Airbnb is a drain on housing stock. Hosts can generate much more income than they could by otherwise traditional letting. Hotels and motels are regulated differently, and have higher costs – and higher regulation – than do private hosts on the site and that is part of the reason for the difference in income.

So far it has been lucrative and rational hosts have been taking on more risk, thinking that the entire travel industry was not likely to bottom out. Lo, and behold, it has.

The WSJ had a little disaster-porn look at some hosts who have been caught up in this sitation. We non-hosts can stare at the wreckage and tsk-tsk our way through the ruin. Personally, I wouldn’t take this much risk on because my appetite is not that high. While revenues were super high, the hosts (speaking generally here) were rolling those funds into more debt and therefore more risk instead of reducing it – by say, paying down the mortgages.

A cursory reading of their plans in this article suggests that they looked at their two options for increasing revenue in this model, and choose the one with more risk.

The first model is to take the profits and pay down the mortgage of their properties. This would increase revenue *eventually but more importantly reduce risk in the long term.

Instead, they simply financed more properties. This was the second option. The revenue funded their lifestyles (cool, but risky) and now they are paying the price.

As the host said, they “made a deal with the devil”.

As business plans, this kind of risk takes care of the investors and sort of “trains” them. As some investors lose their shirts, others learn and build more resilient businesses. The real problem here is the effect it has on the housing market. Those $140 night deals in an apartment are not just competing with hotels – they are taking away housing stock in a crunched market.

Uber and Lyft challenge the taxi market, and increase traffic slightly, but they do not reduce availability of personal vehicles or drive up the prices thereof.

Cities have tried to figure out the best way to regulate these things. The seemingly simplest way is to enforce zoning. Taxing or fee-based regulation will only do so much in the face of high revenues. Big-money hosts will simply pay the fee as a cost of doing business and move on.

And there will be more. This crisis will cull the host herd, but the deep-pocketed investors will scoop up these properties that were foreclosed and pick up where they left off.