Plain and simple: Airbnb should play by the same rules regarding taxation, regulations and zoning that hotels do. We’re taking a deep look at this multi-front crusade.
By Steve Visser
A gray-market business that began as a temporary flop house has blossomed into $25-plus billion corporation that threatens to do to the hotel industry what Amazon did to the bookstore.
OK, that’s an overstatement.
The hotel business will always have the road-tripper, the conventioneer, the wedding planner and the traveler who desires the full-service amenities that only a hotelier can provide. But Airbnb and its kindred threaten to siphon off the adventuresome and the thrifty, and its market share is only likely to grow unless the hotel industry finds a way to hobble it.
Airbnb can offer rooms or homes in prime locations at a fraction of the cost of a hotel and often with substantially more space and privacy – and not only in vacation hotspots such as San Francisco, New York, Miami and New Orleans. Cities from Cleveland to Atlanta to Houston to Omaha have hundreds of units available too.
Airbnb alone had more than one million listings by the beginning of last year, more than triple the number it had by 2013, The Wall Street Journal reported.
That is not counting what is listed by its direct competition: HomeAway, Onefinestay and FlipKey.
We can state one thing clearly. It is not a fair fight. Hoteliers may have advantages of name recognition and location. But private short-term rentals also have the advantage of location – often in prime spots off-limits to hotels – because they often aren’t hobbled by the same zoning or other regulations.
We know life isn’t fair; hoteliers have a steep uphill fight when it comes to beating a company that, even if it lost legislatively, could set up off shore, out of reach of regulators. It is a website that acts as matchmaker between travelers and folks with a house, a room, a couch or even a teepee to rent.
As Jim Sprouse, executive director of the Georgia Hotel & Lodging Association, put it: “They are not going away.”
He said the estimate is that short-term rentals are almost 10 percent of the 93,000 rooms available in metro Atlanta.
An uneven playing field
For one thing, hoteliers have to fight in 50 states and in many cases, many different municipalities, in a multi-front crusade on attempting to get Airbnb to play by the same rules regarding taxation, regulations and zoning that hotels do.
Georgia hoteliers lost a battle last year to get the state to better regulate short-term rentals when the legislature decided to push regulating and taxing them down to the local level. Part of it was how the Georgia Department of Revenue viewed who should be in its sights regarding hotel taxation, Sprouse said.
“What we are running into here in Georgia are the definitions that are in the law,” he said. “If it is an Airbnb location, and it is not five or more rooms, it is not a target for them.”
Properties that meet that definition, however, make up a big chunk of the short-term rental business, and they still often manage to escape oversight.
AAHOA President and CEO Chip Rogers notes that much of the gray-market industry is not an offshoot of the cozy bed and breakfast but has been increasingly shown to be large landlords. They have converted properties – including apartment buildings – into de facto hotels that avoid entangling leases and make more in a week than they could in a month with a traditional tenant.
“Our members would love to operate under the same ‘no tax’ and ‘no regulation’ setup in which Airbnb is thriving,” he said. “Many Airbnb vendors are simply real estate holding companies that purchase large buildings and rent their properties on a day-to-day basis; almost exactly like a hotel. If they want to be a hotel, then play by the same rules government has mandated on hotels,” Rogers said.
Rosanna Maietta, vice president of the American Hotel & Lodging Association, which has studied the Kudzu-like Airbnb industry extensively, said the problem of commercial landlords is pronounced across the country.
Airbnb advertises itself as a room-sharing business in which the website acts a broker between guests and homeowners – similar to a broker who rents vacations homes when owners aren’t using them – looking to make extra money.
That may be true in many cases, but it is not what is driving the extensive profits that Airbnb is raking in nationwide and internationally, Maietta said.
She noted that despite Airbnb insistence that it has been trying to rid its website of commercial operators, the company has, at best, done a poor job of it and, at worst, has only made cosmetic or half-hearted attempts at it.
In fact, a recent study conducted by researchers from Penn State University School of Hospitality Management found that between October 2014 and September 2015, multi-unit hosts (two-plus units) accounted for nearly 40 percent of Airbnb’s revenue in the nation’s 14 largest cities.
“This translates to over $500 million annually. That’s not home-sharing, that’s a business. And it ought to be treated as such under the law,” Maietta told Today’s Hotelier. “No other company in America – especially one valued at over $30 billion – gets to decide what rules and regulations they must follow, or what taxes they must pay.”
While some of those may be homeowners earning extra cash by renting a couple of rooms a few days a month, many are not, and even those homeowners are becoming entrepreneurs themselves, not somebody simply trying to maintain a vacation home or mortgage payment with a small annual profit.
Regulators need to force Airbnb to police itself better, Maietta said. Instead, investigations have caught the company deleting commercial postings to make the website conform – however momentarily – to the sharing-economy image of homeowners earning extra cash.
“When you’re dealing with commercial landlords who dodge taxes, skirt the law, and flout health and safety standards, you have an obligation to play by the rules,” she said.
