New York deflates Airbnb | The Economist
IN 2007, Brian Chesky and Joe Gebbia wanted to rent two air beds in their San Francisco apartment after a conference had left local hotels packed. Thus, Airbed & Breakfast was born. The company’s only contraction since then has been its name. Today, Airbnb’s website lists over 2 million short-term rental properties in 191 countries. Piper Jaffray, an investment bank, estimates that bookings through the company will reach $ 14.4 billion in 2016, up from $ 52 million in 2010. Analysts believe the newcomer could make $ 30 billion if he was made public. It would give Airbnb more value than Marriott, the world’s largest hotel chain.
But legislation signed in New York State on October 21 took some of the whiff of Airbnb’s mattress. New York City is the company’s largest market in America, with approximately 35,000 properties available for rent. But many hosts offer their apartments illegally. In 2010, the state passed a law banning the rental of entire units in residential blocks for less than 30 days. (It’s legal to do this if the tenant lives there at the same time.) To encourage people to comply, Andrew Cuomo, the state’s governor, has approved fines for those who break the rules of $ 1,000 for a first offense, reaching $ 7,500. for repeat offenders.
The bill will severely limit Airbnb’s ability to operate in the city. What is at issue is how its business model has evolved. The business was designed as a marketplace for renting a spare room to tourists. However, entrepreneurs quickly saw a more lucrative opportunity: to acquire a portfolio of empty properties and offer them as a direct competitor, often cheaper, of hotels. According to data collected by Tom Slee, author of “What’s Yours Is Mine,” a book on the sharing economy, 27% of Airbnb listings in New York are offered by people with multiple properties (see graph).
Locals complain that Airbnb guests, filled with the holiday spirit, can be boisterous and inconsiderate neighbors. Worse yet, they say that as apartments are taken over by investors for short-term rental, residents are being forced out of town. Arun Sundararajan, professor at New York University and author of “The Sharing Economy”, thinks this idea is overstated. The pressure on the housing stock in New York, he says, is affected more by population growth and rent control than by sharing economy rentals. But not everyone agrees. According to Slee, while Airbnb may indeed have a limited impact on a city as a whole, for those who live in neighborhoods that become Airbnb hotspots, such effects are only too real.
Yet some fear that Mr. Cuomo has bowed to pressure from powerful vested interests, including hotel lobbyists and unions. The occupancy rate of New York hotels is around 90%, among the highest in the country. Limited supply means high prices and these perks are jealously guarded. A study commissioned by the Hotel Association of New York found that people switching to Airbnb will directly cost its members around $ 780 million in the city in 2016. It predicts that by 2018 that will increase to more than $ 1 billion dollars a year. Airbnb business hosts, according to industry groups, must be classified as hoteliers, pay taxes as such, and comply with relevant health and safety regulations.
Airbnb challenges state law on the grounds that, as an online marketplace, it is not responsible for the content that others place on its site. (The state responds that it is going after the hosts, not the site.) The company has a good deal, says Sundararajan. Companies such as YouTube and Facebook have already successfully invoked such a defense. But perhaps the greatest danger is that other cities will feel emboldened to craft their own restrictions. Last year, Airbnb agreed to require San Francisco residents who rent their entire unit to register with the city and to limit the number of people who can do so. But when few hosts registered, the city decided to exert more pressure, with fines of $ 1,000 per day for every San Francisco host not registered on the site.
Europe has acquired a similar taste for regulation. Earlier this year, Berlin banned most short-term apartment rentals in response to a residential housing shortage and unsociable tenant behavior. Hosts who break the rules face a fine of € 100,000 ($ 109,000). (As in New York City, those who rent out parts of their own apartments are not affected.) According to data from Mr Slee, the proportion of serial hosts in Berlin listed on Airbnb fell from 36% in 2014 to 20. % today.
Meanwhile, in Barcelona, authorities threatened to fine the company € 600,000 for such illegal announcements and demanded that hosts obtain a license. Ada Colau, the city’s mayor, was elected after promising to curb vacation rentals. Not all cities see Airbnb as a curse. London, which has some 47,000 properties listed on Airbnb, spoke of the benefits of encouraging sharing economy accommodation, especially for its old-fashioned outskirts where few hotel tourists venture out.
This article appeared in the Business section of the print edition under the headline “Deflate Airbnb”