Love It or Hate It…

Airbnb Has Changed the Face of Real Estate

Airbnb may have started out as an air mattress on the floor of a San Francisco loft, but the online booking service now has lodging options across thousands of cities and has been valued at over $31 billion1, (which is important if they issue the rumored IPO in 2020). With over 4 million listings across the globe2, Airbnb has taken consumers, cities, hotels, real estate execs, and regulators by storm. What started as a simple idea that seemed a win-win for everyone, soon sprouted unforeseen side-effects that have included lawsuits and even an AirbnbHell online forum3.

When you think about it, renting rooms is not a new phenomenon, but adding technology and social platforms to the mix has created a variation on a theme. With Airbnb’s market share, if you have a room to rent these days, you’re probably already a host!

A Host or a Small Business?

To help forestall issues with loud guests and fines from aggravated city officials, the Airbnb website has a comprehensive guide for hosting. If you’re located in a larger metropolitan area, they may even have a city-specific page walking you through registration, permitting, licensing, taxes, and zoning ordinances, which apply whether you’re a homeowner or renter. But wait—you also need to consider any restrictions that might be outlined in agreements for a homeowners’ association, co-op or condo board, tenant organization, or your own lease. Yes, it gets overwhelming quickly if you follow the rules.

In larger cities, Airbnb can handle the occupancy tax portion for hosts which includes calculating, collecting, and remitting to the appropriate city or state entity, but in smaller cities hosts are responsible4. If it sounds like you’re opening a small business, well, that’s one of the main issues that city officials and the hotel industry are not happy about.

Hotel Industry and City Officials Call for Level Playing Field

Professionals in the hotel industry continue to assert they don’t have an issue with the idea of renting a room or occasionally your home, but if you are a full-time operator with multiple units renting 365 days a year, then you’re basically operating like a hotel. They contend that hosts should be regulated and held accountable just like hotels.

Industry experts are concerned about the future impact of Airbnb in protecting neighborhoods, preserving the supply of rental housing, and, of course, competition from a similar product that can be more than half the price of a standard hotel room. Toronto and Vancouver, to name just a couple of cities, have passed aggressive regulations that limit short-term lodging to the primary resident to block entire apartment communities from being used as short-term rentals.5

Some Cities Have Already Taken Action

City officials in New York, Paris, Amsterdam, and even the government of Japan, have all cracked down on Airbnb hosts who are operating without official registration, meaning they are a registered host for Airbnb, but have not completed the necessary legal paperwork to operate in that city. Government officials are busy passing other types of legislation as well such as limiting the total number of nights you may rent per year or prohibiting renting units for less than 30 days.

One hotly contested study released by the New York City Comptroller’s office argues that Airbnb has raised rental rates in certain neighborhoods primarily due to fewer units available for long-term rentals. Landlords are choosing to operate short-term instead of long-term and this results in fewer units for higher prices. The study also contends Airbnb is contributing to gentrification of neighborhoods which can negatively affect the supply of affordable housing stock.

Advantages of the Home-Sharing Model

For their part, Airbnb has always put forth their rental model as an opportunity for hosts to make extra income, in many cases helping them pay their mortgage or monthly rent. In addition, your home is safer if you are away, and if you are present, home-sharing offers an opportunity to interact with people of different cultures and backgrounds.

Airbnb guests, on the other hand, can immerse themselves in a city’s day-to-day character at a budget-friendly price. The rental platform has become a trusted marketplace for many travelers and is touted as a boost for tourism.

Airbnb also coaches hosts on practical safety concerns, house rules, and etiquette to help ensure both parties are satisfied with the rental, but also to lessen the concerns of neighbors. Noise, damage to property, parties, and other concerns, particularly when an owner is absent, have spawned bad press.

Airbnb maintains that a terms of service agreement is accepted by all hosts, which requires them to follow all local laws and regulations, and confirms their listing does not violate any third-party agreements. Landlords argue that renters are breaking their lease by subletting or “hosting” their unit on Airbnb. The company has thus far countered those claims in court stating that hosts are responsible for providing listing information, not Airbnb.6

Airbnb Introducing New Programs and Developing Industry Partners

As the company continues to grow and adapt to challenges, they are responding with new policies and procedures. Their One Host, One Home policy stipulates that one individual cannot list at more than one address. And, their Friendly Buildings program allows U.S. landlords who authorize tenants to join Airbnb as hosts are entitled to 5-15% of the hosts’ profit. In general, Airbnb has worked diplomatically with city officials, landlords, and the real estate industry to find solutions that work for everyone.

For instance, Airbnb has partnered with Century 21 in Paris, one of their most popular destinations, to work with landlords to allow renters to host (sublet) their apartments on Airbnb. In the agreement, both the landlord and Century 21 will receive a percentage of the home-sharing income. Airbnb still gets their fees, but everything is above board. These “Airbnb-friendly leases” mean there’s better supervision in buildings and hopefully less guest and tenant problems. Note: Paris recently passed a rule limiting sublets to 120 days per year. This partnership is only offered in Paris, but with hopes that it could be expanded to other cities if it is effective. It’s a crafty play on the part of Airbnb to enlist the help of a powerhouse like C21 who has properties all over the world.7

In another joint venture, Airbnb has partnered with at least one developer to launch a co-branded apartment with the tagline “powered by Airbnb”. Residents who become hosts would pay a percentage of their home-sharing income to the developer in exchange for access to amenities for their guests. Landlords seem to fall into one of two camps, those who believe Airbnb is destroying their investment, and those who are forgoing long-term renters in favor of short-term home-sharing.

Impact on Local Economies

Regardless of the controversies, jockeying, and horror stories, Airbnb hosts and state governments are making money. In 2017, Portland, Oregon hosts pulled in $82 million, and half of those hosts used the extra income to stay in their homes. And, the state of Oregon made $1.5 million in tax revenue.8

Given the dollars involved, finding ways to work together will serve local economies and hopefully help us all become a bit more culturally aware in a world that seems more and more divided.

This article is for informational purposes only.

CITATIONS

1Team, Trefis. “As A Rare Profitable Unicorn, Airbnb Appears To Be Worth At Least $38 Billion.” Forbes, Forbes Magazine, 16 May 2018.

2Pettersson, Edvard. “Airbnb Defeats Aimco Lawsuit Over Unauthorized Subleases.” Bloomberg.com, Bloomberg, 2 January 2018.

3Kaysen, Ronda. “Can I Stop My Neighbor From Running an Airbnb?” The New York Times, The New York Times, 21 April 2018.

4“How to Start Hosting.” Airbnb, 17 August 2018.

5Borland, Kelsi Maree. “The Real Problem With Airbnb.” GlobeSt.com, ALM Media, LLC, 24 January 2018.

6Ramírez, Kelsey. “Apartment landlord sues Airbnb for encouraging tenants to break lease.” HousingWire.com, HW Media LLC, 20 February 2018.

7Ramírez, Kelsey. “Airbnb Utilizing Real Estate Market to Bypass Regulations.” HousingWire.com, HW Media LLC, 6 July 2018.

8Diehl, Caleb. “Airbnb Responds to Affordability Concerns.” Oregon Business, 22 May 2018.

Hempel, Jessi. “Airbnb’s Newest Weapon Against Regulation: The Real Estate Industry.” Wired, Conde Nast, 3 July 2018.

Khoury, Marian. “Which Are the US Cities with the Most Airbnb Legal Issues at the Beginning of 2018?” MASHVISOR, Mashvisor Inc., 11 February 2018.

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