The friendly face that Airbnb strives to present
Lorraine Roark Bader acknowledges she is running a small business with her one-room suite she rents out inside or her San Francisco home. She says she could rent it out every night for $130 to $200 and deals in repeat customers.
She keeps it busy – saying it is often only vacant for cleaning or when she travels – and it has its own side entrance that is secured from the rest of the house.
“I could have it rented out almost every day of the year – there is that kind of demand,” she told Today’s Hotelier. “When I first got started, I put it on the Airbnb website, and within 45 minutes I had my first guests. It was a French couple who stayed a week. I thought, ‘I have to do this.’ It is kind of amazing.”
She is also not the face that the hotel industry wants to go against.
The 70-year-old sophisticate started renting the room several years ago to help pay for her invalid husband’s nursing care. It now provides a substantial source of her retirement income, and she enjoys the interaction with guests from all over the world.
Getting government to take away her check from Airbnb may be only marginally easier than getting Congress to cut her Social Security payment. She has been an active voice in the Airbnb battles in San Francisco, the birthplace of the company.
“This thing (short-term rentals) is helping a lot of people,” she said. “The money I earn from Airbnb really helps me maintain my home.”
But what is interesting from a hotelier’s perspective is this: Bader and her ilk could be allies in the battle against the real bad actors – the multi-room properties that are more threatening competitors to hotels. They are her unfair competition, too, since they are de facto hotels operating in her territory.
As far as the general hotelier goes, Bader with her single room – or even if she had a few – competes more with bed and breakfasts or youth or elder hostels, which, overall, target a different clientele.
“The people who rent from me wouldn’t be staying in a hotel in San Francisco or they certainly wouldn’t stay as long because it is too expensive,” she said.
And at least she doesn’t mind getting a business license when San Francisco required it or paying a hotel tax – she was already paying income tax – because Airbnb passes on the cost to the customer, just like the cleaning fee.
Bader isn’t the target – although she may be more of business than the hotel associations want to tolerate.
“We support the rights of property owners to occasionally rent their homes to earn extra income,” Maietta said. “The occasional rental of a primary residence, the true spirit of the ‘sharing economy’ that Airbnb claims to embody, is the type of activity that generates positive benefits to tourism across the country.”
“However, as we have seen time and time again in cities across the country, the real faces of Airbnb are not occasional renters but commercial operators running multi-unit, full-time lodging businesses without any oversight.”
However, Rogers sees Bader as a free-rider. After all, she is still competing against discount hotels.
“This is not a fact-based claim,” he said of Bader’s assertion of not competing with hotels. “If markets like NYC and San Francisco have a large demand for lodging at a lower price point, hotel developers will do what they do best, develop… However, if Airbnb claims its price point is necessary because hotels are too expensive, perhaps we should eliminate the costly taxes on those hotels and then determine how pricing differs.”
The roots of the kudzu – how Airbnb got its start
Brian Chesky (now CEO) and Joe Gebbia (now chief product officer) conceived the idea in 2007 when they were fresh out of the Rhode Island School of Design when they were strapped for cash and decided to rent floor space for air mattresses – hence the name, a derivative of “air bed and breakfast” – for people coming to town for town for a design conference.
They made some easy money, and it occurred to them that they had come upon an idea that would be hit, eventually worldwide, for travelers wanting more of the comforts of home for an often-low price without the congestion of a hotel.
Later they brought in Nathan Blecharczk, a Harvard-trained computer scientist, now chief technology officer, and officially launched a company in 2008. They reputedly funded it with credit cards.
There was already a model to emulate: the vacation home rental that thousands of Americans have employed to be able to afford a second home. They realized they could apply the same model to popular and expensive destinations like San Francisco and eventually cities everywhere.
Of course, the expanded model meant impacting not just hotel owners – who may or may not be a sympathetic victim to city councils and state legislatures – but also neighborhoods, condominium owners, renters and tax coffers.
The result, according to Forbes’ 2016 list of the richest people on the planet: Blecharczk, 33, Chesky and Gebbia, both 34, are tied for No. 495 at $3.3 billion.
The Airbnb public strategy to bring lawmakers and cities on its side
Tax dodging is the most obvious and the most complained about by the hotel industry – and the one that Airbnb is most happy to address.
The company has made a nationwide tour of cities trying to work out legislation in which they collect the hotel tax for the city coffers – offering it as a carrot to politicians often most hungry for revenue – while shrouding the even deeper issues that go along with short-term rentals in society: zoning, parking, safety and affordable housing.
Airbnb sent Chris Lehane, its global head of public policy, to the U.S. Conference of Mayors in January with a simple message: the 50 biggest cities in the nation could have collectively garnered an estimated $200 million in taxes if it worked with Airbnb to collect the taxes for them on behalf of the vendors.
It is working to some extent – allowing Airbnb some public relations coups. In July, Los Angeles worked out at least a short-term agreement in which Airbnb agreed to collect and remit hotel taxes to the city, which Airbnb estimates would have been $23 million in 2015 if the agreement had been in place then.
