Home – Bicoastal Battle Over Short-Term Residential Rentals

Bicoastal Battle Over Short-Term Residential Rentals

 Eight years ago, two guys who needed to pay the rent on their San Francisco apartment came up with the idea of renting out air mattress space on their floor and serving breakfast during a design conference when the city’s hotels were full. To facilitate the process, they created a simple website, and Airbnb was born. The company is now a $20-billion business with over 1,000,000 short-term rental listings in more than 34,000 cities and 190 countries, making it bigger than major hotel operators like Wyndham Worldwide and Hyatt Hotels. But that growth has drawn considerable attention lately from state and local government officials in the United States, especially in two of the company’s key markets, New York and California.


Airbnb has been at odds with New York officials for about a year and a half. In late 2013, New York Attorney General Eric Schneiderman subpoenaed the company, demanding it turn over information about its “hosts” -- the thousands of residents who’ve listed rooms and residences on the company’s Web site -- possibly in violation of a 2010 state law barring the rental of an apartment for less than 30 days unless a permanent resident of the apartment is present. After a state judge ruled last May that Schneiderman’s subpoena was “overbroad,” he issued another one. In response, Airbnb removed thousands of New York listings from its site. But Schneiderman said that’s not enough. A 41-page report released by his office in October indicated that 72 percent of Airbnb rentals “appeared to violate” state and local laws.


The company hasn’t spent all of its time sparring with Schneiderman, however. Last month it sent a letter to all 213 members of the New York Legislature asking that it be allowed to collect and remit hotel occupancy taxes on behalf of its hosts. The company has estimated those taxes would have amounted to $65 million this year, a more than threefold increase over the $21 million estimate for last year, according to the information technology news website TechCrunch. But since the short-term residential rentals Airbnb promotes aren’t legal in the state, tapping that potential revenue stream would require a new legal framework effectively legitimizing the company’s operations. The company was hoping that would actually happen as part of this year’s state budget process, according to a story last month by CNET.


“Unfortunately, one of the casualties of this year's budget negotiations was a provision governing taxes in online marketplace transactions that could have generated millions of dollars of vital revenue for New Yorkers,” Airbnb stated in its letter to lawmakers, according to the CNET story.


But an analyst quoted in the story said succeeding in New York could help Airbnb elsewhere.


“If Airbnb can achieve legitimization from the legal authorities in a major market like New York, this could serve as a bellwether for many other markets where Airbnb faces similar legal challenges,” said Douglas Quinby, vice president of research for PhoCusWright, which provides data, information and analysis to the travel industry.


Airbnb has achieved some degree of legitimization in the city where it was founded, San Francisco. This past February the “Airbnb law” took effect in the city, legalizing short-term rentals.


The thinking behind the law was expressed by former San Francisco Board of Supervisors President David Chiu, the law’s author, in an interview with NPR last year.


“Under current law in San Francisco, law forbids renting residential apartments for less than 30 days to ensure that our housing wouldn't be used as de facto hotels,” he said at the time. “But we know that the current reality is that these laws are broken every day. The estimates are, in San Francisco, over the past year, we've seen over 100,000 incidents.”


Since the new law went into effect, Airbnb has been remitting nearly $1 million a month in hotel taxes to the city. (The company is also collecting taxes in a handful of other U.S. cities, including Portland, Chicago and Washington, D.C.) But although the San Francisco law limits hosts from renting their entire homes for more than 90 days a year, it allows them to rent rooms in their homes 365 days a year as long as they reside on the premises during those rentals. Critics and even the city department tasked with administering the law say that provision makes the law unenforceable because there’s no way to determine when hosts are actually present. Questions have also been raised about the impact of short-term rentals on affordable housing and neighborhood character in the city. So the city is now considering changing the law. One proposal, from San Francisco Mayor Ed Lee and Supervisor Mark Farrell, would limit all rentals of less than 30 days, whether hosted or unhosted, to 120 days a year, as well as create a new office to enforce the city’s short-term rental laws.


“We are trying to strike a balance between people who do occasional home-sharing to get by, while still preserving neighborhood character and our stock of affordable housing,” said Tony Winnicker, a senior adviser to Mayor Lee, according to the San Francisco Chronicle.


Supervisor David Campos has proposed an alternative plan that would cap all short-term rentals at 90 days a year and impose a fine of $1,000 a day on any company that promoted renters who weren’t registered as businesses with the city, which Airbnb called “a Trojan Horse proposal that effectively bans home sharing,” according to the Chronicle.


Meanwhile, a coalition of local landlords and housing activists calling itself ShareBetter San Francisco is planning a November ballot initiative seeking voter approval of restrictions on short-term rentals. Dale Carlson, a former library commissioner for the city and one of the group’s leaders, said the Lee and Farrell proposal didn’t go far enough.


“It completely indemnifies Airbnb and other hosting platforms that are aiding and abetting illegal activity,” he said in a statement. “And it denies regular people the opportunity to effectively defend their own homes and neighborhoods.”


Airbnb has fought back. In mid-April it sent an email blast to hundreds of San Francisco business owners, merchant associations and community organizations describing how it has benefited small businesses in the city. The email summarized the results of a study the company commissioned showing that the Airbnb community pumped almost $469 million into the city’s economy in 2014 -- up from $56 million in 2011 -- and supported 3,600 jobs at the neighborhood businesses it patronized, and that hosts earned an average of $13,000 a year, “money they use to pay the bills and stay in San Francisco and shop at businesses like yours.”


