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Airbnb vs. the city

How short-term rentals are changing urban neighborhoods

It’s a story enshrined in tech history: in 2007, two entrepreneurs struggling to make rent in pricey San Francisco latched onto a novel idea. A design conference was coming to town and hotels were sold out. The pair decided to throw three air mattresses into their loft, charge $80 per person (breakfast included), and advertise the nightly rentals on a new, custom-built website. In their first weekend of hosting, cofounder Joe Gebbia said in a 2009 interview, they netted close to $1,000. Several failed launches, a name and logo change, and 100 million guests later, Airbnb is now a $30 billion company.

Amidst Airbnb’s growing influence and slick PR campaigns, it’s easy to forget why Nathan Blecharczyk, Brian Chesky, and Joe Gebbia founded the company; the men "had to figure out a way to bring in some extra income" to pay their increased rent. Today, rent in U.S. cities is higher than ever and, ironically, some believe Airbnb has made the housing crisis worse. Still others applaud "home-sharing" services because Airbnb allows hosts to make extra money.

In cities across the United States, a battle is raging to determine the future of short-term rentals and the "sharing economy," with high stakes for both Airbnb and the cities in which it operates. Increased regulations could seriously impact the company’s bottom line. And because of Airbnb, local governments are struggling to enforce rental laws and grappling with new commercial enterprises in residential zones. Despite Airbnb’s rapid rise, in most urban areas around the country, rentals under 30 days are illegal.

Short-term rentals are also transforming neighborhoods. In popular tourist destinations like Venice Beach, California, or Bywater, New Orleans, the sound of rolling suitcases and calls of "housekeeping" have replaced neighborly meetups. Critics say that thanks to companies like Airbnb, communities are losing their most important asset: neighbors.

Although Airbnb has been around since 2008, when its cofounders turned their mattresses-for-rent idea into an official company, it went mainstream in 2013 and 2014 as an example of what we now call the "sharing economy." In its purest form, the sharing economy aims to use technology to match customers with service providers in the real world. Like Uber, the other big player in the sharing economy, Airbnb relies on websites and mobile apps to do that matching, and then makes money by taking a slice of the proceeds. But owners of sharing economy companies believe those technologies shouldn’t be used just for business, according to Tom Slee, author of What’s Mine is Yours. They advocate a marriage of "commerce and cause"—in Airbnb’s case, the cause it claims to support is building communities.

While Airbnb is big business—now in 34,000 cities and 191 countries, boasting two million listings worldwide, and partnering with other major players in the travel industry (like Delta)—it presents itself as a social movement, a "trusted community marketplace" that brings strangers together. The company’s rapid growth (it had just 50,000 listings in 2011) and increasing worldwide influence haven’t changed the core message conceived in 2007: Airbnb connects "hosts" with potential travelers to "create a sense of belonging." They’ve taken something that’s been a purely commercial endeavor—renting a hotel room—and made it personal, too.

In doing so, Airbnb and its competitors—HomeAway, the HomeAway-owned VRBO, FlipKey, and others—have blurred the line between residential and commercial land use. In the past, visitors to a city usually stayed at a hotel or bed and breakfast, businesses that are required to hold insurance, pass inspections, and operate according to local zoning. But within the sharing economy, anyone can list their property on Airbnb, accept guests, and make extra money as an amateur hotelier.

Airbnb is cashing in on the craze. In June 2015, Airbnb reported that it would hit $900 million in revenue by the end of the year. The e-commerce analytics firm Slice Intelligence reports that in July 2016, Airbnb’s revenue soared 89 percent relative to the same time last year. Based on that estimate, Airbnb could be close to bringing in $1.7 billion in revenue this year.

That doesn’t mean that it’s legal. Whether or not American cities allow short-term rentals—an issue many cities are grappling with now—almost all urban areas, at some point, have had laws or zoning provisions prohibiting short-term rentals of less than 30 days without a special permit. And yet, that hasn’t stopped the incredible boom in the number of listings on Airbnb.

Critics say that thanks to companies like Airbnb, communities are losing their most important asset: neighbors.

Metropolitan areas around the country are playing catch-up. Faced with limited budgets, city officials lament the difficulties in enforcing the law when it comes to short-term rentals, especially because enforcement is usually complaint-based. When Jane Taguchi, a 20-year resident of Los Angeles’s Silver Lake neighborhood, complained in 2014 that a five-bedroom house across the street had been converted to an Airbnb, her concerns got nowhere. She remembers a city investigator telling her, "The city’s not going to do anything unless you get more people, and make more noise, and file more complaints. My complaint alone was not enough for them to do anything." Jane goes on, "The investigator’s hands were tied. Higher-ups were telling him not to do anything."

