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How Does Airbnb Affect Your City?

Lobby of Airbnb's new diggs in San Francisco. There is a sweet, multi-story Living Wall  on one side.

Lobby of Airbnb’s new diggs in San Francisco. There is a sweet, multi-story Living Wall on one side.

Airbnb has been on my radar lately as a growing variable in city housing discussions. A few weeks ago I created an account with the service to book a room in Edinburgh as a cheaper – and hopefully more personal – alternative to a hotel. Around the same time, a friend sent me an article in Slate about whether the home-sharing service is good for housing people overall. Yesterday, NPR ran a story following up on that article, reporting that Airbnb is planning on collecting hotel taxes in cities like New York and San Francisco, two cities that have exercised the most legal resistance to the online service.

Airbnb is a major player in the rapidly-growing sharing economy, made possible by online and/or mobile technology, along with services like Lyft or Uber. Like their less-profitable predecessors, libraries (or tool libraries), these companies smooth out market inefficiencies by taking advantage of amenities that are often sitting idle. People have extra seats in their cars; extra beds in their homes; extra space when they go on vacation, etc. In theory, this is a good thing for all involved. In the case of Airbnb, allowing private individuals to rent out their spare bedroom by the night increases the supply of available beds to meet the demand of travelers, thereby lowering the cost of accommodations overall.

Another efficiency is that sharing services rely on peer reviews and feedback instead of government regulation that comes with taking a taxi or booking a hotel room. This (in theory) ensures that one won’t be mugged or robbed when renting a room for a night through Airbnb.

The main problem reported in the Slate article is that the demand for Airbnb day-to-day accommodations actually out-prices monthly rent prices. This is not hard to see. Keeping in mind that Airbnb is not typically subject to hotel taxes and regulations, people can easily charge 3-4 times per night what they typically would collect in rent per night. Even with a 60-70% vacancy in a given month, a landlord could make more money renting through Airbnb than to a resident needing a place to live. Essentially, short-term rentals increase the value of the property.

The upshot is that in certain cities, including New York, landlords are converting their properties to de facto full-time hotel rooms, rather than rental properties. This pushes renters out of the city, or at the very least pushes rents higher, thereby pricing out lower-income renters and gentrifying the neighborhood.

Every room on the lobby is a replica of a specific property listed on the home-sharing service's site.

Every room on the lobby is a replica of a specific property listed on the home-sharing service’s site.

In response, some legislators have acted to protect their cities from growing Airbnb-ification. Portland, San Francisco, New York and parts of Los Angeles have proposed bills to regulate short-term rentals.  New York already had a law on the books that banned rentals of rooms for fewer than 30 days to prevent this exact thing. Some legislators have (over)reacted with implications that such services are slippery slopes to prostitution. LA Councilwoman Anne-Marie Johnson told Time magazine, “People have jumped into that urban myth: ‘We had to do it or we wouldn’t survive.’ Then why not run a bordello? If you’re really upside down in your house, then have an escort service run out your house. Where does it end?”

It seems there is a fairly straight-forward middle ground between rampant, unregulated brothell-spawning and outright banning Airbnb and its ilk (like Seattle’s knee-jerk response to Uber and Lyft). The biggest reason landlords can afford to rent out rooms cheaper than hotels is because they’re not (typically) subject to taxes and regulations like hotels and registered bed & breakfasts are. Some of the proposals running through NYC might address this by requiring hosts to register as hotels and pay taxes. This seems like the best solution: private homes may still be opened up to travelers, thereby increasing the supply of empty beds in the city; at the same time, they will be regulated as a hotel or B&B, meaning they will be competing more with hotels rather than renters (who should be a priority in the eyes of the city).

In response to current or imminent regulations in certain cities, Airbnb will begin to collect taxes. This voluntary gesture looks to be designed to appease lawmakers while avoiding all-out regulation that hotels are subject to. Interestingly, New York State law doesn’t allow the company to collect or remit the taxes to the state, which amounts to missing out on about $21 million, according to the Airbnb’s public policy department. (The fact that Airbnb even has a Head of Global Public Policy is suspicious – is the title not just a euphemism for “Head of Lobbying?”).

Shedding more light on the stakeholders in this game, hotel lobbyists have had a mixed reaction to the regulation. Airbnb summarizes (somewhat disingenuously) here. At first the hotels demanded Airbnb (and similar services) be taxed as hotels. However, when some cities began cracking down on short-term rentals altogether, the hotels realized that this was even better – they’d prefer returning to pre-Airbnb days when they wouldn’t have to compete with private homes at all.

This is why cities need to be careful about they way the legislate and regulate these new sharing economies. Clearly, the services like Airbnb (and Lyft, Uber, etc) can create a huge public good by reducing accommodation prices, increasing property revenue, etc. However, such a good is demonstrably undermined when everyday residents are priced out of their neighborhoods and forced to move out of the city, creating urban centers full (or not full) of tourists in de facto hotels. There is a middle ground that embraces the benefits of sharing (including more tax revenue) while not competing with rental markets. Legislators need to be sensitive to these rental markets and should side with neither hotel nor Airbnb lobbyists. They need to resist the call to ban short-term rentals altogether, but also recognize that they are equivalent to hotel or bed & breakfast stays, and need to be taxed and regulated as such.





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