Imagine you live in a nice middle-class neighborhood that is quiet and largely free of crime. Then you suddenly see there is a lot of activity and people coming and going on a daily basis at your neighbor’s house. Then they start holding loud and rowdy parties there on a nightly basis, and you can’t even get a good night of sleep. There are several cars parked in front of the neighbor’s house every day and you’re wondering what on earth is going on there. Soon there could even be sex parties and prostitution taking place there.
Your neighbor is running an Airbnb hotel, renting out rooms on a short-term basis to guests. You never imagined this would happen when you bought your home.
Airbnb is a peer-to-peer online marketplace that allows home-owners and other property owners to list rooms or apartments to customers looking for short-term rentals or lodging. Airbnb gets paid fees for connecting customers seeking such services with those who are providing them, including the neighbor in the quiet middle-class neighborhood who has decided to turn his home into an Airbnb hotel.
Airbnb has more than 2 million listings in 34,000 cities in 191 counties. It was founded in 2008 and now has a value of more than $30 billion.
Airbnb has grown essentially in competition with conventional hotels, in part because of the taxation and regulation of the hotel industry. Local and country governments find it easy to slap heavy taxes on hotel customers because they are from out of town and don’t live there to vote those politicians out of office for the 10 percent or more tax levied on your stay at Hampton Inn or Comfort Suites. In San Diego, for instance, they raised the hotel tax from 12.5 percent to 16.5 percent to help pay for the new football stadium for the San Diego Chargers. Customers of Airbnb don’t have to pay hotel taxes to stay at Airbnb hotels, so the higher hotel taxes rise, more customers find lodging via Airbnb.
High taxes on hotels, and the rise of Airbnb, are giving rise to operators of illegal, fly-by-night hotels, operated by commercial owners holding multiple properties. They’ve figured out they can game the system through Airbnb and make larger profit margins operating illegal hotels than they would being in the conventional hotel business.
The pro-labor Los Angeles Alliance for a New Economy found that property owners with two or more listings generated 44 percent of all Airbnb revenue in Los Angeles, and that residential neighborhoods have been turned into tourist zones. The attorney general’s office of New York found that, between 2010 and 2014, more than 300,000 Airbnb reservations violated the law, totaling more than $304 million in booking revenue, with Airbnb collecting $40 million of that in listing fees.
As a result of breaking the renting laws in many major cities, Airbnb is finding itself in court. Cities such as San Francisco and Santa Monica, Calif., have fined Airbnb for illegal listings, which has resulted in Airbnb filing lawsuits. While it operates in a regulatory gray area, Airbnb is also fighting tough battles in Amsterdam and Barcelona, Spain, which penalizes hosts who list illegal rentals, and in Berlin, which has banned most short-term rentals. In New York City, Airbnb hosts generated more than $1 billion in revenue last year.
Airbnb is fighting regulations in many cities, including New York, which jeopardizes the growth in hosts and revenues that is needed to continue sustaining Airbnb economically. For example, in New York, it has been illegal since 2010 to rent out a whole apartment for fewer than 30 days. This law has been circumvented by tenants and landlords using Airbnb for rentals shorter than 30 days.
Airbnb argues that the Communications Decency Act shields it from liability for its listings. The Communications Decency Act was an effort in the late 1990s, in the early days of the internet, to pass federal legislation to prohibit what Nebraska Sen. J. James Exon and others called “lewd, indecent, lascivious and filthy” content on the internet.
Airbnb seems to believe the court striking this law down in Reno v. ACLU somehow means the internet is a place where web-based content providers are not responsible for what their online venues are hosting. This is a convenient argument to cover for allowing the very illegal listings that are getting Airbnb in legal trouble.
The rise of Airbnb might also increase housing costs, a concern raised by advocates of affordable housing. As it becomes more profitable for property owners illegally to rent their units for higher rates on a short-term basis using Airbnb, there are fewer units listed and available long-term for full-time residents.
While Airbnb can’t evade taxes forever, it is offering “voluntary collection agreements” to state and local governments to facilitate collections and remittance of taxes on Airbnb users and hosts. But there agreements should raise red flags for policymakers. Lacking proper data, how can tax authorities properly assess the tax bill on Airbnb transactions? Additionally, without being able to review relevant records, it is impossible to audit and/or collect the tax dues from Airbnb.
Given the $30 billion value of the company, it should not get special tax treatment. What other company of this magnitude could just tell the government it will voluntarily pay what it thinks it should pay in taxes? You can I can’t do that. Given Airbnb’s spotty record of assisting local governments in the past with enforcement issues and tax collection, should we trust them with that kind of special tax treatment?
Like many rapidly growing multi-billion-dollar businesses, Airbnb has turned to Washington and connected cronies for help dealing with the government. It’s a protection racket of sorts and involved billions of dollars and the most well-connected at the highest levels.
David Hantman, a former of chief of staff for Sen. Chuck Schumer, D-N.Y., has been one of Airbnb’s chief lobbyists since 2012, and is head of global public policy for the company. He was replaced as head of global public policy by Chris Lehane, a former top adviser to President Bill Clinton. Bill Hyers, the mastermind behind Bill de Blasio’s election as mayor of New York City, has worked as a consultant for Airbnb. Hyers also worked for Barack Obama’s campaign, and for Martin O’Malley’s presidential campaign in 2016.
Additionally, Airbnb hired former Attorney General Eric Holder, who was one of the most influential members of the Obama administration, to formulate anti-bias policies.
There is no doubt Airbnb is well connected to the Washington establishment. The operation of Airbnb hotels, often in residential areas, is very much a concern for the property owners affected. State and local governments have much to be concerned that Airbnb facilitates property owners gaming the system to evade relevant taxes and regulations while operating illegal Airbnb hotels. The ways Airbnb operates raise many questions.