Airbnb’s rapid rise has meant that cities are scrambling to figure out exactly how to regulate housing in the sharing economy. They also lack data—often withheld by Airbnb—that would help clarify exactly how many people rent out their homes, who they are, how often they rent, and in what way.

Airbnb claims that the majority of listings are shared—either shared rooms or private rooms rented out while the hosts are present. This is hard to corroborate. Curbed reached out to Airbnb multiple times with requests for an interview, but despite follow-ups over a six-week period, the interview never happened. Without official comment from the short-term rental industry’s biggest player, we’ve relied on interviews with residents who know firsthand how Airbnb affects their communities. Since Airbnb doesn’t release data about its listings, we’ve also turned to Inside Airbnb, a website that analyzes publicly available information about Airbnb listings.

According to Inside Airbnb, the majority of Airbnb listings are not shared rooms rented out while the hosts are present. Rather, 58.6 percent of Los Angeles listings, 72.3 percent of New Orleans listings, and 66.6 percent of Seattle listings are for entire homes.

This means that instead of a host welcoming a visitor into a guest bedroom, most tourists are renting out homes with lock boxes and hotel-like furnishings without ever seeing the homeowner. As Tom Slee writes, "Despite the continued repetition of the Airbnb origin story, the Shared Room now plays a miniscule part in the Airbnb business." Cities, meanwhile, not only have to deal with how home rentals are affecting their neighborhoods, but also how quickly the short-term rental industry is becoming professionalized.

If there was ever a debate that polarized communities, home sharing—what some refer to as illegal short-term rentals—is it. Proponents of home-sharing services believe, as New Orleans resident Eric Bay argues, "that we need to modernize and update the antiquated [zoning] ordinances from the 1950s" that make short-term rentals illegal. Bay rents out his 2,300-square-foot, four-bedroom second home in Uptown around 14 days per month via Airbnb and HomeAway. He’s also president of the nonprofit Alliance for Neighborhood Prosperity, an organization of property owners, managers, and others who support short-term rentals. Bay tried to rent out his property on a long-term basis, but ultimately chose to go the short-term route because it netted much higher profits. He’s since reinvested much of his revenue back into the property through renovations, and takes pride in employing New Orleans locals to do housekeeping, gardening, and other home maintenance.

In New Orleans and elsewhere, property owners are incentivized to prioritize short-term rentals over renting out units on the long-term market. In Los Angeles, Roy Samaan has researched the effects of Airbnb through his work at the Los Angeles Alliance for a New Economy, an advocacy organization working to improve communities by improving their economies. Airbnb, Samaan says, is "removing units off the market. If we had a surplus, if we had tons of vacant units, that wouldn’t be so bad. But our vacancy rates are extremely low, in hot neighborhoods they tend to be around 2 percent … It boils down to a supply and demand question. Rents go up when there’s not enough housing on the market and these companies remove housing at a time when renters are already feeling the squeeze from [low] wages and [high] housing costs."

Whether you’re in the French Quarter or Venice Beach, there’s no denying that in popular tourist destinations, homeowners can simply make more money renting out their properties as vacation homes. Eric Bay acknowledges as much for his Uptown rental in New Orleans and Inside Airbnb’s recent data on Los Angeles shows that across all neighborhoods it takes an average of just 83 nights per year to earn more on Airbnb than can be earned in a whole year of renting to a long-term renter.

In Los Angeles, City Attorney Mike Feuer wants to curb the "hotelization" of real estate. "In a city with a profound shortage of affordable housing, unlawfully converting rental units to operate hotels has got to stop," he’s said. In June 2016, Feuer filed criminal charges against a property owner for allegedly forcing out tenants in four rent-controlled units and then listing the units for rent on Airbnb. Airbnb was quick to distance itself from the landlord’s behavior, saying in a statement, "While we don’t comment on pending cases, we strongly oppose real estate speculators who illegally evict tenants and abuse platforms like ours in search of a quick buck."

Meg Lousteau, a fifth-generation New Orleanian and the executive director of a neighborhood advocacy group in New Orleans that works to preserve the French Quarter, understands the financial incentive to list a home on Airbnb. She says, "I have a [separate] rental unit in my house. I’ve always had long-term tenants there. I could make four times as much if I rented it out short-term. But it’s illegal, and it’s immoral, and I’m not going to do that to my neighborhood."

