The Prof G Pod with Scott Galloway - Airbnb’s Role in America’s Housing Crisis, How To Be a Successful Entrepreneur, and Spending Money in Your Twenties

Episode Date: December 18, 2024

Scott discusses the impact of home-sharing companies, including Airbnb and Vrbo, on the housing affordability crisis. He then gives advice to entrepreneurs and wraps up with his thoughts on how to balance being frugal while also enjoying life in your 20s.  Music: https://www.davidcuttermusic.com / @dcuttermusic Subscribe to No Mercy / No Malice Buy "The Algebra of Wealth," out now. Follow the podcast across socials @profgpod: Instagram Threads X Reddit Learn more about your ad choices. Visit podcastchoices.com/adchoices

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profgmedia.com. Again, that's officehours at profgmedia.com. Question number one. Hi, Prof. A few weeks back, you discussed the housing crisis facing this country. You discussed a number of factors, but I did not hear you mention the impact of the sharing economy, such as Airbnb and VRBO. I live in Nashville, Tennessee, which has seen a confluence of two events. A post-pandemic or post-COVID population rise from residents of high-tax states

such as New York and California moving to a very low-tax state here in Tennessee. And additionally, we've also risen as a very popular vacation destination. Both of these have contributed to our building boom, which we're seeing here. We have a number of apartments and a number of housing units being built.

But many of those are built and owned for the sole purpose of being short-term rentals. As a result, we have seen our housing prices soar. What impact are you seeing the home-sharing economy have on the rest of the country? Is it similar to what we're seeing here in Tennessee or are we just an anomaly? Thanks so much for your show, always appreciate it. Really thoughtful question. So disclosure, I'm a shareholder in Airbnb.

There's just no getting around it. This is an issue. Cities across the US, including New York and Santa Monica are cracking down on short-term rental platforms, specifically Airbnb and VRBO. So let's look at the numbers. US short-term rental platforms, specifically Airbnb and VRBO. So let's look at the numbers. U.S. short-term rental market in 2023 was $64 billion in revenue, up from $39 billion in 2019.

Vacation rental listings in the U.S. over $2.4 million and more than 785,000 hosts, and the estimated U.S. housing shortage is at least 2 million homes. Economists are divided on whether implementing bans on short-term rentals helps solve the housing affordability crisis. A 2019 Harvard Business Review study found that a 1% increase in Airbnb listings led to just a small.01% rise in rental prices. Airbnb's response? Short-term rentals bring money to cities through rental fees and visitor spending. They also say that most of their listings are outside typical tourist areas

supporting neighborhoods that usually don't benefit from tourism. That's a fair point. I would say there's contradictory forces here. The first is there's just no getting around it. If people start taking stock that would ordinarily be used for long-term rentals and converting it to short-term rentals, then local residents see their rent or the rent on their rent go up. That makes sense.

That I see as a transfer of wealth from residents to tourists who are looking to not, who don't wanna stay at some Joey Bagadona's hotel in Midtown for 600 bucks a night so they can rent a cute studio or one bedroom for 300 bucks in Chelsea or Soho or Flatiron. So they benefit, it's an economic arbitrage or economic transfer from residents to tourists, if you will, or from long-term renters to short-term renters.

Now, to Airbnb's point, this should create economic activity. If you reduce the friction of coming to a city and getting more people spending money and more people coming to different metros, it should create economic growth. The key is, and the hotels had a good point, that Airbnb should pay paying a certain amount of tax

or the same tax, and then is that money being reinvested in new housing stock? The biggest problem we have in the US around housing is that we just don't have enough supply. It's obviously not a demand problem. It's that it has become so difficult. I think the primary culprit around increasing rents and unaffordability around housing is essentially we have taken housing permits out of the hands of civic officials and put it into the hands of homeowners. What do I mean by that? If you wanna build, you have to get through

the local architectural review board, the city planning commission. And unfortunately, these commissions are filled with current homeowners who always find reasons not to increase the housing stock. Why? Because the incentives are to limit the housing stock such that the value of the assets they already own,

their homes increases in value. So they will listen to someone, I bought a piece of land in Florida and we were planning on developing it. And a woman showed up to the review meeting and Florida is actually quite developer friendly and said, I want a study done or I don't want them to develop over there

because I walk my dog on that piece of property. And I'm like, okay, so that's trespassing, no? I mean, they just delayed it another month because a woman liked to walk her dog on my land. We need economic incentives and tax breaks, we need to basically weaponize the private sector and provide some sort of economic incentive to get them building again. I think this is really the problem. I don't think it's short term rentals. I think they add to it. But I think taxing them and putting in place some restrictions might make sense.