According to The Wall Street Journal, Airbnb has also commissioned research from an academic at the University of British Columbia to look into the widespread claim that its service drives up rental rates in cities across the country. The conclusion of the study, by Thomas Davidoff, an assistant professor at the Sauder School of Business, was that Airbnb increases rents only slightly. Davidoff found, for instance, that the price of a one-bedroom unit went up by about $6 a month on average in New York City and about $19 a month in San Francisco. Davidoff noted, however, that since Airbnb’s listings generally aren’t spread out evenly across cities but are concentrated in the most desirable neighborhoods, rent pressure is likely to be higher in those areas.


“It’s not an affordability issue. It’s a luxury neighborhood issue or a bohemian neighborhood issue,” he said.


Share Better wasn’t swayed by the evidence.


“So Airbnb is touting a study they paid for that finds that Airbnb increases rents for regular people all over the country?” it said. “Airbnb is fueling an affordable housing crisis from New York to California, making it harder for everyday people to make ends meet.”


In California, the battle over short-term rentals isn’t being waged only at the city level. A bill was introduced in the state’s Senate in February that would require short-term rental companies to disclose the addresses of their hosts, the number of nights their properties were rented and the amounts that were paid to the cities and counties where those hosts are based; prohibit such companies from operating in cities and counties where short-term rentals are banned; and authorize cities and counties to penalize hosting companies up to $5,000 per day for failing to comply after receiving written notice of a violation.


The goal of the measure, SB 593, according to its author, Sen. Mike McGuire (D), is to reinforce local control over short-term rentals and make sure all applicable hotel taxes are paid.


“This is no longer couch surfing; this is a multibillion-dollar business,” McGuire said, according to the Chronicle. “Our bill is simple: All it does is make online vacation rental businesses follow local laws.”


Airbnb has resisted releasing personal information about hosts partly out of fear that it might scare them off to competing sites like HomeAway/VRBO, which function more like classified ad services and, consequently, don’t monitor how often guests stay at listed properties. The company has also voiced broader privacy concerns. In a blog post, its head of public policy David Owen said SB 593 would “force Internet platforms like Airbnb to hand over broad swaths of confidential, personal information to bureaucrats who will sift through it in search of potential violations of local planning and zoning laws.” Owen also cited similar concerns about SB 593 expressed by other organizations, including the Santa Monica-based advocacy group Consumer Watchdog, which characterized the bill as “a blank search warrant and a basic violation of our civil rights.”


But as the Los Angeles Times reported, Sen. McGuire issued a statement calling those claims “hogwash and disingenuous” and insisting his bill “does not require anyone to divulge the names or any other information about consumers who rent lodging through vacation rental businesses.”


“Nowhere does the bill require any host to provide any information about renters to any government agency,” he said. “What it does do is make big corporations follow local laws.”


SB 593 went on to pass the Senate Committee on Transportation and Housing on an 8-0 vote and now resides in the Senate Committee on Governance and Finance, according to LexisNexis State Net’s legislative database.


The impact of Airbnb hasn’t been limited to major urban centers on the east and west coasts. The News & Observer in Raleigh, North Carolina reported last month that the city’s last registered bed-and-breakfast was shutting its doors in June due to competition from local homeowners renting out rooms on Airbnb.


“We’ve been really, very severely impacted for about two years now,” said Doris Jurkiewicz, owner of the Oakwood Inn, which has been in operation as a bed & breakfast in the city’s historic Oakwood neighborhood -- although not under the same ownership -- for 31 years.


The N & O reported that there are at least nine Airbnb rentals within blocks of The Oakwood, nearly all going for less than the $129 to $179 a night the B&B charges. But Jurkiewicz said her competitors “don’t have to play by the same rules,” allowing them to undercut her prices. She said she and her husband had to obtain a special-use permit from the city, they had to ensure their historic home, built in 1871, met certain design standards, and they also have to pay taxes on their rental income.


Airbnb has garnered other negative headlines. In March of last year, for instance, the Business Insider website reported that a host had her New York City penthouse apartment trashed by a guest who threw a huge party there without her permission. And last month The New York Times ran a story about an Airbnb guest from America who was bitten by an Argentinian host’s Rottweiler, necessitating a two-night hospital stay.


Both incidents raised questions about Airbnb’s responsibility for the welfare of its hosts and guests, with both of the individuals involved initially having faced resistance from the company about reimbursing them for their losses. When told Airbnb wouldn’t cover his medical expenses because the company’s liability coverage didn’t extend outside of the United States, Mike Silverman, the dog-bite victim, said the company ought to provide some sort of insurance backstop wherever it does business.


“There’s just an obligation on the part of an organization that is providing hospitality to have some level of protection for both their hosts and for the guests that use that facility,” he told the Times. “They seem to want to deny that they are in the business that they are in.”


The ride-sharing service Uber faced similar criticism over its handling of a fatal car accident in San Francisco last year, as SNCJ reported. The Airbnb incidents, at least, appear to have ultimately been resolved to Silverman’s and the New York penthouse owner’s satisfaction. And the headlines for the company haven’t all been bad. Last month it announced it was expanding operations into Cuba after the Obama administration loosened travel restrictions on the island nation. And the month before, it announced it would be the “official alternative accommodation service” for the 2016 Summer Olympics in Rio de Janeiro, which doesn’t have enough hotel rooms to host the hundreds of thousands of visitors expected to attend the games. More importantly, given the company’s -- and peer-to-peer businesses’ -- tremendous growth and popularity, and the company’s efforts to legitimize its business, it seems inevitable it will emerge from its current battles with a workable truce.