Lousteau also fears the bubble that could emerge if more and more of New Orleans’s housing stock is converted to short-term rentals. "It artificially skews the residential housing market." She goes on, "It injects the volatility of the tourist economy into housing. If 20 percent of the houses in a neighborhood are being rented out illegally and something happens to the tourist economy, like another 9/11 or a hurricane or an outbreak of Zika, and suddenly the revenue streams that justify the note or the prices that those investors paid for those houses goes away, either they’re going to dump them on the market and flood the market or they're going to default and there will be houses taken over by the bank. That’s going to have a devastating effect on everyone around them."

The effects of Airbnb on the cost of market-rate housing might be most visible in San Francisco, the company’s hometown. No one knows just how many tenants have been displaced in search of higher profits, but it’s enough that the phrase "to be Airbnb’d" now has meaning. The problems of short-term rentals led to Proposition F in 2015, a ballot measure that brought together an unlikely alliance of housing activists, landlords, neighborhood groups, and hotel workers’ unions. But in part thanks to Airbnb’s $8 million opposition campaign, 55 percent of San Franciscans voted no on Proposition F. Now, the city and Airbnb are battling it out over a law that penalizes rental websites that post properties for owners who are breaking local rules. This latest lawsuit points to the largest unresolved question about home-sharing companies: How should they be regulated?

Largely unknown in 2012, with just 120,000 listings on its site, Airbnb took off over the next couple of years; by mid-2015, the company had 1.2 million listings, many of them boasting Airbnb-sponsored professional photography and "verified" hosts. With popularity came calls for regulation, and in 2014 both San Francisco and Portland adopted "Airbnb laws" that in various forms aimed to require renters to register as hosts, carry insurance, and pay city hotel taxes.

By and large, the fastest growing segment of Airbnb listings—whole-home rentals—remained illegal, and few hosts registered for the required permits. In Portland, less than 10 percent of all short-term rental hosts had applied for permits by the February 2015 deadline, proving that one of the hardest aspects of home-sharing regulation is the enforcement.

Since those first Airbnb laws were enacted in 2014, cities around the U.S. have struggled with what regulation should look like. From huge urban centers like New York City to smaller cities like Santa Monica, officials have debated restricting rentals based on neighborhood density, limiting the number of properties a host can list, and requiring rentals to obtain a license or permit number. The only thing most agree on when it comes to short-term rentals? That cities need to collect lodging taxes. In a plethora of locales around the world, Airbnb is now collecting those taxes on behalf of hosts and remitting them back to the cities. In a July 2016 deal, for example, Airbnb agreed to provide the millions of dollars in revenue—at least $5 million based on some estimates—that Los Angeles had been missing out on with unregulated rentals. According to Airbnb, the company has collected $110 million in lodging taxes around the world since 2014.

But the tax agreements don’t legalize short-term rentals. It’s still illegal to rent a home for less than 30 days in much of Los Angeles, a city—according to Inside Airbnb data—that has over 25,000 listings. Critics of Airbnb fear that by collecting taxes, the city is legitimizing an unregulated practice. Judy Goldman, a Los Angeles local who helped create the grassroots anti-Airbnb organization Keep Neighborhoods First in 2013, believes "it sends a very mixed message." She goes on, "I think entering into a deal with Airbnb before the [regulation] ordinance has been passed by the city council is disingenuous. It gives legitimacy to an illegal industry that the city council has determined can’t continue to go unregulated."

While Airbnb is big presents itself as a larger social movement, a "trusted community marketplace" that brings strangers together.

Even as cities enact tax agreements with Airbnb, 2016 has been a year of backlash against illegal short-term rentals. Across the country, city officials grappled with what types should be allowed and how many days they should be rented each year. In February, in an attempt to fight noncompliance and keep housing affordable, Austin banned the advertising of unlicensed short-term rentals. In March, Miami Beach amended the city code to allow fines of up to $20,000 for renting out a property for less than six months at a time. Since the new fines have been in place, Miami Beach has levied $1.59 million against short-term landlords. And a recent New York State law—the toughest in the country against short-term rentals—essentially bans short-term apartment listings by fining Airbnb users as much as $7,500 if they advertise short-term stays in unoccupied apartments.

The backlash is also real in San Francisco, where in June the city’s Board of Supervisors signed a new law that penalizes rental websites that post properties for owners who don’t have a city permit or who exceed the number of nights allowed to rent. Because San Francisco officials have had such a hard time enforcing previous Airbnb laws, this new law places the burden of enforcement back on Airbnb; rental websites would pay a daily $1,000 fine for every unregistered host on their platforms. In response, Airbnb sued its hometown, arguing that the company is protected from laws that might hold them responsible for what people do or say on their website.