I'm not even sure you want to put in place restrictions. I think you just, what you want to do is let their freak flag and their capitalist flag grow. Let them do a bunch of innovation around current assets. Also, there's a certain private property element here. And that is if I own my place, I should be able to do pretty much whatever the fuck I want with it. The real issue here is a supply problem. We

need the government to weigh in with tax subsidies and economic incentives such that builders rev up those engines and also we probably need some sort of regulation that makes it more difficult for civic officials that are crammed with current homeowners to weaponize the scarcity culture that we have engaged in where if I already own stocks, I'm going to create monopolies such that those stocks go up and up and up. If I already own a home, I'm going to make it harder for someone else to own a home. If I already have a degree from UCLA because I got in with a 76% admissions rate, I like that it's a nine because that makes

the value of my degree go up. We have moved from a egalitarian society, investing in opportunity to a scarcity, rejectionist, bullshit culture that's about the hunger games where once I get mine, I wanna make it harder for you to get yours. And housing is ground zero for that. Thanks so much for the question. Question number two.

Hi Scott, this is Cameron from Orlando, Florida. I've been doing relatively well in my career thus far and have been able to save and invest a substantial amount of money. I'm considering starting my own business within the next few years and was hoping you could help identify and give advice for avoiding some early pitfalls that young entrepreneurs tend to fall into. Thank you and love the show. Thanks so much Cameron. Well I have a lot of experience here because I've started a lot of companies that have failed. I've started some that have been successful.

And the wonderful thing about America is you only need a couple of successes. And if it does really well, you're set for the rest of your life. Okay, so greatness is in the agency of others. I've typically, until the last 10 years of my life, I had the credibility and I thought the skill to start business is on my own.

I always had a partner. I started my first business. My first business was a video rental business when I was 24. I partnered with my friend, Lee Lotus. My next business was Profit Brand Strategy. I partnered with my business school classmate, Ian Chaplin. I typically started businesses with other people. So one, I think it's more fun to build something

with someone else. And when you're young, you want to round out your skills with someone else who has the skills you don't have. And that's the key, finding a partner with different skills. And also being generous with each other. Nothing blows, nothing snatches defeat from the jaws of victory more than when you aren't generous and don't get along with your partner.

It can just fuck up a company that has everything going for it. Whenever I see a good company flying apart at the seams, I know that it's the partner's not getting along. The first thing you got to do is find really talented people, give them a piece of the seams. I know that it's the partner's not getting along. The first thing you gotta do is find really talented people, give them a piece of the business, paint a vision for why you think it's gonna be successful, treat them well, identify the few key players

in your company, your small business, and nail their feet to the ground. Say, I'm gonna give you 10% of this company. My first hire, I hired students when I started L2. And my first hire, full-time hire, was a woman named Maureen Mullen. I paid Maureen 15 bucks an hour. She had her consulting offer rescinded.

This was 2008 or 2009. I started her, I think, at 15 or 20 bucks an hour. She was so good, I said, look, I don't have the money to pay you a market competitive salary, but I'm gonna give you 10% of the company. Fast forward seven years later, we sold for $158 million, so things worked out for her. But you want to give you 10% of the company. Fast forward seven years later, we sold for $158 million.

So things worked out for her. But you want to identify a core group of people and a partner, I think early on, that's everything. Two, revenues make a business, not expenses. I still make this mistake when I start a business. I think, oh, I've got to rent an office space. I need to hire a bunch of people. I need to have nice furniture.

I need to do some advertising. Fuck. I need to have nice furniture. I need to do some advertising. Fuck that. A business is about revenues. Now I've always been in services business that don't take a lot of capital, but don't fall under the illusion that just because you can raise a lot of money or cheap capital, that spending it makes a business.

It doesn't. Sure, there are some businesses specifically in tech where you do need to make investments, but I'm pretty sure that every investment I made in 2021 is underwater or gone to zero. Why? There was so much capital available that it wallpapered over shitty ideas

and people spent too much money. What is the number one, the number one indicator of my nine businesses success? Was it the idea? No, I don't know if one idea was better than the other. Was it the people? I had good people in almost all my businesses. It was the following.

Did I start it during an economic boom or coming out of a recession? The companies I started at the tail end of a boom, 99, 2007, almost always failed. Everything's expensive, people are expensive, mediocre people cost a ton of money, some lame systems engineer comes into your office barefoot and demands a 30% increase in salary every two months. When I started companies, when I started Profit in 1992

out of business school, we were coming out of a recession. When I started L2, it was 2009, 2010, we were coming out of the great financial recession. Those are great times to start a business. So you want to find good people. You want to make sure you don't overspend. I think you want to over-serve those first few clients. I think you need to be sort of mentally and physically resilient. I think your relationship needs to be in a good place.

