Airbnb is a 21st century company which completely disrupted the way many of us live and vacation. The platform, which allows users to “find adventures nearby or in faraway places and access unique homes, experiences, and places around the world”, is quickly replacing traditional housing options for travel like hotels and changing the travel experience. As nice as it is to stay in an apartment with friends for the same price as a hotel, the gray area of legislation which Airbnb operates within has posed some challenging battles in the United States and around the world.
What is Airbnb?
Airbnb is the space in between hotels and couch surfing, used by everyone from young world adventurers to serious business travelers. Airbnb is a peer-to-peer online marketplace and homestay network which enables people to rent short-term lodging in residential properties (houses or apartments). The company was founded in 2008 in San Francisco. According to their website, they are in over 34,000 cities, 191 countries and have 1,400 castles listed on the site.
Many people use Airbnb as a way to monetize their extra space (attic, basement, extra room, etc.). House rules and cost of accommodation are set by the host (property owner) based on the space and amenities offered. Airbnb’s primary source of revenue is service fee charges to hosts and guests on every booking. Fees for guests range between 6% and 12% and hosts are charged 3% from each guest booking for credit card processing. Online profiles provide photos, neighborhood information, house rules and reviews. Airbnb uses public reviews, social connections and recommendations as quality controls for both hosts (and their spaces) and guests.
Airbnb has grown rapidly over the last 8 years, implementing new products and experiences yearly. Their new products like the wishlist (a curated catalog of desired listings) and neighborhoods (travel guide to help choose the ideal neighborhood based on filters and attributes) are aimed at improving the guest’s experience in the new area. Airbnb commissioned HR&A Advisors to conduct a study to measure the market impact of collaborative consumption within urban populations in 2012. The study, pertaining to Airbnb, found its guests and hosts contributed $56 million in spending within the San Francisco economy, $43.1 million of which supported local businesses. Also, they found the average guest stay was 5.5 days, compared to 3.5 days for hotel guests, and the average guest spent $1,100 ($360 accommodation spending) during their stay, compared to the $840 spent by hotel guests.
Airbnb rentals can help homeowners earn extra income by subletting a room, which might be the difference for a struggling family trying to keep their home. But there are a host of thorny issues that have arisen with the growing popularity of these rentals. For example, non-home owning users who sublet their space can often find themselves in breach of their lease. In addition, there are listing rules many cities have that some renters don’t abide by. Cities are also concerned that taxes on rental income isn’t being properly paid by renters, meaning losses to city coffers for rents paid by vacationers that otherwise would have stayed in a tax paying hotel. Perhaps the most impactful issue is that affordable housing advocates around the world worry that Airbnb means more apartment units being rented to travelers, effectively taking affordable units off the market for full-time residents and driving housing costs higher.
Airbnb has had to fight battles with New York, San Francisco, Santa Monica, Amsterdam, Barcelona, Spain and Berlin, to date. The New York and San Francisco legal fights are a crucial test of Airbnb’s business model and future success.
San Francisco is currently in a suit with Airbnb due to their attempt to block a new ordinance that would force home-sharing websites, like Airbnb, to remove illegal rentals that are not registered with the city. Under the new law, the city would be able to issue hefty fines to home-sharing companies if they do not remove unregistered listings.
In 2013, Airbnb irked New York’s attorney general’s office by fighting a subpoena for data on who used the platform and what they used it for. In July 2014, a New York City ruling stopped a landlord’s eviction plans for a who tenant sublet her unit through Airbnb. The judge found that local laws prohibiting short-term sublets apply to landlords only, which opened the doors to many more sublets through Airbnb in the coming months and years. The NY state Attorney General found between 2010 and 2014 more than 300,000 New York Airbnb reservations violated the law, about $304 million in revenue, and about $40 million profit to Airbnb.
In July 2016, Santa Monica convicted its first Airbnb host under their new regulations. The law allows “home-sharing”, renting a couch or spare room, while the owner is present and bars renting residence for fewer than 30 days. The man arrested rented his five properties through Airbnb and was charged with eight misdemeanor counts of operating a business without a license after he failed to comply with citations. The city now has a full-time task force dedicated to the issue.
New Orleans disallowed short-term listings in the city’s French Quarter, a tourist-heavy area, where the hotel industry put up the biggest fight. Hosts also have to register with the government and will be restricted to a maximum number of days they can rent full houses. Airbnb will now collect local hotel taxes for short-term rentals.
New York S06340 (or A08704) was signed into law and bans the advertising of “such rentals”, meaning that hosts could not list a full apartment for rent on Airbnb for less than 30-day increments. Hosts caught listing their unit would be fined up to $7,500. It “should be a big boost in the arm for the business,” Mike Barnello, chief executive of the hotel chain LaSalle Hotel Properties, said about the passing of the law, “certainly in terms of the pricing.”
Airbnb filed a suite after the passing of this bill (which was settled on December 2nd, 2016) stating the law’s ambiguous wording could allow New York authorities to apply it to online platforms (like itself) that host third-party listings, which creates the risk of significant civil penalties and criminal liability. Under the terms of the settlement, New York City agreed that the law would not be enforced against the company, instead it is aimed at individual violators.
