The Real Deal New York

TRD explainer: Airbnb v. New York

The company faces an uphill battle in the Big Apple and across the country

February 01, 2017
By Konrad Putzier

From left: Airbnb Founders Nathan Blecharczyk, Brian Chesky and Joe Gebbia

Airbnb, the home-sharing site valued at $30 billion, has managed an impressive feat in New York: staying in business despite opposition from not only real estate and hotel groups, but also labor groups and both Republicans and Democrats. Over the past year, hardly a week went by without headlines on the company’s high-stakes battle against lawmakers and interest groups. In December, Airbnb seemed to finally be conceding defeat when it withdrew a lawsuit against New York City for passing a law that would curtail its expansion.

But did Airbnb really lose? And has its expansion halted? The answer isn’t as clear-cut as it may seem. The company makes money by charging guests, who rent rooms from private hosts listed in the site, between 6 and 12 percent of the booking price as a service fee. And compared with the hotel companies it competes with, Airbnb has one key advantage: It doesn’t have to buy or lease any properties, meaning it can grow more quickly without having to spend as much. It also pays less in taxes. The flip side is that it leaves the bulk of collected room rates to its hosts, and it shows.

In June 2015, Airbnb reported that it was on track to earn $900 million in revenue that year — not much considering the company’s stature. (More recent numbers are not available, as private firms aren’t required to release regular earnings reports.) By comparison, that same year, Facebook brought in $17.9 billion, while Amazon made $107 billion. If Airbnb ever wants to see those kinds of profits, it will have to learn how to overcome, or at least cope with, the fierce political opposition it faces in cities around the globe. New York, its biggest market, could provide a test case.

Why do real estate and hotel groups oppose Airbnb?

The most common — or at least most sympathetic — complaint is that the site reduces the supply of affordable housing. John Banks, president of the Real Estate Board of New York, recently bemoaned the “illegal activities” of Airbnb users, which he said “deplete the number of housing units available and creates an uncomfortable, if not unsafe, environment for their fellow tenants or owners.”

Concerns about affordability and tenants’ safety makes REBNY sound uncharacteristically altruistic, but landlords also have a more selfish reason to oppose the home-sharing site. Rent-stabilized tenants who list their units on Airbnb can make a fat profit, while rent protection rules prohibit landlords from doing the same. At the same time, some landlords have been fined for illegal Airbnb listings their tenants posted, even if they didn’t know about them, said real estate attorney Sherwin Belkin. Hotel groups may have the clearest case of all against Airbnb: Hosts compete directly for guests and don’t have to comply with the same health and safety standards as hotels. Taxes have been another source of contention.

Airbnb’s opponents launched a joint advocacy group, Share Better, to fund anti-Airbnb ads and push for laws constraining the site. Their efforts have had considerable success in New York. Since 2010, it has been illegal to rent out an entire apartment for fewer than 30 days. And in October 2016, Gov. Andrew Cuomo signed a bill that levies a $7,500 fine on anyone who breaks that law. The bill also places the onus on the person listing the room — and no longer automatically on the landlord. Lasalle Hotel Properties CEO Mike Barnello called the new rules a “big boost” for the hotel industry.

Which side are lawmakers on?

It’s tough to say, since very few New York lawmakers are unconditionally for or against Airbnb. Most agree that the site needs to be regulated, but opinions on the best way to do so vary widely, and politicians have been reluctant to demonize their constituents — even those who are knowingly breaking the law. Take State Assemblymember Linda Rosenthal. While she sponsored the recent law that imposes steep fines on Airbnb hosts, at a recent public hearing she suggested that only apartment owners, not tenants, should not be prosecuted for illegal listings.

Several other cities have joined New York in attempts to curtail Airbnb’s services. In December, Miami Beach tightened its Airbnb regulations, forcing hosts to check with the city before they can legally list a unit. And in July, a new rule in San Francisco went into effect that requires hosts to register with the city. Meanwhile, Los Angeles began cracking down on illegal Airbnb listings this year. In a bid to win the favor of lawmakers, the company has poured money into campaign donations. In the most recent New York State Senate election, the site donated $215,645 to Hudson Valley Democrat Terry Gipson, Politico reported in October 2016. But REBNY backed his opponent, Sue Serino, and Serino won.

How is Airbnb battling back?

The company’s fight in New York went through two major phases this year. The first was a ferocious and costly campaign to sway public opinion. As state lawmakers were readying their bill to impose fines of $7,500 on Airbnb hosts, the company launched a $10 million super PAC to buy ads ahead of the November election. It then extended a series of olive branches to landlords and politicians as the bill neared Cuomo’s desk for signature, in an apparent bid to pacify its opponents and prevent the bill from becoming law.

In September 2016, Airbnb launched a program offering landlords a share of host revenues, but the Wall Street Journal reported that the initiative wasn’t very popular, as property owners balked at the legal risks. Then on Oct. 19, the home-sharing site said it would create a registry of hosts and crack down on users listing multiple units on the site. Despite its best efforts, though, Cuomo signed the bill into law, kicking off the second phase of Airbnb’s response: a lawsuit against New York officials.

Immediately after the new law was signed, Airbnb sued State Attorney General Eric Schneiderman, Mayor Bill de Blasio and the City of New York, alleging the law is a deprivation of constitutional rights. But by December the company had dropped its suit against Schneiderman and settled with the city. It did win one important concession: The city agreed to fine only Airbnb hosts for illegal listings and not the company itself.

Airbnb has had more success negotiating with other cities around the world. In December, it agreed to enforce legal limits on how many nights hosts in Amsterdam and London can list units for. A few days later, it reached a deal with New Orleans that legalized listings in return for Airbnb sharing its data on hosts with the city. These agreements are similar to what Airbnb offered New York in mid-October — a sign that the company is taking a more conciliatory approach toward city governments. This makes sense, since an initial public offering is on the horizon, according to multiple news reports, and messy disputes with local legislatures only scare off investors.

Does Airbnb have a future in NYC?

It all depends on how the city enforces the new law. “Hosts are going to disregard the law,” said Murray Cox, who runs the data site Inside Airbnb. “What the [Mayor’s] Office of Special Enforcement will still have to do is identify the host, which today requires research and potentially subpoenaing Airbnb.” These practical difficulties aside, there is also the question of mandate. If city officials decide not to prosecute tenants, the only Airbnb listings affected by the new law will be the ones in which apartment owners rent out rooms directly through the site.

That would mean it could operate more or less unimpeded, to the chagrin of its critics. “For a legislator to suggest that the law be selectively enforced — despite its plain and unequivocal language — is a disturbing concept, to say the least,” said attorney Belkin, who represents NYC landlords. If the city, however, decides to prosecute everyone who violates the law and finds an effective way to do so, Airbnb will be in deep trouble in its biggest market. 

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