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Dec 19 2016

Airbnb vs NYC: A Story of Estranged Bedfellows

An excellent article by Isabel Guerriera published on December 16, 2016 on bkreader.com, that captures the essenceof short-term rentals and the dilema of New York city. This is very applicable for the ongoing discussion and how landlords may benefit from placing their condo and apartments for rent in Singapore but perhaps at cost for the local community.

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Since its launch in 2008, Airbnb has millions of dollars in profit from renters using its home sharing service in New York City. Unfortunately, New York has been less enthusiastic about sharing its own home with Airbnb.

For the past five years, the home sharing giant has been increasingly embroiled in a legal battle with state and local lawmakers, the hotel lobbying industry and some residents, all of whom share different ideas about whether the home sharing service is actually helping or hurting New Yorkers.

According to New York state legislators, the verdict is that it is causing more harm. In fact, in October 2016, Gov. Andrew Cuomo signed into law  S6340A, which makes it illegal to advertise entire, unoccupied apartments for less than 30 days on AirBNB. The penalty is a fine of up to $7,500–  dramatically higher than New York’s penalty for reckless driving (up to $300) and even higher than the fine for driving while intoxicated (between $500 and $5,000).

This recent action has been taken during a time when Airbnb’s popularity amongst New York renters is higher than ever. Consider Brooklyn’s rising popularity as a tourist hub. Then, factor in the skyrocketing costs of rent. For a landlord or renter, Airbnb would appear the perfect panacea. In fact, Airbnbaction.com issued a report stating that as of February 2016, the average Airbnb host made nearly $5,500 annually from the service, while helping 76 percent of its users stay in their homes or apartments.

So then, what exactly is behind the negative brouhaha with this online home sharing network affording tourists an affordable and unique peek inside of “real Brooklyn” while helping struggling landlords and renters make ends meet?

To answer that question, let’s first look at the lucrative hotel lobbying industry whose lifeblood depends upon tourism to the city: Renting out an Airbnb is generally more economical than booking a hotel. In fact, according to investopedia.com, the average prices for a NYC hotel are $500-$600 a night, while an Airbnb typically goes for $150-$200.

Hotels employs tens of thousands of people in the City. And in a city like New York– where so much of its commerce is tied to small and mid-sized business development– the introduction of a corporate giant can have far-reaching impact.

report commissioned by HVS Consulting and Evaluation estimates NYC hotels lost approximately $450 million per year in direct revenues to Airbnb. The report also states that since Airbnb was founded in 2008, more than 2,800 hotel jobs have been lost in New York City, accounting for $2 million in income for hotel employees.

And then there’s the chicken-or-the-egg problem of rising rents: Some argue that, considering the significantly higher amount of money landlords earn from a single Airbnb renter, it incentivizes them to raise their rents for local residents or simply not rent to residents at all.

report release in January 2016, which relied on data taken from Airbnb, found that nearly 30 percent of hosts rented out their entire unit year-round. The study found that the phenomenon was pronounced in New York City, where 17 percent of revenue came from hosts listing three or more units and 32 percent from operators with two or more listings.

“Full-time operators represent a small portion of hosts and a large, disproportionate share of revenue,” John O’Neill, one of the report’s authors, and director of the Center for Hospitality Real Estate Strategy at Pennsylvania State University, told Bloomberg News. “This isn’t couch surfing or someone periodically renting. This is people running commercial enterprises.”

This ability to Airbnb has made it significantly easier and more convenient for short-term renters to take units off the market entirely, not only causing a housing shortage but also driving up housing costs.

“I love Airbnb, and use it all the time. That is not the issue.” said Jerrod, a Queens resident. “The issue is that it must be regulated so that it’s not at the expense of the city’s citizens.”

Following the bill’s passage, Airbnb released a statement saying it was willing to crack down on individuals in New York City who rent out multiple homes, create a registry of hosts to make it easier for the state to enforce housing rules and create a hotline for neighbors’ complaints. It said it would bar hosts who violated local regulations three times. The company also said it could collect up to $90 million for the city that could be used for an affordable housing fund.

“Only the rich people win with this attack on even modest opportunity to earn legitimate income,” said another commenter on the bill’s website. “I don’t rent out my home, so I’m not affected by this travesty of lobbyist influence.”

But if that wasn’t enough problems for the home sharing company, there’s the #airbnbwhileblack problem that has grown with increased vigor over the past year, as both African-American customers– hosts and guests– are now sharing stories over social media about their problems using the service.

In fact, three Harvard Business School students– Michael Luca and his colleagues Benjamin Edelman and Dan Svirsky–ran an experiment earlier this year on Airbnb. They found discrimination across the board– among cheap listings and expensive listings, in diverse neighborhoods and homogenous neighborhoods, and with novice hosts as well as experienced hosts. Luca and his colleagues found requests and hosts with African American sounding names were less likely to be accepted than their white-sounding counterparts.