The widely publicized San Francisco lawsuit was quickly followed by three other lawsuits. In July, Airbnb filed suit against Anaheim—home to Disneyland—challenging a new city law that imposes fines on short-term rental sites. In early September, the company sued Santa Monica, arguing that the city’s ban on short-term rentals violates federal laws protecting privacy and online speech. And just hours after Governor Cuomo signed the latest New York bill, Airbnb filed a federal lawsuit saying it would cause the company "irreparable harm."

But it hasn’t been all bad news for Airbnb. An October 20 vote in New Orleans legalized the estimated 5,000 short-term rentals in the city, albeit with certain guidelines. Hosts can now rent whole-home properties for up to 90 days a year if they obtain a license, have liability insurance, pay into the city’s hotel/motel tax, and pay into the New Orleans Neighborhood Housing Improvement Fund. The city also banned short-term rentals in the historic French Quarter, and there’s even a plan for Airbnb and other platforms to share their data through quarterly reports. Left out of the New Orleans deal was a cap on the number of short-term rentals per block, something Airbnb critics had hoped for. How the new guidelines will impact New Orleans’s housing crisis remains to be seen; with the ability to make a substantial amount of money renting entire houses up to 90 days per year, critics fear that these properties will remain off the long-term market.

The recent lawsuits and negotiations reveal the high stakes of the battle over short-term rentals. In New York City, Airbnb’s largest market in the United States, an estimated 57 percent of the listings are for entire apartments. While the city and state of New York have said they will hold off enforcing their new law until the company’s lawsuit is resolved, Airbnb could eventually lose its cut of nearly $1 billion in booking revenue.

Airbnb insists that the company is merely a booking agent that facilitates commercial transactions between two parties. Increasingly, however, the company is spending big bucks trying to influence short-term rental laws. Time magazine recently reported on Airbnb’s hiring of Chris Lehane, a seasoned Democratic operative who was brought on to head the company’s growing policy team.

Lehane and company are running a grassroots movement of hosts across the country that looks more like an election campaign than standard business strategy. Their mission? To have Airbnb’s biggest advocates—hosts—rise up in their defense. Announced in 2015 and running throughout 2016, Airbnb organized "Home Sharing Clubs" in 100 cities to fight against short-term rental regulation. A Times reporter in London recently went undercover to an Airbnb event and watched as an executive explained how the company wanted people to "showcase positive stories" to politicians. But many host groups fighting beside Airbnb insist their cause is only a local one.

When asked what kind of relationship his association, the New Orleans-based Alliance for Neighborhood Prosperity, has with Airbnb, Eric Bay says, "I can tell you with 100 percent certainty and confidence—knowing this conversation is being recorded—that ANP has not received a penny from Airbnb. I have not received a penny from Airbnb." Bay does communicate with Airbnb officials, but only for strategy. We "organize with them," he says. "We say hey, we’re going to be at the rally. If some of your Airbnb hosts are going to be there … tell them to wear white. Because the opposition wore red and the good guys always wear white. So they help us spread that message."

Since supporters of short-term rentals are often hosts themselves, they have a vested interest in regulations that allow them to continue to rent their properties. As Meg Lousteau remarks about Airbnb hosts in her neighborhood in New Orleans, "The people who are adamant about this industry are the people who make money off of it. And I understand they are making a tremendous amount of money." And while Airbnb and its supporters are becoming increasingly organized, the company is also running major PR campaigns ahead of key legislative votes.

With million-dollar ads running in Los Angeles, Vancouver, New York, New Orleans, and San Francisco, Airbnb is trying to return to its roots by putting a personal face on home sharing. The TV commercials, web banner ads, and radio spots focus on people who rent out rooms in which they live—the least controversial and most legal way Airbnb is used. Airbnb seems dedicated to boosting a corporate image that’s faced a year of increasing restrictions and even serious accusations of racism.

Earlier this year, the #AirbnbWhileBlack hashtag highlighted the racist bias of many hosts; an experiment conducted by researchers at Harvard Business School found that requests from renters with African-American-sounding names were roughly 16 percent less likely to be accepted than their white-sounding counterparts. Airbnb has since announced several new anti-bias policies.

Airbnb’s recent campaigns are an effort to rehabilitate the company’s image in light of its incredible growth and worldwide goals. Beyond home sharing, Airbnb is looking to compete with services like Lonely Planet and Yelp by offering in-app guidebooks, a feature that lets hosts share info about their neighborhood’s best restaurants, bars, and attractions. It’s also building community centers—which function a bit like hotels—the first of which was recently launched in Japan. No longer a scrappy startup just trying to make its way, Airbnb now functions as the multi-billion-dollar company it is, wielding its growing influence in ways that further its ambitions.

