Even Warren Buffett Is Pushing This Growth Trend

There is no shortage of interesting accommodations available if you’re looking for a vacation rental this summer.
Right now you can rent a night in a Tesla (NASDAQ: TSLA) sports car, a French castle or a classic yacht in Nantucket Harbor. (I actually jumped on that boat offer last summer, but had to cancel at the last minute when a massive storm hit the island.)
We have the explosion in the sharing economy to thank for so many interesting, and even affordable, options. This socioeconomic system came into being over a decade ago, and the last five years have seen it explode.
And it’s not just online marketplaces for accommodations, or everything-under-the-sun marketplaces like Craigslist and eBay (NASDAQ: EBAY) anymore.
Today’s sharing economy has expanded into car and ride sharing, education and even money lending. Personally, I’m not yet a big advocate of many of these markets. Except for the property rental market – I think this one has real staying power. And I’m not alone.
Even Warren Buffett has officially endorsed the shared economy when it comes to renting out a room or an entire home. For the second year in a row the Oracle of Omaha has suggested that investors flocking to Omaha, Neb. for Berkshire Hathaway’s (NYSE: BRK-B) annual meeting turn to Airbnb to find affordable accommodations.
He first endorsed the online home rental service in May 2014 in response to complaints from Berkshire Hathaway shareholders. Many claimed that Omaha hotels were jacking up rates and requiring three-night minimum stays to take full advantage of the influx of 38,000 shareholders into a city of just 500,000.
“Fortunately, something like Airbnb is sort of a flex supply arrangement that seems to make more sense,” Buffett said a year ago.
This year, in his annual letter to shareholders, Buffett suggested, “Those people on a tight budget should check the Airbnb website.”
If I didn’t know better, I’d think that Berkshire had taken a nice stake in this business. But it appears that Buffett is just trying to help out his shareholders, though his words certainly illustrate the broad appeal that companies like Airbnb have achieved in a few short years.
Airbnb is just one of many rapidly growing companies based on the concept of a shared economy. Other well-publicized examples include Lyft and Uber, both car sharing services.
These companies have become incredibly valuable as venture capitalists appear eager to throw money their way in anticipation of initial public offerings.
Based on the latest rounds of VC funding, Uber, which just launched in 2010, is reportedly worth $41 billion. Lyft is worth around $2.5 billion. And Airbnb is worth north of $13 billion.
It’s not all vacations and carefree road trips in the new sharing economy, though. Many of these companies face legitimate business challenges, including personal safety (particularly the car sharing services) and outright illegal activity.
In many areas of the country, permits are required to rent out property for less than 30 days. But public officials don’t exactly have time to play watchdog over every single property listed on home rental sites.
Airbnb also lies at the center of more than one controversy that could spread. In both San Francisco and New York City, critics blame the company for helping to jack up rental prices. So while proponents like Buffett might be right that Airbnb can decrease costs in one region, the opposite may be true in others.
Nevertheless, as one who has been both a lessee and a lessor of property through an online home rental site, I have to say I like this segment of the sharing economy. I like the income when I get it, and I like having options that offer more space than a hotel (and feel legitimately homey) when taking an extended family trip.
I think the sharing economy is here to stay. It won’t work for everything, and valuations in the private market are hard to fathom. I’ll watch with interest from the sideline if and when Airbnb, Lyft and Uber go public. But as Buffett says, “a flex arrangement seems to make more sense.”
Interestingly enough, Buffett’s childhood home in Omaha is available to rent on Airbnb. The property is listed as part of a contest to raise money for charity. You have to be a Berkshire Hathaway shareholder to participate, though.
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