Airbnb in the City – New York State Attorney General's Report [pdf]
ag.ny.gov
ag.ny.gov
I'm a supporter of AirBnB. The way I look at the problem is not as a "fight" between innovation and politics, bur rather as a chance for an innovative player like AirBnB to come up with a solution to the concerns that would "push the envelope" in everyones favor. I'm sure by this point they have already amassed a ton of expertise on the issue. Now they need to start delivering solutions to keep their business moving forward.
One of the best things about Airbnb is it has made travel more accessible to the young and the working-class. When those people visit NYC, they shop, they eat out, they see shows. All of those things are taxed.
I would bet that the sale tax for all of those things would more than make up for a loss in hotel tax revenue, if you presume that some percent of visitors would not visit if they had to pay for a traditional hotel.
Unfortunately few legislatures and regulators think this way. They spend too much time thinking about how to take a larger portion of the pie and not much time thinking about how to make the pie bigger.
NYC government also seems to think they'll be able to put the genie back in the bottle -- I think they're wrong. Airbnb has proven this is a huge market -- if they go under, they'll be replaced by a solution that is harder to regulate.
I'd like to see the evidence that people would not visit NYC if they couldn't stay in Chelsea.
> NYC government also seems to think they'll be able to put the genie back in the bottle -- they're wrong. Airbnb has proven this is a huge market -- if they go under, they'll be replaced by a solution that is harder to regulate.
They didn't prove anything. We already knew flophouses were a viable businesses in the absence of effective regulation going back to the early 19th century. Businesses that privatize the profits and socialize the costs tend to be profitable.
What costs are being socialized by Airbnb?
Well that does not actually answer my question. What services? Water, electricity and basic services like that are paid for and not more expensive for temporary residents. Police maybe? Do temporary residents require more police involvement? You are implying you have an answer to my question and maybe you do. I would like to hear it.
> Raising the cost of housing stock
No, this is not a cost imposed on others, because that is not what imposed means. If you want to buy housing you are free to do that and so are others. If you want to prevent other from competing with you, that is asking them to subsidize you.
...seriously?
1) Shifting tax burden onto residents and legally operating hotels. By evading things like the hotel tax, the per-tourist revenue goes down. 2) Who do you think owns the airports and all the other infrastructure transportation? Hell, La Guardia had a 50 year old control tower before they started on the new one. 3) What do you think pays for all the additional safety regulations and inspections for transient residents? [e.g. Fire codes for housing them are different than a residence.]
> No, this is not a cost imposed on others, because that is not what imposed means. If you want to buy housing you are free to do that and so are others. If you want to prevent other from competing with you, that is asking them to subsidize you.
Effectively breaking the zoning rules [hotels are zoned differently than residential] is an imposition.
I think the underlying issue here is you don't care if it has negative economic effects on other people or the city government because "free market".
1) Tax burned is a cost imposed by the government, presumable to cover the cost of externalities. I am not trying to be a jerk when I say I would like to hear what externalities you are thinking about here. 2) This might actually be a real answer. Assuming of course that airports operate at a loss and recoup that loss with things like hotel tax. 3) Safety regulations are not a cost imposed by Airbnb and illegal hotels tend not to have extra inspections.
Zoning rules are again, not imposed by Airbnb. They are imposed by the government presumably to cover some externalities. I can't figure out what those unnamed externalities are, so I asked.
> I think the underlying issue here is you don't care if it has negative economic effects on other people or the city government because "free market".
Again, no. When someone complains about negative effects, but fails to mention what they actually are I think it is perfectly reasonable to ask what those negative effects are.
If you spend $50 a day on food in NYC with a sales tax of ~9% we are talking about $4.50 a day. And $50 a day is high, if we are talking about people that are so price sensitive that they won't come to NYC at all without AirBnB.
Of the top 10 rooms listed in the AirBnB report, $100 a night seems to be the median price. With a hotel tax of ~6%, that should be $6 a day.
You can nab a real hotel room in NYC for $200 a night (with some work, even less). That yields ~$10 to the city a night in hotel fees.
