New York’s Most Disruptive Tenant: Airbnb

“Airbnb and home-sharing are here to stay, and it’s a matter of time before we fix this law.”

– Nick Papas, Director of Public Affairs at Airbnb

 

What if you needed the government’s permission every time you let your friends crash for the night? Say you received a notice claiming you were operating an “illegal hotel” for not obtaining clearance to let your out-of-town family stay over for the week. Would you argue there’s a line to be drawn? Friends? Friends of friends? Complete strangers?

There’s a war going on right now in New York City – a war involving your home, mine, and every other New Yorker’s in the city. The sharing economy has taken the country by storm, but in no city and in no industry has it been as fiercely disruptive and disputed than home-sharing in NYC, an industry which San Francisco startup Airbnb seems to have made happen overnight. Founded in 2009, the company has astronomically risen as the front-runner not only in its own sect, but in the share economy at large, enabling the average homeowner to make money securely renting out property to guests by leveraging today’s technology. The demographics are easily skewed towards tech-savvy millennials who travel often, attributing for its popularities in cities such as San Francisco and Portland. But when it comes to the biggest and most diverse city in the world with one of its largest hotel conglomerates notoriously averse to change, it’s easy to see that becoming the norm is going to be a grueling task. This is one fight that Airbnb can’t afford to lose.

In recent years, Airbnb has begun to find out as the share economy has forcefully awoken the sleeping giants of industry that had come to be accepted as the status quo. Similar to the equally sizable ridesharing service Uber’s battles with the taxi industry, Airbnb has attracted the ire of the hotel industry, local housing committees, and various politicians and lobbyists within Congress.  At the homeowner level, Airbnb’s throughout the neighborhood has been providing landlords justification for rising rent costs, negatively impacting the community both economically and culturally regardless of their involvement. Citing affordable housing concerns amongst an array of complaints regarding disruption within the community, coalitions like Share Better have risen together to refuse the takeover of their local neighborhoods. Their website presents a less flattering light on Airbnb, stating that “far from being a harmless service where New York City residents can share their homes with guests to the City, Airbnb enables New York City tenants to break the law and potentially violate their leases, exacerbates the affordable housing crisis in our neighborhoods, and poses serious public safety concerns for Airbnb guests, hosts and their neighbors”. Local horror stories have begun to emerge, and both landlords and unaffiliated tenants have joined the fray in order to keep the status quo.

From the industry level, its most popular criticism is the fact that it’s been evading taxes normally paid by orthodox hotel services. Although the case may be made that Airbnb technically owns no real estate, when presented with the prospect of legally sanctioning in cities out like San Francisco and Portland, they were quick to oblige and are currently paying the cities a standard hotel business’s tax cut. Dangling as much as $65 million in annual tax revenue, NYC legislators aren’t taking the bait. They contend that the number is grossly misrepresented when also factoring in the argument that all Airbnb listings should be legal, transitioning the argument to a law abiding standpoint.

According to a report by the New York State Attorney General this past October, almost three-fourths of units posted on Airbnb in NYC have been technically labeled as in violation of the law, a massive figure condemning Airbnb’s practices and compliance enforcement of their hosts.  Legally, the leading legal obstacle to Airbnb traces back to the Multiple Dwellings Law (MDL), passed by New York State 2010. Essentially, the law effectively bans all short term rentals under 30 days unless the homeowner is present and currently living in the same shared area (think having family or friends over). However, back in 2010, Airbnb was only just picking up steam on the West Coast, and it’s generally agreed that Airbnb was not the target here as it was instead intended to put a stopper on illegal hotels, which were essentially entrepreneurial real estate owners providing Airbnb-like service while acting in full awareness of the illegality of their operation. The problem today is that these individuals are now taking full advantage of Airbnb’s platform to execute their operations. According to the report, “The highest-earning operation administered 272 unique Airbnb listings, booked 3,024 reservations, and received $6.8 million in revenue during the Review Period. Each of the top 12 New York City operations on Airbnb during that period earned revenue exceeding $1 million.” With these exploitations, Airbnb has essentially been lumped in with the bad guys. However, the share economy was not around to empower the everyday homeowner back then, resulting in this massive grey area regarding the law today. “When does a person become a business? If you’re lending your apartment all the time to friends but not charging for it, that’s totally legal. So do you become a hotel the moment you rent your apartment for one night for $1?”

Obviously, the majority of that 72 percent are not scheming to run multimillion dollar businesses through Airbnb, but according to lawmakers, they should all be taken down. Airbnb’s first attempt to combat this was to try and repeal the law altogether. During 2014, a massive marketing campaign involving lobbying firms, television and subway ads, and online petitions was undergone by the company, sinking millions of dollars into public relations across the city, but no dice. Lawmakers refuse to change what is considered the strongest defense against illegal hotel operators, so in January this year the company sent an open letter to NYS legislators, taking a more cooperative standpoint: “New Yorkers should be able to responsibly share the home in which they live. The law should be carefully amended to make it possible for regular people to occasionally share only the home in which they live, while not providing loopholes for illegal hotels to operate.” While the ideals remain the same and it can be agreed Airbnb has good intentions, its business model presents a complicated problem from a modern legal standpoint.

So where do we go from here? Recently valued at over $20 billion dollars early this year, Airbnb is just getting started with spending. With millions of users and growth surging, the popularity of the service worldwide isn’t going anywhere, and most comparable cities have already legalized the service, with London being one of the most recent to enact legislation making it easier for users to operate on sharing services. The concerns of New York lawmakers are valid and Airbnb’s shortcomings are no trivial matter, but one thing is certain: the share economy is here to stay. With the right mediation, Airbnb will likely see itself legalized in New York City before the decade is out. The company is going to have to accept the appropriate legislation and restrictions, and even if it may involve violating their business model like implementing a permit system or turning data over to the appropriate committees. Ideally, the city should be rushing to meet them cohesively from a policy standpoint, as the share economy has truly presented some huge opportunities; better to adapt and benefit from an otherwise economically rich surge of activity, than to attempt to stifle it and be left behind in the world market. Both sides have good intentions, but both parties are going to realize the hard lesson that neither is leaving anytime soon. This compromise, if it can be reached, is going to be essential to the sharing economy’s growth.

It is an exciting time for legislation – a chance for new ideas to flourish as the world market evolves both for entrepreneurs and regulators alike. As Airbnb’s case study indicates, the sharing economy isn’t set in stone – not by a long shot – but it’s here to stay. Definitely keep an eye out on the evolution of this dynamic landscape, both in New York and the world at large, and see how both camps rise to meet the challenge.

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