Airbnb’s regulatory headaches

There are a couple of narratives that Airbnb has to be very careful about as it tries to avoid negative regulatory decisions that could threaten its business model.

1) The perception that wealthy landlords are converting their apartments to short term rentals, sucking supply out of the market in already tight housing markets like San Francisco and New York City.

2) It’s direct competition for hotels, and yet has none of the regulations (safety, noise control, parking) that hotels have to live with in order to be in compliance with local laws.

3) It’s eroding valuable city tax revenue at a time when cities are still recovering from The Great Recession because Airbnb hosts don’t pay hotel taxes. This is occurring during a time when the municipal debt market is struggling, meaning that borrowing costs are going up for cities. Cities really need all the revenue they can get.

So with all that said, I was actually impressed with the blog post Airbnb founder Brian Chesky penned on the company blog last Thursday, a preemptive move to start addressing a potential regulatory standoff in New York City. The post framed the company as a community of people sharing their homes, a message that was picked up and communicated by others.

Chesky’s post opens with a discussion of Airbnb’s history, emphasizing that it’s grown community by community, even noting that there’s historical precedence for people staying at neighbor’s homes and in boarding houses as they traveled. This is really the core issue Airbnb must address, that it’s becoming an unregulated hotel industry.

The most interesting figure in the post that Chesky disclosed is that 87 percent of the 15,000 New York City Airbnb hosts rent the homes in which they live. The recent decision by the New York Environmental Control Board to overturn a previous fine against an Airbnb host actually rested on a statute allowing New York City residents to rent their apartment, provided the resident is in the apartment. This is Chesky’s response to those who argue that we’re seeing a trend of apartments being taken out of the housing supply in order to be rented short term via Airbnb.

The figure I would have liked to see is not just the percentage of Airbnb hosts who rent the apartment in which they live, but the percentage of nights rented that are rented by hosts who live in those apartments. My guess is that that figure is lower since landlords that have dedicated an apartment to short term rentals are trying to maximize the number of rented nights per month. I think it would be a significant hit for Airbnb if laws were passed or enforced to prevent renting a unit if the owner isn’t present.

In fact, the New York Attorney General’s Office has subpoenaed data about Airbnb’s hosts as part of a larger investigation, which could be the beginning of trying to end the practice of landlords using apartments exclusively as short term rentals.

Still, Airbnb is offering up a valuable option for cash strapped New Yorkers to bring in additional cash. And there is a benefit to middle class folks trying to pay their bills, a point Chesky repeats.

In terms of substantive change, Chesky outlined the following in his post:


  1. We believe regular people renting out their own homes should be able to do so, and we need a new law that makes this clear.

  2. Our hosts are not hotels, but we believe that it makes sense for our community to pay occupancy tax, with limited exemptions for those who earn under certain thresholds. We would like to assist New York City in streamlining this process so that it is not onerous.

  3. We are eager to work with New York to remove bad actors in our community that are causing a disturbance to their neighbors, and will create a 24/7 Neighbor Hotline where we will service the complaints.

Perhaps the most important commitment is to work with New York City surrounding occupancy tax. At the end of the day, offering up tax revenue should placate some government officials. Once the hotel tax revenue is made up, the only loss to the city is the support of the hotel lobby and perhaps some irritation from residents who have complained about reduced parking and noise as a result of neighbors renting their apartments.

At some point Airbnb was going to have to make concessions to cities and where it’s succeeded is in growing so strongly while not having to make any concessions. Sooner or later every business has to deal with regulators. Even Amazon eventually had to collect sales tax in some states. But as Amazon has proven, the name of the game is to get as much traction as possible and become an institution before that negotiation has to happen.