It's hard to say without knowing a lot about price sensitivity whether or not your argument is true, but on the surface of it, I don't see it. Are there that many people that can buy a plane ticket, pay $50 a day in food, and $100 a night for AirBnB, but CAN'T pay $200 a night for a hotel?
I would imagine that more likely it changes the length of peoples stay. Maybe with AirBnB you can come for 6 days instead of 4 or something like that. But if AirBnB currently doesn't pay any taxes, I'm don't see how 6 days of sale tax instead of 4 makes up for the lost hotel tax.
You have to compare the cannibalization of lost hotel sales to the revenue from AirBnB sales and increased airline sales and increased incidental revenue etc and say "ok now we think X many more people will make the trip because the bar has been lowered". Then you drink a nice cool refreshing Dr. Pepper, and maybe book a trip to Denver to buy some edibles.
I agree with the general notion that the wider economic benefits of AirBnb are a bit suspect.
But the benefit to the city isn't just direct income via taxes. That $50 on food results in $4.50 in tax revenue, but also pays the cook, the waiter, the restaurant owner, the guy who owns the building it's in, and the supplier (who probably operates from NJ, but whatever).
Considering how slim restaurant margins are, it's pretty safe to say ~90% of that $50 goes straight back into the economy. The city after all isn't just there to collect tax money, it's also responsible for creating jobs.
If AirBnb was dramatically cheaper than NYC hotels it'd still be a benefit to incur even low levels of tourist spending from tourists who were otherwise unable to afford to travel here. That said, having looked at a lot of AirBnbs in NYC before, they are largely not much cheaper than hotels.
Only the extreme end of sketchy AirBnbs are notably cheaper, and that has negative externalities to the extreme.
In my recent case, I went to a tech conference in LA, and shared an AIRBNB with 3 others. Normally, combined we would have paid $750 a night in hotels ($250 each), but instead we spent $500 total a night.
However, we didnt use this extra money to go out. Instead, since we now had a kitchen, we didn't go out as much (and spent) way less that we would have had we stayed in a hotel.
Overall, I would say we spent about $2500 less total in LA by staying in an AIRBNB, as opposed to if we would have stayed in a hotel.
Now, for the larger economy this is good, as I now have money to spend elsewhere, but, I think you could argue that at least in this case, the LA economy lost money.
It's classic economics: price reductions increase volume.
I'm pretty sure if its "break even" [in terms of tax revenues] it isn't "break even" [in terms of tax expenditures].
If you raise the cost of real estate, you are raising the cost on 175,000+ apartments NYC pays for & 29,000 property owners that take Section 8.
You are also probably one of those people that complain "welfare" is too expensive. Well, if you keep creating economic conditions that raise the cost of welfare and keep campaigning to lower taxes...guess what happens?
This seems to be the case in NYC[1]. Despite growth of AirBnB visitors, visitor spending and even hotel occupancy are up. And it's possible these stats may miss many AirBnB visitors - not sure hot they are collected but likely based of hotel occupancy.
Visitors (international and domestic) to New York City in 2009: 45.8 million Visitors (international and domestic) to New York City in 2008: 47.1 million
Guess when AirBnb became Airbnb.com and popular in NYC? 2009.
I realize correlation != cause but you are claiming a similar argument. Now, you could blame the recession...except it was 2008 when it was at its worst.
Visitors (int'l & domestics)
2013: 54.3 million
2012: 52.7 million
2011: 50.9 million
2010: 48.8 million
2009: 45.8 million
2008: 47.1 million
More interesting is that visitor spending and hotel prices and occupancy also did well. I agree that while none of this is definitive proof on anything. However it is not consistent with AirBnB seriously harming either hotels or visitors. Appears to be a win-win.
Hmm. Now you can blame the great recession but growth did slow.
So lets take 2011 to 2013 [after the Great Recession]: 54.3-50.9 = 3.4 And 2003 to 2005: 42.7-37.8 = 4.9
Notice the difference?
You can't claim this supports your position without cherry picking the data. Its completely worthless.
