Skift Take

Hosts like Warren are the greatest evangelists of the sharing economy. But when they have to suffer financially they become the worst spokesmen.

Yesterday a New York City judge ruled that Nigel Warren, a tenant in who rented his apartment to a user on Airbnb would have to pay a $2,400 fine for breaking a New York State law that prohibits almost all rentals of apartments for less than 30 days in the city. The New York Times‘ Ron Lieber began covering Warren’s case in November, and he was seen as something of a canary in the coal mine in the industry; so much so that Airbnb sent legal representation to advise Warren.

Still, he lost, and he’ll have to cover the fine.

Airbnb responded to the ruling by issuing a statement which read, in part, “This decision runs contrary to the stated intention and the plain text of New York law, so obviously we are disappointed.”

The problem is, the decision was exactly in line with the plain text of New York law (you can read the full senate bill here). The law was written to deal with the growing number of apartments in New York City that were being used to house by-the-night transient visitors. Although Airbnb has consistently argued that this was a movement by the threatened hotel industry to ban short-term rentals, it was actually a years-long movement by tenants and community groups to prevent the wholesale takeover of buildings zoned for residential use by landlords eager for the higher incomes short-term rentals could bring. In fact, some of the more brazen landlords had legitimate hotel brands as their illegal operations, such as a Marriott ExcuStay in Chelsea.

It’s important to note that while Airbnb has become the poster child for the fight in New York, it’s about any short-term rentals that don’t abide by the city’s laws. Earlier this month, the city’s largest housing development had to remind its tenants that they would be evicted if they took FlipKey up on its open solicitation to use their units for short-term rentals.

We covered the issues specific to New York City earlier this year in the story “Airbnb’s growing pains mirrored in New York City, where half its listings are illegal rentals.”

In the interest of making things clear, here’s the official Skift cheat sheet to Airbnb rentals in New York City:

How do I know if a rental is illegal in New York City?

If the rental period is for less than 30 days and the person renting you the unit will not be present, the rental is illegal. There are a few tiny exceptions (such as when it’s for an entire house that meets a relatively rare residential classification), but not in the neighborhoods that visitors actually want to stay in.



What if the landlord is the one doing the rental?

Then he or she could real be in for trouble, if the city decides to crack down.

One of the reasons New York State passed the law in July 2010 was to do battle with landlords who were replacing tenants with by-the-night renters, effectively turning apartment buildings into hotels, but without the zoning or safety requirements. Airbnb has always downplayed the number of units that fell into this category, but they were in the thousands before October 2012, when the most notorious operator, Smart Apartments LLC, was sued by the city for over $1 million and shut down for operating hundreds of illegal rentals, often taking over entire buildings in the city’s most desirable residential neighborhoods. Smart Apartments was a marketing agent operating on behalf of landlords, and chose to promote its units on sites across the web, including Airbnb.

This isn’t just a problem for Airbnb: Online travel agencies such as Expedia were booking rooms in illegal hotels throughout the city, too. And it still does. This Central Park Suites hotel listed on Expedia is not a legal hotel.

Shouldn’t an owner or tenant be able to do what he or she wants with an apartment?

There are all sorts of restrictions on owners and tenants. They can’t open a homeless shelter, nightclub, office, manufacturing plant, or youth hostel without the proper zoning. (It’s easy to open up a house of worship, but that’s another matter.) Renting an apartment for a transient guest changes the nature of a property and affects the quality of life of other residents, from security, sanitation, and noise, to the cost of a yearly lease as well as basic maintenance and wear-and-tear issues.

There are bigger issues about how it affects neighborhoods, too, but we’ll leave that to urban planners to explain.

Aren’t hotels scared of the disruptive power of revolutionary services like Airbnb?

“Scared” may be a strong word, but they certainly aren’t happy with the competition. Hotels don’t like the fact that Airbnb and its peers are able to make money off transactions that hotels would face stiff fines for. And they don’t like the fact that the cost of meeting safety and zoning regulations, as well as the high cost of room taxes — which often go to fund infrastructure that makes travel easier — are one reason why hotel rates aren’t competitive with peer-to-peer sites. Like any other industry, they’re going to try to squash the newcomer trying so steal market share.

Can’t we all just get along?

Airbnb’s CEO likes to share loopy ideas about how one day we’ll all give up property and share to our hearts’ content. But really, the sharing economy is about upstarts creating great new products and services that allow them to slice off business from established powers. And they’ve proven to be really good at it.

While some of the revenue for companies like Airbnb has heretofore been unrealized, many of the dollars would have otherwise gone to hotels. There’s no sharing taking place here, just smart business.

What’s next?

In San Francisco, city leaders are trying to figure out how more short-term rental units can be made legal. Nationwide, HomeAway CEO Brian Sharples has taken the role of the adult in the room and has shown that in cities like Austin, Texas, hosts and the city can work together. He’s spearheading a group called the Short Term Rental Advocacy Center that’s teaching hosts how they can begin a dialog with local government to make sure rules are fair on both sides.

Any across-the-board solution, though, will come with more regulations and reporting that we currently see in the market. Hosts will have to start reporting income on tax returns if they don’t already, and they may be required to purchase different insurance policies and meet licensing requirements from local municipalities.

That’s likely to scare off people like Nigel Warren who are just trying to make a few bucks on the weekends they’re out of town. And this uncertainty about fines and penalties for hosts is what really scares short-term rental companies.

The full decision in the Warren case:

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Tags: airbnb, nyc, sharing

Photo credit: If this apartment is rented for less than 30 days it is illegal. Airbnb

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