AIRBNB’S NEW YORK PROBLEM
“Sharing” your apartment in New York City just got a whole lot more complicated, with news that New York State Attorney General Eric Schneiderman has issued a wide-ranging subpoena to Airbnb, demanding information on the fifteen thousand or so city residents who have put their residences up for rent on the Web site.
A 2010 state law bars people from renting an apartment for fewer than thirty days if a permanent resident of the apartment isn’t present, and the subpoena would presumably make it easier to figure out which of the people renting their places out on Airbnb have been breaking that law. Schneiderman is, in effect, asking Airbnb to rat out its members. The company—which doesn’t appear to be in legal trouble itself—has said it will fight the subpoena, which it calls “unreasonably broad.” But even if it were to win in court, that would be a short-term solution. In the long run, the only way for Airbnb to flourish in New York—which it obviously needs to do, given the size of the market—is for it to reach some kind of modus vivendi with regulators.
Finding that solution, though, will be a challenge. By helping people easily rent their apartments to vacationers, Airbnb is challenging entrenched economic interests (the hotel industry) and a system of regulation that’s designed to deal with corporate hoteliers, not individual landlords. Ride-sharing companies like Lyft and Uber have been wrestling with a similar problem, since they represent a serious economic challenge to taxi companies; I wrote about this in September. Regulators tend to be somewhat wed to the status quo, and, even if unconsciously, they often adopt the perspective of those they regulate. So it’s unsurprising that in a number of cities, regulators have reflexively tried to block these kinds of companies from entering the market.
Airbnb does have a plan to deal with this problem. It would like for the government to rewrite the 2010 law that bars short-term rentals when the owner isn’t present. Instead, Airbnb argues, the state should allow those short-term rentals, and in exchange require Airbnb renters to pay the city’s occupancy tax that applies to hotels. The outcome: Airbnb rentals would become a little more expensive, the city would get additional tax revenue, and Airbnb hosts would no longer have to worry about the attorney general knocking at their door. The company also says it wants to help New York weed out “bad actors” who, among other sins, are using the service to run illegal hotels rather than just to make a little money on the side. In effect, Airbnb is acknowledging that as it gets bigger, the anything-goes approach of the past is no longer going to work. It needs to legally define the status of its rentals in some way: they’re not hotels, but they’re not not hotels, either. This is similar to what’s happening in California, where the state’s Public Utilities Commission is considering a proposal to legalize ride-sharing companies if they agree to certain safety and driver regulations.
On top of this, though, there’s another, less-remarked-on problem that Airbnb has to confront, which is that some of its hosts don’t actually own the apartments they’re renting out. (The company is vague on this issue; its co-founder Brian Chesky recently blogged that eighty-seven per cent of the company’s hosts in New York “live” in the residences they rent but didn’t specify the percentage who own their homes.) That means that many Airbnb users may be violating their leases, which often prohibit sublets.
And since most of these apartments are in buildings with other tenants, it also means that those users are bringing strangers not only into their own homes but into the homes—or at least the foyers and stairwells—of their neighbors. This is, in economist-speak, a “negative externality”: the transaction inflicts a cost on an otherwise uninvolved party, who gets no benefit from the transaction. As with most negative externalities, it’s easier for people to ignore the issue than deal with it. There is an obvious solution: Airbnb could require hosts to rent only properties they own (and require proof of ownership before allowing a listing). But one suspects that this would decimate the company’s business in the city.
All of this might seem to argue in favor of keeping that 2010 law as is. But simply banning short-term rentals is both overbearing and, more important, inefficient: from an economic point of view, it makes little sense to allow apartments to sit empty when there are people willing and able to spend good money to stay in them for short periods of time. What we really need is one of those unsatisfying, but ultimately useful, in-between solutions: a deal on taxes, a crackdown on illegal hotels, and a serious effort by Airbnb to push (or even require) its hosts to get permission from their landlords, and perhaps their fellow tenants, before renting out their places. A city in which 8.7 million people live cheek-by-jowl is a delicate ecosystem. Airbnb needs to think harder about how it can become part of it.
Photograph by Emmanuel Dunand/AFP/Getty.