I'm not sure Airbnb is doing themselves any favors by not cooperating with the AG, however. The 'Commercial Users" are operating secret hotels and getting away with it.
(I like Airbnb but see how fraught it is, too).
It's more like the your renter's insurance company would sue the neighbor's company for a claim. However, since the neighbor was renting out the apartment as an Airbnb property, then their standard renter's insurance was probably invalid at the time. So now your insurance company would sue the neighbor directly and may not be able to pay.
The long term implications are that renter's insurance costs will go up for everyone in that market.
I've long thought that the biggest problem with Airbnb wasn't the tax issue, or even landlords abusing the system and running mini-hotels. It was insurance. I suspect that none of the hosts who aren't physically present (and even some who are) are violating their insurance policy, and if there is a HOA or other sort of shared space, that insurance policy would also be violated.
If hosts had to actually pay the true costs of insurance, the cost savings between traditional hotels and Airbnb would be much smaller. Now, if Airbnb actually offered the insurance to the hosts, or maintained it themselves, that would be something. But that would be fraught with fraud issues over such a wide market.
But insurance isn't a sexy topic...
The cost to the aggrieved neighbor of launching multiple legal actions is proportionately greater since the neighbor's recovery necessarily takes place in arrears and is not supported by a stream of guest rental income. Absent an ability to recover punitive as well as economic damages, the rentier may well find it more profitable to persist.
This leads to an interesting application of the Coase theorem, of course. If you find that your neighbor is renting out on AirBnB and you have a serious anticipation of economic loss, you are in a good position to bring your neighbor to the negotiation table and solicit compensation up front - in other words, to demand your neighbor buy you off for the predictable inconvenience. This idea will seem anathema to many entrepreneurs but it has the economic advantage of predictability, as the long-term economic cost will be the same while the transaction costs may end up being lower.
Otherwise, you're probably SOL. Could try taking her to small claims court, though.
And if hotels go out of business, good riddance. If consumers rather pay a bit less and stay in a house or an apartment, why should the regulator want to mess with their preferences?
As of:
>This drives up rents for residents as it reduces supply of long term housing and inflates landlords expectations on what they can charge.
Take down hotels and build apartment buildings. If as you say the demand is there, the market should take care of it. Although hotels tend to be more space efficient, so new apartment buildings could not be enough to completely offset the price surge.
Airbnb does this already.
The problem is they are secret from the regulators too and aren't following the regulations.
> Take down hotels and build apartment buildings. If as you say the demand is there, the market should take care of it. Although hotels tend to be more space efficient, so new apartment buildings could not be enough to completely offset the price surge.
That isn't how it works. The market doesn't magically fix things when the financial incentive is towards the decision without the "social good" of providing housing to residents. Harmful externalities are something the market blindly ignores because capital can just ignore the damage.
Which regulations?
>Harmful externalities are something the market blindly ignores because capital can just ignore the damage.
What harmful externalities apply to this case?
The "secret hotels" are not following residential fire codes, in numerous instances. Which is a danger to themselves and others.
> What harmful externalities apply to this case?
Shifting housing supply from long term housing [e.g. apartments with 6+ month leases] to hotels/AirBnB rentals [short term housing], reduces long term housing stock and raises prices for residents.
http://www.nytimes.com/2013/09/19/nyregion/poverty-rate-in-c...
20% of NY is below the poverty line. Raising the cost of a basic necessity is really corporate welfare [because it increases costs for the government]. Much like the issue with minimum wage:
http://www.forbes.com/sites/clareoconnor/2014/04/15/report-w...
You really have 3 choices:
1) Deprive people of basic necessities.
2) Raise taxes on Capital [because Labor can't afford it, they are the one that would be subsidized...] to subsidize the basic necessities for the poor. [Hmm, seems alot of AirBnb folks are trying to dodge taxes...making them share data with the IRS/State Tax boards is nice but that doesn't make money appear out of thin air].
3) Set the rules in such a way that there is enough long term housing stock that upward price pressure is kept in line with inflation and let the market sort the rest of it out.
