Airbnb – For the People, Not the Powerful

In response to New York Governor Andrew Cuomo signing into law the toughest regulation to date against Airbnb, Josh Meltzer, head of Airbnb’s New York public policy, stated “We will continue to fight for a smart policy solution that works for the people, not the powerful” (Emphasis added). The law seeks to limit the affect short-term Airbnb rentals have on NYC’s hotel industry and high rent prices. To be clear, Airbnb plays offense, not defense, in terms of complying with state regulators and merging its business into the fabric of well-established industries. Instead of understanding the essential supply-demand issue Airbnb sought to solve, NYC regulators poured cold water on the company and may have set a dangerous trend hurting today’s ‘sharing economy’.

The new law allows authorities to fine as high as $7,500 anyone who advertises vacancies for 30 days or less for apartments in a multi-unit building on a rental platform, such as Airbnb. This comes after months of lobbying by hotel industries and failed negotiations between NYC’s legislators and Airbnb. Regulators say this bill helps enforce NYC short-term rental laws, where it’s illegal to rent a space in an apartment building for less than 30 days. Regulators also claim that this bill will help drive down the cost of leases by placing more apartments back on the market.

There are major flaws in the regulator’s reasoning. First, only a small percentage of Airbnb users operated their rental like a mini-hotel, in violation of the short-term rental laws. More than 95% of NYC Airbnb hosts sharing their entire home post only one property. Moreover, in 2015, the company removed around 3,000 illegal listings out of the 44,000 in NYC that violated the “one host, one home policy”. Airbnb also took affirmative steps to work with the City in order to enforce its policies and collect the tax revenue legislators believe Airbnb takes from the hotel industry. Airbnb offered to: prohibit NY hosts from renting out more than one property; require online registration for hosts; block users who violate policies three times; and collect state taxes so that hosts couldn’t evade the IRS.

Second, Airbnb offers a solution, not an exacerbation, to NY’s high rent. Assemblywoman Linda Rosenthal, a Manhattan Democrat and a co-sponsor of the bill, purports the legislation will force landlords keeping apartments off the market for use as Airbnb rentals to cease, creating more long-term units. But in fact, Airbnb started as a way to help young entrepreneurs earn enough money in order to pay their rent. In NYC alone, more than 75% of hosts say that Airbnb allows them to meet their rent payments. For the vast majority of cases, landlords aren’t taking apartments off the market to rent through Airbnb for profit; tenants are staying in their apartments through the help of Airbnb rentals for survival. With Airbnb offering to hand over the small fraction landlords illegally using Airbnb, there seems to be no reason to impose this penalty. Though this legislation passed under the guise of making rent more affordable, it will instead do more harm to tenants than good.

Moments after Governor Cuomo signed this legislation, Airbnb filed suit in the Federal District Court in the Southern District of New York, claiming the law violates the company’s constitutional rights to free speech and due process, in addition to the coverage offered under the Communications Decency Act, a federal law that says websites cannot be held accountable for content published by their users.[1] Lawmakers say that the law doesn’t impose fines on the company itself, but its host – therefore complying with their constitutional and federal rights. However, that argument detrimentally misunderstands the concept of apps in the shared economy. Their argument is the equivalent of saying that by fining Uber drivers, we are not harming the Uber app. The Uber app is intrinsically tied to its drivers, just like Airbnb is to its hosts. To restrict its users is to restrict the company. To separate the two misappreciated the innovation of Airbnb.

This legislation sets a worrisome precedent for Airbnb, facing similar legal restrictions in San Francisco, Toronto, Amsterdam, Barcelona, Spain, and Berlin. These are cities that do not face the same challenges to the price of long-term rental apartments as NYC does (or at least not to a comparable extent). Yet Airbnb still faces these claims in markets where there is not a shortage of apartments because of ‘parade of horribles’ argument rooted in NYC’s case: the unfounded worry that a sharing economy will destroy traditional industries and the city’s revenues will be worse off for it.

The sharing economy will not disappear anytime soon. More than 21,000 millennials host an Airbnb property and, similar to Uber, the app steps in to meet the needs of individuals who cannot afford the traditional choice of buying a hotel stay (or buy a car). It also caters to millennials who prefer the personal touch of staying in someone’s home versus a pre-packaged hotel. Governor Cuomo would be wise to recognize the technology advancement and to align NYC with the side of change.

[1] Airbnb Inc. v. Schneiderman, 16-CV-08239, U.S. District Court, Southern District of New York (S.D.N.Y. filed Oct. 21, 2016).

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