I think you have to work exceptionally, exceptionally hard. Fair isn't a productive word. Also, I think you need a kitchen cabinet immediately to advise you around stuff. Also, also, I hate to say this, you have to be ruthless when it comes to your first 10, 20, 30 employees. Everybody has to be adding value. You don't have time to manage, you don't have time to figure out roles, you have time to put people on performance plans.

People got to show up. They've got to, they've got to be in it. I mean, they got to come to play, but all of these are really, it comes down to people, good judgment and make sure you attract a lot of these are really, it comes down to people, good judgment, and make sure you attract a lot of people around you. Greatness is in the agency of others. Good luck and thanks for the question.

We have one quick break before our final question. Stay with us. Support for Prop G comes from Quince. The holidays are fully upon us, don't we know it? And if you haven't crossed off buy gifts from your to-do list yet, the panic might be starting to set in. Before you fully freak out and buy everyone gift cards, take a breath, slow down, and consider Quince. Quince makes it easy to treat everyone in your life with some luxury quality clothing at frankly ridiculously affordable prices. Pieces like their iconic Mongolian cashmere sweaters,

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Hi Prof. G. This is Alex from Germany. First off, thank you for the amazing work you do on the podcast. I wanted to share a bit about my current situation to get your perspective. I'm 23 years old, a student and still living at home with my mom. Next year, I'll be spending six months in Hong Kong as part of my studies. Earlier this year, my father passed away unexpectedly and left me an inheritance of about 1.5 million

euros, primarily in real estate. I also have 100k outside of that, 80k in stocks and 20k in cash. Additionally, I had already saved 40k myself by living way below my means, working a lot and saving as much as possible. Even with this financial cushion, I've become even more frugal. My goal is to achieve financial independence by my mid-30s and that's why I'm so much focused on investing and keeping my expenses low. But lately, I've started to question if this mindset is still healthy given my current situation. Should I loosen it up a little bit and allow myself to enjoy life more? Or is this level of discipline necessary to achieve the freedom I'm aiming for?

But the new financial resources I have, I could afford to travel more or enjoy similar experiences, but I'm unsure if that aligns with my future goals. I would really appreciate your thoughts on this. Thanks again for listening and all the incredible content you share. So first off, I'm really sorry about your dad, man. I mean, that's just even if you think you're ready for it, you're not. And also I think it's great. You're living with your mom. I've been back in with my mom and she and I were very close and I would imagine that you guys need each other right now.

She probably needs you more than vice versa, but I think it's really nice that you're living with her. Boss, you've got, you've got your shit sew together right now. You're 23 and granted it was an inheritance, but a million and a half euros, you've already saved 100,000 euros. You have 80 in stock and 20 in cash. You're so far ahead, both because of your good fortune and your father's and your mother's hard work

and your approach that and your mother's hard work and your approach that you're really blessed. This is kind of the mother of all good things. I would say with a bass, here's the thing. I'm gonna encourage you to loosen up the spigot a little bit and have some fun, whether that's going to, fuck, I don't know, a visa with some friends or a music festival.

I don't, you know, take five, 10, maybe even 15 grand a year additional. And, you know, really kind of enjoy your 20s a little bit because you're blessed. I mean, the reality is with a million and a half euros in real estate, you're not bulletproof. But if that grows at four or 6% a year in value from the age of 23, you're gonna be wealthy. So I think that given the situation you're in, to open it up a little bit and take, like I said,

another 10, 15, 20,000 euros and be really smart about it, but do one, two, three really cool trips a year, I would do it on experiences. It's weird to say this. I'm usually telling people to bring their horns in in terms of spending, but I would say at the age of 23, Christ, take your mom on a trip. Take your mom on a cruise or something. You know, live a little bit.

Let her live a little bit. All she wants to do probably is hang out with you. But yeah, a couple of trips a year with some buddies, have some fun, really enjoy what it means to be 23 and as remarkably blessed as you are economically. Yeah, I say open it up a little, push it out a little bit, a little bit of splashing the cash, a little bit of bling in the bling, Alex, my friend. Anyways, man, again, let me finish where I'm started.

I'm sorry about your dad, but you're obviously on a lot of other levels, especially economically, really blessed. Thanks so much for the question. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehours at propgmedia.com. Again, that's officehours at propgmedia.com. This episode was produced by Jennifer Sanchez and Caroline Chagrin. Drew Burrows is our technical director.

Thank you for listening to the Proff.G pod from the Box Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn. And please follow our Proff.G Markets pod wherever you get your pods for new episodes every Monday and Thursday.