Now you can argue I'm wrong and there is some magical 4th option [e.g. "Increased spending by consumers/capital due to more economic efficiency from using AirBNB"] the problem with this is, without a study proving this claim you don't really have a leg to stand on.
If this is true, this problem transcends Airbnb. If the building doesn't comply with those does, it doesn't matter what it is being used for.
>Shifting housing supply from long term housing [e.g. apartments with 6+ month leases] to hotels/AirBnB rentals [short term housing], reduces long term housing stock and raises prices for residents.
So if hotels produce the same kind of externalities, why are the regulators only focusing on Airbnb?
Incorrect. Its based on usage. Using it for short term tenancy has different requirements.
You really didn't read the OP so I'm done talking to you.
> So if hotels produce the same kind of externalities, why are the regulators only focusing on Airbnb?
...because AirBNB's hosts are not playing by the rules intend to curb the problem. For instance, zoning? Hotel taxes? Following fire codes for short term tenant buildings? Etc?
Hotel taxes don't just magically disappear when the government gets them. They are used to fund city services. City services everyone who comes to Airbnb uses and isn't paying for. They are also increasing the risk of damage to city and their neighbors property. Zoning controls the size of the short term housing and commercial property stock. Etc.
Do you really not understand what these things are for?
At this point I'm just taking the downvotes because I think the underlying issue here is...people on HN really don't understand that these things were created for very valid reasons. Oh well.
They aren't. Regulators are focussed on the externalities associated with short-term tenancy operations in general, which is why they have imposed regulations imposing safety and other constraints on such operations to mitigate the externalities, as well as imposing taxes to internalize the unmitigated externalities by shifting the costs on to the operations benefiting from the activity that produces the externalities.
What you perceive as focus on Airbnb is just the general focus on short-term tenancies being made manifest in a particular way because of a high-visibility group of people flaunting the rules that result from the more general focus on short-term tenancies.
If you can contact me, I would love to consider your place among my options. It is very hard to know if it is a "legit" host or a professional one through the site only, let alone find out the acceptance of the neighbors.
When I first heard of AirBnb that was the case I thought when it made the most sense.
If you have a 2-bedroom apartment, one roommate could host while the other goes on vacation. But they can't both be gone at the same time.
One of the shortfalls from Airbnb, Uber, and other human to human services is that their initial growth & design comes from early adapter use. I can't provide hard facts but the people who use things earlier tend to be a little smarter and a little saner. This observation is based on what happens to online communities as they expand.
Airbnb has built a system, when used the way it was originally intended, with well meaning hosts and gracious renters everything works great. As it transitions to a mass market product dynamics change. You have people gaming the system, hosting sex parties, attacking you with hammers (bad joke), etc. Government & city regulations have a lot to do with managing the "riff raff." Taxes, revenue, rent, these things matter to a lesser degree than personal safety.
Airbnb, Uber, and all of these other sharing services need to think really hard about this. If you are launching your AirBNB/Uber for X service, and your early adapters are already the mass market, acquired through ad campaigns. Watch the hell out.
> 1,406 hosts (six percent) acted as "Commercial Users," running larger
operations that administered from three to 272 unique units
> In 2013, over 4,600 unique units were each booked as private short-term
rentals for three months of the year or more. Of these, nearly 2,000 units were
each booked as private short-term rentals on Airbnb for at least 182 days — or
half the year. While generating $72.4 million in revenue for hosts, this
rendered the units largely unavailable for use by long-term residents. [...]
Units dedicated primarily or exclusively to private short-term rentals accounted
for an increasing share of revenue over time.
> [The] 10 most-booked private short-term listings on Airbnb in 2013 [...] averaged
1,920 booked nights *each*. 72%
Percent of unique units rented in
apparent violation of the MDL or
NYC Administrative Code.
Revenue: $304 Million
Private Short-Term Rentals in New York City Incurred Over
$33 Million in Hotel Tax Liability
Fellow NYC resident here, playing devils advocate: do you think the people renting these AirBNB units are contributing more or less than $33 million to the local economy by consuming local goods/services when they stay here?