The city of Los Angeles had been trying to track down individual hosts to make sure they paid the hotel taxes in an effort to ensure a level playing field, a tactic which it had met with only very limited success.
Airbnb says it has struck similar hotel, occupancy and tourist tax payment deals with 190 cities, states and other tax jurisdictions around the world but primarily in the United States from Newark, New Jersey, to San Francisco.
It recently released a report that says it has paid out $85 million in hotel taxes. The jurisdictions the report listed were:
- State of Alabama
- Chamonix-Mont-Blanc, France
- Chicago, Cook County and State of Illinois
- Cuyahoga County, Ohio
- District of Columbia
- State of Florida (as well as with five county tax authorities in the state)
- Jersey City, New Jersey
- Lisbon, Portugal
- Malibu, California
- Montgomery County, Maryland
- State of North Carolina (as well as 150 local tax jurisdictions in the state)
- Oakland, California
- State of Oregon, City of Portland and Multnomah County
- Palo Alto, California
- Paris, France
- Philadelphia, Pennsylvania
- Phoenix, Arizona
- State of Rhode Island
- San Diego, California
- San Francisco, California
- San Jose, California
- Santa Clara, California
- Santa Cruz County, California
- Santa Monica, California
- State of South Carolina
- State of Washington
- Washoe County, Nevada
The unstated message, of course, is: cities can get this money if they are willing to not hold vendors – particularly individual homeowners – to the same safety and zoning regulations as hotels, while also giving officials an incentive to ignore neighborhood complaints about short-term rental guests eating up limited parking on streets, throwing parties in houses and landlords taking rental property off the market to capitalize on the cash-cow short-term-rental boom.
But even when it comes to taxes, Airbnb has indulged in smoke and mirrors, said Sprouse, the Georgia hotel association director. Last year in Georgia, lobbyists for the short-term rentals ensured the tax issue was pushed down to the municipalities, which meant it would be much longer before any was collected.
“They haven’t really supported paying the tax,” he said.
A more advantageous battleground for hoteliers
Liberal San Francisco, the business birthplace, has had some most contentious and perhaps the most eye-opening battles between Airbnb and its detractors. There the hotel industry found itself with the unlikely political ally of housing advocates, which contended landlords were evicting tenants to turn housing into hotels.
There a compromise was worked out, which required short-term rental operators to have business licenses, and banned commercial operators or landlords by limiting the business to primary residences. Full houses could only be rented for a total of 90 days a year while single rooms had no occupancy limit.
“Mine is not a rentable apartment because it is a room and a bathroom and it is part of my house,” Bader said of her 1906 Victorian. “Personally I think it is terrible that people would evict tenants and then turn their apartment into a short-term rental.”
Bader found the compromise workable for all parties. She contends her services benefit both the traveler and the neighborhood cafes and other businesses.
Skift.com, a travel website, urges caution and says that the economic benefits of short-term rentals to cities “gets fuzzier” when examined closely.
“Yes, those cities receive a slight boost in tax revenues, but there are true economic costs for regulating and legalizing short-term rentals,” the website noted in a recent article. “Shifting residential units from housing locals to housing tourists can be devastating for local communities and businesses. The more you consider those costs, the more difficult it becomes to know whether that additional tax revenue is really worth it. Can cities afford to welcome Airbnb at the expense of their own residents and budgets?”
Worst, the website said measuring the impact was all the more harder because “there is no real, honest transparency in the data.” It noted that in New York City last year, data provided by Airbnb, which it contended was snapshot of its providers, had been scrubbed to remove some 1,500 listings that may have been for illegal hotels or commercial operators.
“Their data is strategic data,” Murray Cox, creator of Inside Airbnb, which monitors the company, told Skift. “They are picking the data that matches their policy objectives.”
Sprouse, the Georgia hotel association director, noted that allowing short-term rentals to run amuck also negatively impacts neighborhoods. The coastal city of Savannah – a historic town dependent on the tourist trade – found that Airbnb rentals were impacting parking and peace in neighborhoods.
After all, you have zoning for a reason.
Savannah introduced some regulations to control the parking and party problem associated with Airbnb in its neighborhoods, Sprouse said. But many people end up as unwitting buyers. He has met people who bought condominiums in Atlanta who believed they were moving to a community. But once they moved in, they realized that they really moved into a hotel because so many units were being marketed as Airbnbs by absentee owners, Sprouse said.
“It is really a different group of people every night,” he said.
During the fight in the Georgia legislature last year to bring Airbnb under state control, Sprouse met a man who had bought a retirement home on Sea Island. He and his wife moved to paradise only to end up living across from another house that served as full-time, short-term rental that specialized in parties and weddings, Sprouse said.
“He says it really upset the sanctity of his home,” he said. “The man was almost in tears.”
Unfortunately, it did not move the lawmakers, at least in terms of votes. ■
San Fran by the Numbers*
According to InsideAirbnb.com, here’s a data review on how Airbnb is being used in and affecting San Francisco neighborhoods.
Total San Francisco Airbnb listings
are entire home/apartments
estimated monthly income
*As of August 9, 2016.