“Airbnb put a lot of pressure on Governor Cuomo and spent millions, so I’m gratified that he stood up for the cause of affordable housing and protecting tenants,” Linda B. Rosenthal (Manhattan Democrat) said. “This will help stop the bleeding and the loss of units that should be occupied by New Yorkers and not tourists who are here for a few nights. I represent New Yorkers. I don’t represent tourists, and my responsibility is not to protect their cheap deal at the expense of New Yorkers.”
Airbnb also had a similar issue with Nashville where Davidson County Circuit Judge, Kelvin Jones, ruled in October that the law was too vague to be understood by citizens, meaning it was unconstitutional and as a result unenforceable. Although this ruling took place, the city has continued enforcing the law while asking the judge to stay his decision until better regulations are written.
The San Francisco mayor vetoed a bill that would have put a 60 day cap on rentals. He stated that the legislation “will make registration and enforcement of our short-term rental regulations more difficult and less effective, and risks driving even more people to illegally rent units instead of complying with our city’s current short-term rental regulations.”
In Arizona, Arizona Gov. Doug Ducey partnered with the company. Starting in January, Airbnb will collect and remit the 5.5 percent Short Term Rental Accommodations tax. Guests will be charged the appropriate taxes on their Airbnb bill and they will remit the taxes collected to the city. They also passed SB1350, which inhibits cities from prohibiting vacation or short-term rentals. The bill does allow regulation for the protection of the public, housing sex offenders, nude or topless dancing, or other adult-oriented business.
Illinois proposed HB6243, or the Short-Term Residential Rental Property Act, which provides that a short-term residential rental property listed on internet-enabled platforms shall not be regulated by a unit of local government in a manner more restrictive or taxed more than bed and breakfast establishments are regulated under the Bed and Breakfast Act. Other states that introduced bills pertaining to the taxation of transient occupancy are California, Connecticut, Hawaii, New Jersey, New Hampshire, Alabama and Rhode Island.
Missouri introduced the “Short Term Rental Freedom Act” which prohibits political subdivisions from enacting or enforcing an ordinance prohibiting or unreasonably restricting residential dwelling rentals. Virginia signed the “Limited Residential Lodging Act“which allows persons to rent out their primary residences or portions thereof for charge for periods of less than 30 consecutive days or do so through a hosting platform.
The Global Legislative Issues
In May of 2016, Berlin banned landlords from renting out apartments to short-term visitors due to the general lack of apartments. The penalty for breaking the law is €100,000 ($113,000) given to the people renting their homes, not on the guests. People will still be able to rent out rooms in their homes, as long as the rooms don’t cover more than 50 percent of the property’s floor space.
Japan also has plans for new regulations in 2017. Currently, it is technically illegal to rent out a room to the general public continuously because it is considered a breach of the Japanese Hotel Business Law. The new law will require Airbnb-style operators have a contract with an outside management company which is a registered Minpaku business.
Barcelona, Airbnb’s third-largest market in Europe, is imposing fines that exceed $65,000 for listings without proper licenses. Airbnb is also having trouble in the UK when they paid only £317,000 in UK tax, despite London being the third biggest city from which the company offers rental accommodation.
In other areas of the world, like Australia, Airbnb has made it a point to work with the local government to help combat the issue of access to affordable housing. When talking about the Sydney market, Chris Lehane (Airbnb’s Head of Policy) said, “You can create a regulatory approach that really encourages, and has a light touch, for those that are doing this out of the homes that they are living in, so they are not necessarily impacting the long term housing market.”
One thing is clear about 2017, it will be a year of heavily fought legislative battles. Between Airbnb, marijuana, and driverless cars and drones, we expect to see 2017 be a year full of working out what the laws are going to be in these fresh new policy areas. Airbnb proposed a set of five new rules to attempt to combat New York’s new law. They range from one host one home – limiting people renting their home to a single home within the five boroughs to requiring registration (even though that has not worked well for San Francisco) to “good neighbor” rules to authorizing Airbnb to collect and remit taxes on hosts’ behalf in order to support affordable housing.
Airbnb’s legal argument in both the San Francisco and New York cases rely on a 20-year-old statute, known as Section 230 of the Communications Decency Act, which was designed to protect free speech online and has become fundamental to the working of the internet. In the San Francisco lawsuit, the company stated that the city “impermissibly treats Airbnb as the publisher or speaker of third-party content” when it is merely a platform for communications between property owners and guests. They are arguing that they cannot legally be held responsible for how landlords use the platform. This particular lawsuit has big implications for Airbnb and for business on the internet in general.
These legal issues will continue to shift as the company itself evolves. When talking about the future of Airbnb, CEO Brian Chesky stated, “We would absolutely consider really interesting partnerships with companies. I think going forward, Airbnb can become more of a platform. Today people would probably call us more of a marketplace. … But companies cannot plug into [it] very easily.” Currently, the company does not have an API to plug into, Chesky continued “I think going forward, though, we are really interested in becoming a platform. What companies plug in probably remain to be seen. But we’ve been pretty open that we see ourselves moving beyond just the home, toward an end-to-end-trip [platform].”
What do you see for the future of Airbnb? Do you think the pros of the service out-weigh the cons?