You could argue that NJ visitors add revenue to the NYC economy when they ride the PATH into NYC, but that doesn't mean they get to hop the turnstile and ride in for free. Airbnb either needs to change the laws, or abide by them. Rationalizing violations citing the "greater good" won't fly in a city where travel and real estate are such valuable components of the economy.
Hypothetically: I have X dollars in my pocket for a trip to NYC. I can spend it on my hotel + the taxes that the hotel pays, or to an AirBNB host. All things being equal, let's assume AirBNB is cheaper for me because hosts don't pay these taxes, which means I get to keep a larger % of my X.
If I go for the hotel, I'm paying a larger % of my X for the rental (some of which is allocated to taxes), and less stays in my pocket, which means that less will be available for me to spend on the local economy (though it should be benefiting us locals indirectly via taxes, or so goes the theory.)
I'm not going to somehow magically find more money to spend in NYC if I choose to go with the hotel - I'm just going to spend less money, because I have less money, because I've spent more on my hotel.
Your math assumes that somehow I have the exact same amount of money to spend whether or not I choose AirBNB or a hotel, and also that the same number of short-term tenants will visit NYC regardless of the cost they realize paying for AirBNB vs. a hotel - and that further that these short-term tenants will spend the same amount of money on goods and services regardless of their rental costs.
I'm going to go out on a limb and say that's unlikely. :)
"...less stays in my pocket, which means that less will be available for me to spend on the local economy (though it should be benefiting us locals indirectly via taxes, or so goes the theory.)"
I'm not excluding it, just acknowledging that money paid to the city via taxation at best takes an indirect route to benefiting local actors.
Revenue, not profit
Between income tax, hotel tax + the likelihood of the govt or management company coming after you, I think AirBnB is looking a little less enticing to regular people in NYC to rent their homes.
Found a very inexpensive Brooklyn AriBnB for one night JFK run and it was clearly a hostel for international students. At least six beds in the room, was never sure how many rooms.
> New York City Is Likely Owed Millions in Unpaid Hotel Taxes from Private Short-Term Rentals. A number of taxes may apply to private short-term rentals. See Appendix A. In particular, New York City assesses a hotel room occupancy tax of 5.875 percent that applies to private short-term rentals. Excluding fines and penalties, the total estimated liability for hotel room occupancy taxes associated with the Reviewed Transactions is over $33 million.
> Few Airbnb hosts appear to have filed the paperwork with New York City necessary to remit hotel room occupancy taxes, nor did Airbnb collect any of the hotel taxes owed for the Reviewed Transactions.
If it ever files to go public, the Risk Factors section of Airbnb's S-1 is not going to be pretty.
Obviously, it could get very ugly for Airbnb and its hosts in cities where officials don't offer a free pass like San Francisco. Right now, it looks like New York City is out for blood and is not going to follow San Francisco's lead. But even if you assume that Airbnb and hosts receive get out of jail free cards in many cities, as regulation catches up to the market, it's quite possible that Airbnb will see less supply and less demand.
On the supply side, hosting is only going to get more complex and costly. That will obviously convince some hosts to leave the market. Many of the illegal commercial operators who have been violating the law and not paying taxes will either move on or get shut down, and limits like the ones imposed in San Francisco will also work to reduce the legitimate inventory.
On the demand side, the need to deal with red tape and tax compliance will likely remove some of the savings that hosts have been able to pass on to their guests. Obviously there's a segment of the guest market that prefers the Airbnb experience, but there's almost certainly a large(r) segment that chooses to use Airbnb primarily because of cost.
This is the irony of many of the "sharing" economy and "on demand"[1] startups: once their primary competitive advantage is removed (reduced costs from flouting of laws), the economics of their businesses could change for the worse, literally overnight. For those already operating at a large enough scale, an implosion is a real possibility.
Funny how that works, exploit a loophole in a law, and when you get big enough, then make it way more expensive for everyone else to come in after you and cite it as a competitive advantage.