From its inception, Airbnb used its origin story to talk about changing the way people live. In a March 2014 photo essay called "Shared City," cofounder Brian Chesky mused on how Airbnb might transform our urban centers: "Imagine if you could build a city that is shared. Where people become micro-entrepreneurs, and local mom and pops flourish once again. Imagine a city that fosters community, where space isn’t wasted, but shared with others. A city that produces more, but without more waste. While this may seem radical, it’s not a new idea. Cities are the original sharing platforms."

Ironically, the company that puts "shared community" above all else may in fact be contributing to the erosion of the communities in which it operates. Filmmaker Robbin Michael Wagner moved to New Orleans in 1998 because he felt that the city’s vibrant culture supported his artistic lifestyle. "I’m a sucker for the historic charm of pirates, mavericks, runaways, thieves, and storytellers," he says. "That’s really what makes up the fiber of New Orleans." After recently struggling to find a long-term rental, Wagner surmised, "Once you have a neighborhood that’s been well established and you’ve got one or two people that run a short-term rental market, that erodes the neighborhood ambiance … [tourists] should be staying in the hotels or bed and breakfasts."

Opponents of short-term rentals say they don’t have a problem with true home sharing when the primary resident is still on the property. As Judy Goldman points out, with legitimate home sharing, neighbors still have access to the owner to talk about problems. "When the primary resident is not there, you see a real disrespect for the common spaces in our city [Los Angeles]. We see loud parties, a much higher frequency of what would otherwise be normal, neighborly inconveniences." In Silver Lake, northwest of Downtown LA, Jane Taguchi experienced this firsthand. After a raucous fraternity party at an Airbnb rental in May 2014, Taguchi and her neighbors first tried to reach out to the homeowners, but a discussion was nigh impossible because they lived a few miles away in Los Feliz.

Many short-term rentals now stand vacant when they’re not occupied by tourists. The New York Times recently called this the "Battle of Suitcase Alley," since tourists are always hauling luggage around hot Airbnb neighborhoods. In Venice, California, Inside Airbnb estimates that over 75 percent of the Airbnb listings are whole-home units and 52.7 percent of hosts operate multiple units. Goldman says that the small neighborhood is so full of Airbnbs that there are "housekeepers wheeling carts down the streets, ringing the doorbells at 5 a.m. saying things like ‘Housekeeping.’ They are lined up in a row, they just go from one house to another. They are empty of any full-time residents."

Recent data on Los Angeles shows that across all neighborhoods it takes an average of just 83 nights per year to earn more on Airbnb than can be earned in a whole year of renting to a long-term renter.

Those that rent out their homes on Airbnb and HomeAway have very real economic reasons for doing so. Like the now-billionaire Airbnb executives who founded the company, most hosts are looking for ways to either make ends meet or maximize their business holdings. When I asked Eric Bay how a 30-day ban on short-term rentals—legislation New Orleans has considered—would affect him personally, he grew quiet. "I wouldn’t be able to pay tuition for my children’s school," he said. "I wouldn’t be able to afford my mortgage. I wouldn’t be able to work in this city."

Personal economics aside, the intimacy enshrined in Airbnb’s mission—sharing a home with a stranger—loses its value when scaled to a $30 billion company. As Tom Slee remarks, "The company’s claim to let you ‘live like a local’ loses its meaning when there are no more locals."

Whether you’re renting out your home, or your neighborhood is now full of short-term rentals, there’s no doubt that the Airbnb issue is personal. Meg Lousteau, a resident of Treme in New Orleans, says:

Even if they are quiet, even if we don’t notice them because they don’t do anything that’s a nuisance, that’s still a home that’s no longer home to one of our neighbors. People who are here for short periods of time, they don’t vote, they don’t go to school, they don’t go to church here, they don’t go to the dry cleaners …. They also don’t know as much about how the neighborhoods work. My next door neighbor, for example, is an elderly woman. We all look out for her, we all worry about her if we don’t see her on the porch. The house next to her used to have a family in it. Someone just bought it and turned it into an Airbnb. The rotating cast of tourists there every weekend, they aren’t going to have any clue to worry when Ms. Jesse hasn’t been on her porch in a few days.

Lousteau and others understand why people want or need to use illegal short-term rentals to make extra money in today’s volatile economic climate. They just don’t agree that it’s right. Airbnb "take[s] neighbors out of neighborhoods," says Lousteau. It’s as simple as that."

Editor: Sara Polsky


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