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Airbnb faces a rising storm

Growing legislation surrounds short-term rentals such as Airbnb, which may make it more difficult for these businesses to stay in existence.

Airbnb is a nifty short term hotel and housing system that allows residents to rent out their extra space to visitors.  Recently, however, there has been such a demand for rooms that many landlords are refusing to renew existing leases, hoping to make a larger amount of money by putting their apartments into the Airbnb system.  Airbnb, unlike landlord tenant relationships, is largely unregulated.  This means that landlords can charge much higher prices for much shorter periods of rent.  Some cities are now attempting to regulate the short term rentals in order to stop the exuberant prices charged for a day rental.

In different areas of the United States this has been blamed as the cause for the lack of permanent housing for individuals working and living around cities.  In New York a pending bill would make it illegal for individuals to list their apartments for rent on Airbnb.  One problem that cities may have with the site is that the “rent” typically does not include the taxes that normal residents pay to live in the area.  Where that problem may be minor, a larger problem is that it is taking away from hotel profits and lowering the supply of apartments for new workers in the city.  This change looks very similar to the problem that caused rent to be regulated or stabilized in the first place.

New York City council member Jumaane Williams commented regarding the founders of Airbnb saying: “How dare you come here and ask us if we are trying to protect the middle class or not, when your deception is what’s causing the middle-class to suffer even more because you’re taking housing off the market.”  The deception is that most of the middle class—especially in New York City— do not own their homes and now will be unable to find places to rent.

San Francisco has attempted to pass legislation that would deter individuals from joining as hosts by charging a $50 registration fee that must be handled in person.

Controlled (or “stabilized”) rent prevents the average individual from being “priced out” of the rental market.  The state caps the amount that landlords can increase the rent—in the case of New York City, one percent a year.  Even though most states are not as strict with their increase caps, the cap still restricts the landlord in what they can charge for their property.  However, by switching their apartments from full time rentals into short term rentals, they avoid the current rent stabilization and can charge based on the demand for their area.

San Francisco has attempted to pass legislation that would deter individuals from joining as hosts by charging a $50 registration fee that must be handled in person.  The city believes that this burden may deter a significant number of hosts.  Also, if an individual fails to register, Airbnb would be fined $1,000 per day for each unregistered host.  San Francisco tried to pose additional restrictions that would limit the maximum rental days to 75 per year but the vote was struck down 55 percent to 45 percent.  This defeated bill was cherished as a great victory for companies such as Airbnb and for the middle class.

What the angered residents may not know is that the “visitors” bolster their local economy by spending money on restaurants and entertainment—a value that is usually much more beneficial than property taxes.

Airbnb has made the argument that their website provides a benefit to the middle class by allowing them to make an extra income on the side, but this only benefits those who own houses or apartments already.  The rest of the middle class, however, may lose their rental apartment to Airbnb.   The impact may not be as significant as the cities believe.  In San Francisco, there are only 350 full-time Airbnb rentals.  The rest are part time—as the site is supposed to be used.

Chicago added a four percent surcharge to short-term rentals such as Airbnb and also allows individual neighborhoods petition to ban it.  Many additional cities such as Seattle, Los Angeles and New Orleans have taken legislation into consideration.  All in all, this is a fight between locals and outsiders.  The common take is that the “visitors” do not pay taxes like those who live in the community, yet the visitors get to enjoy the same benefits of the long term residents.

What the angered residents may not realize is that the “visitors” bolster their local economy by spending money on restaurants and entertainment—a value that is usually much more beneficial than property taxes.  For coastal cities such as Myrtle Beach, Atlantic City, and Wilmington, a large part of the economy is driven by tourism.  The tourists usually buy into the hotel market but a direct benefit to the middle class is better than a benefit to big industry hotels.

There is no doubt that “hosting” companies such as Airbnb and Uber provide a great alternative to the monopolized markets aimed at visitors; however, these companies need to be regulated to protect the consumer and the market. 

Outside of the market, another problem that Airbnb may run into is the lack of safety inspections of their hosts.  Hotels must pass fire codes, health codes, and a number of safety regulations in order to host guests overnight.  This is to protect individuals from immediate danger as well as danger that may lurk in high traffic lodgings such as bed bugs.  On the other hand, with Airbnb, the sheets may not have been changed in weeks, there may be black mold growing in the lodging, or there may be other hidden dangers.  Some lodgings have even been constructed as glorified camping sites for the summer season.

Airbnb has seen more problems than just city opposition.  Since there are no fines for a host canceling, some hosts have cancelled trips of African Americans who wish to use their lodging.  This blatant racism is unchecked and unaddressed by the website.  Like any new markets, regulators will have to find a happy medium between what is allowed and what is helpful to the market.  There is no doubt that “hosting” companies such as Airbnb and Uber provide a great alternative to the monopolized markets aimed at visitors; however, these companies need to be regulated to protect the consumer and the market.

One may think that the hotel business is unified against Airbnb since it may cause a loss in business.  However, some hotels have listed rooms on Airbnb.  The commission for the site is only three percent— a number significantly lower than what is charged by other sites such as Expedia and Travelocity.  These hotels are typically the smaller “hipster” hotels but they are obviously catching on to a new trend found in consumers.

This controversy has had wide reaching effects.  Even Berlin passed regulation for these short term rental programs.  Berlin—and Europe in general—is known for friendly hostels for travelers to visit on their way through the city.  Berlin has begun a new requirement similar to San Francisco.  Individuals are now required to get a permit in order to rent out entire parcels to visitors.

Although it can be said that full regulation of the housing system would be another step toward socialism, there is a threshold that the legislators must find.  Similar to Uber, Airbnb will probably hit some roadblocks regarding what cities will allow in the future.  These legislations may be aimed at keeping rental space for locals, or keeping the hotel lobby groups happy; whatever the motive, the fight is on the horizon.

Cyrus Corbett V, Associate Editor Emeritus
About Cyrus Corbett V, Associate Editor Emeritus (16 Articles)
Cyrus Corbett V is a 2017 graduate of Campbell Law School and served as an Associate Editor for the Campbell Law Observer during the 2016-2017 academic year. He is from Murrells Inlet, South Carolina and received his Bachelors in Arts in Government from Wofford College in 2014. Since July after his first year of law school, Cyrus has interned at the North Carolina Retail Merchants Association in downtown Raleigh focusing on the Retail Merchants Handbook. His interest is in jurisprudence of the law and negotiation/ mediation.
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