HomeAway Inc., a Texas-based vacation rental company, sued San Francisco to overturn a new law legalizing short-term rentals that it says favors hometown rival Airbnb and discriminates against other rental businesses.

An ordinance approved by city supervisors that Airbnb was involved in drafting grants the San Francisco-based company a local monopoly over the short-term rental business by adopting its business model, HomeAway alleges in a complaint filed there today in federal court.

HomeAway, which operates VRBO.com and BedandBreakfast.com, says it connects travelers with property owners who are paid directly by renters. The company doesn’t receive a portion of the rental fee and makes most of its revenue from owners who advertise on its websites, according to the complaint.

San Francisco’s ordinance allows rentals by only permanent city residents through an “agency” hosting platform like Airbnb’s, through which company lists properties on its website, collects and holds rental payments and charges renters a fee, said Austin, Texas-based HomeAway.

“In its apparently single-minded goal to ‘legalize Airbnb,’ we claim the supervisors ignored the benefits of responsibly regulating a well-established industry, and embraced an unconstitutional and unenforceable regulation,” Carl Shepherd, HomeAway’s co-founder and chief strategy and development officer, said in a statement.

‘Sharing Economy’

San Francisco Mayor Ed Lee signed the short-term rental law Oct. 27, saying as the birthplace of the “sharing economy,” the city needed to modernize its laws to allow residents to earn extra money by renting out homes and to collect taxes from the rentals. The city faces an affordable-housing shortage, with the highest rents in the country amid a technology industry boom.

HomeAway said the San Francisco law unconstitutionally allows only city residents to rent on a short-term basis. There’s no evidence that prohibiting non-residents from renting out property has an impact on affordable housing, it said.

Matt Dorsey, a spokesman for City Attorney Dennis Herrera, didn’t immediately respond to a voice-mail message seeking comment on the lawsuit. Airbnb’s press office didn’t immediately respond to an e-mail seeking comment.

The case is HomeAway Inc. v. City of San Francisco, 14-4859, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net. To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net. Charles Carter, Peter Blumberg.


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Photo Credit: Row houses in San Francisco, California. torbakhopper / Flickr