodging, in spite of the increased STR lodging supply. Ski resort communities capture some of the highest STR rates overall.

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    Future pricing systems

    Automated pricing systems are catching up to STR lodging. The disparate nature of listings complicates necessary data gathering. In our contemporary Big Data age, data is readily gathered and processed into meaningful information. For example, TurnKey claims their dynamic pricing methods achieve a 15 percent increase over static pricing. Supply and demand are in constant flux. Pricing should be just as dynamic. Indeed, the sharing economy is an incredibly efficient market.

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