Rising Inflation: How to Protect Your Vacation Rental Business

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The financial world is in an increasingly precarious position. And because of that, so are vacation rental business owners. Inflation rates are at an all-time high and flight prices are skyrocketing. Sometimes known as the retail price index, inflation indicates how much retail prices have increased in the past 12 months.

Inflation rates are indicators of a rising cost of living, which spells bad news for the tourism industry. If groceries and basic necessities are more expensive, the first thing to be cut from the list is travel. People are forced to travel less as they spend more money on their everyday lives. 

What is Inflation?

In the briefest of terms, inflation is “a rise in prices, which can be translated as the decline of purchasing power over time.” In further explanation, Investopedia continued and said “ The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time. The rise in prices, which is often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods. Inflation can be contrasted with deflation, which occurs when prices decline and purchasing power increases.” 

Global Inflation Rates

At the time of writing this, global inflation rates are rising. USInfaltionCalculator reported that the annual US inflation rate is at 8.5, a ten-year high. According to RateInflation, Canada’s annual inflation rate is 7.6%. 

According to Trading Economics, the world’s highest inflation rates are Turkey with 79.6%, and Argentina with 71%. While these are outliers, they do still speak to the global economy. The next highest is Russia at 15.1% and then comes another drop to the next closest which is Spain at 10.4%. 

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How Does Inflation Affect the Vacation Rental Business?

While there is no direct link, a rise in the cost of living will always result in higher prices for your vacation rental business. In order to understand how the rate of inflation affects costs for vacation rental hosts. 

Before you can start to understand how higher inflation rates affect your business, you first need to understand where inflation rates will affect your business. Inflation is directly related to the CPI (Consumer Price Index). 

Investopedia says “The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is one of the most popular measures of inflation and deflation. The CPI report uses a different survey methodology, prices sample, and index weights than the producer price index (PPI), which measures the change in the prices received by U.S. producers of goods and services.”

Vacation rental business inflation prep

What Can I Do to Encourage Bookings?

As inflation rates rise and traveler numbers decrease, hosts need to find creative ways to attract bookings. How do you convince guests to book your listing when they don’t have lots of money to spend? 

So, there are three main strategies that we recommend our users employ. 

First, optimize your rates. By making use of services like DPGO, you allow data to drive your pricing strategy. The idea behind dynamic pricing is that it uses customer demand to determine what your prices should be. If the demand is high, consequently, your prices will rise. If there is very little demand, your prices will fall. They’ll fall to a level that will give your property the best chance of being booked. 

Second, offer discounts. The psychology of discounts means that people will spend more if they feel they are getting a better deal. To encourage customers to pay extra, leave your prices where they are and offer an additional night at ten percent off. This serves a dual purpose – it earns you extra money and it means your listing is booked for an additional night. 

Lastly, switch to longer rentals. By switching to a longer rental agreement, you’re protected from inflation rises. Your tenants are locked in for a longer period of time and they should have signed some form of rental agreement. 

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Avatar for Charlotte Rogers

I love writing and I am seriously passionate about real estate and technology. I've been writing about both topics for nearly 10 years and there isn't a development in the world of tech without me reading about it!

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