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Is there a rational, logical approach to regulating short-term rentals from the likes of Airbnb, HomeAway, FlipKey? It’s hard to tell, quite frankly, when you consider the many regulatory battles facing these platforms in cities around the world.
In New York City, according to statistics provided by Airbnb, more than half (nearly 54 percent) of its rentals might be considered illegal. Why? Because they likely violate an existing law that bans rentals of 30 days or less for entire apartments. The state legislature recently passed a bill that would fine short-term rental hosts for advertising illegal listings on platforms like Airbnb, HomeAway, and FlipKey. It awaits the governor’s signature to be signed into law.
The city of San Francisco is being sued by Airbnb for wanting to toughen its existing short-term rental laws by fining Airbnb for allowing unregistered hosts to advertise listings on its platform.
Amsterdam, a city that embraced home sharing early on, is also reconsidering revising its short-term rental laws. City officials have asked Airbnb to share information with them about commercial operators who might be violating the current laws, but Airbnb has refused to share that data with them. Instead, Airbnb said it would “continue discussions” with lawmakers.
The Sharing Economy Is Here to Stay
Needless to say, there are a lot of cities struggling with how best to address short-term rentals, but these rentals aren’t going away anytime soon. There’s a definite demand for the types of unique experiences that home stays provide. Airbnb just welcomed its 100 millionth guest in July after just eight years of operation.
“Surely, a significant proportion, if not a large proportion of activities going through short-term rental platforms operating in New York City, for example, would violate the multiple dwelling law if they were investigated,” said Greg Marsh, co-founder and CEO of onefinestay, a luxury homestay provider. Marsh said his company, onefinestay, however, has been very careful to comply with existing laws and will not advertise any listings that violate the current law.
“What does that tell you? It tells you that you’ve not quite criminalized, but you’ve made problematic an entire graft of economic activity which the participants in the transaction want to engage in,” Marsh said.
It’s clear an outright ban on short-term rentals doesn’t necessarily solve the problem, but neither does having zero regulations — or too many. So how can cities best address short-term rentals to balance the needs of their residents and visitors?
Here are a few suggestions.
Cities and Platforms Need to Be Willing to Work Together
There’s no way rational short-term rental regulation can be achieved if local governments and platforms (Airbnb, HomeAway, FlipKey, etc.) don’t work together, and if they forget about the local communities who are impacted by their actions.
That means cities need to be willing to draft regulations by considering the needs of their local communities, and not because they may or may not be driven by political motivations or alliances. It also means that platforms need to be willing to be transparent and willing to work with cities to provide the data they need to enforce the laws.
“I don’t think that the laws being passed [in New York] are the product of thoughtful public policy discussions,” said Bradley Tusk, founder and CEO of Tusk Ventures and Tusk Strategies. “I think they’re the product of political calculations.”
Tusk is the ex-Bloomberg aide who helped Uber navigate New York City’s regulatory hurdles and the Taxi and Limousine Commission. He specializes in helping companies like Uber, FanDuel, and Tesla handle political challenges and has been openly critical of Airbnb’s strategy for dealing with lawmakers in New York.
Tusk said, “If I were a mayor or governor, I would say our presumption should be to permit people to do what they want to do, but we also need to ensure we do it in a way that’s safe and secure. That’s the lens I would look at it with if I were looking from a public policy point of view. I don’t think that’s how it’s being looked at now.”
Likewise, platforms need to step up and assume some responsibility and oversight over their businesses. It’s not enough for them to say they aren’t legally responsible for the activity that takes place on their platforms. Even if that’s the case, as they argue in the U.S., for example, it’s not enough. Platforms like Airbnb need to be willing to do more to address serious issues like housing shortages and claims of racial discrimination, if only for the benefit of their customers.
“Not every other business has taken that approach [that we have],” said Marsh. “There are many other companies, because they can, to some extent, who said, ‘Oh, we’re just a website. Nothing to do with us.’ It’s like eBay saying, ‘We didn’t know it was a fake Gucci bag.’ I think that’s fine, but some of the mud sticks. Ultimately, it does pull the brand, the marketplace brand, down into the dumps, right? Ultimately, that stuff sticks.”
He added, “I think when you’re in the transaction flow, when you’re responsible for collecting payment and managing payment, and you’re putting your brand on the line, I think you’re in a different place. Customers expect you to be in a different place. This is a complicated business and you can’t always control everything, but you can own the problem.”
Short-term rental platforms also need to be willing to share their data with local governments. Yes, there may be a case to be made for issues of privacy but if someone is willing to house a stranger in his/her home and turn a profit from it, that’s a business — and there should be some oversight, whether on the part of the local government, the platform, or both.
The problem is, cities can’t appropriately oversee or regulate short-term rentals if they don’t know what — or whom — they are dealing with. That’s why it’s essential for Airbnb and its peers to be willing to share their data with local municipalities. This is especially necessary if those platforms also aren’t willing to regulate their users themselves, or to regularly remove users who are basically running illegal hotels through their sites.
“Because they’re [short-term rental platforms] playing quite cavalier — they’re now playing the cowboy game — it means the regulators have the power to over respond,” Marsh said. “You end up with this very difficult situation in cities where I think, in a sense, these companies have kind of forced regulators to act in quite an aggressive way.”
Bottom line: The platforms and the cities need to put their differences aside and work together.
Individual Cities Need to Determine What’s Best for Their Communities
Different cities require different types of short-term rental regulations. What works for one city won’t necessarily work for another. And in some cities, like San Francisco and New York, it’s going to be especially challenging for platforms and lawmakers to find the best way to address short-term rentals.
“In most places, most of the time, there’s no real reason why people shouldn’t be able to monetize their homes through services like Airbnb,” Tusk said. Where you run into problems are really dense cities, like New York and San Francisco, that are vertical and space constrained, with significant affordable housing problems.”
In a way, New York state’s current law addresses this: short-term rentals are only limited in the state’s largest city.
Investigate the Impact of Short-Term Rentals on the Housing Market
This is probably easier said than done, but it’s crucial for lawmakers to know exactly how Airbnb, HomeAway, and their peers may or may not be having an impact on their local housing markets. And to do that, they need honest, transparent data from those platforms, which has never been provided in the past.
“Until we understand exactly why short-term rentals are a problem, it’s not clear what the best policy solution is,” said Eric Goldman, a professor at Santa Clara University School of Law and an expert on legal issues relating to websites.
We’re already starting to see this at the federal level in the U.S. Three U.S. senators recently asked the Federal Trade Commission to investigate the impact that platforms like Airbnb and HomeAway are having on housing markets.
But this also needs to be taking place at the city level, and with data that can be trusted as accurate.
And in places like New York, for example, where there are rent-stabilized and rent-controlled apartments, Tusk suggested those cities need to consider if those systems also need to be modernized.
“If you have rent-stabilized and controlled apartment systems, should people be allowed or not to monetize their apartments? That’s a fundamental question,” he said. “Arguably, if they’re going to make money off their apartments, they don’t need to be subsidized.”
Cities also need to consider if there are inherent rights that renters and property owners have, and whether those should come before other considerations, too, he said.
Put the Public First
Short-term rental regulations should also address fundamental public policy issues relating to health, safety and security, accessibility, and discriminatory behavior.
“We have tons of hotel regulations for all kinds of problems, and an individual mom-and-pop host on Airbnb doesn’t have that sophistication,” said Goldman. “There are potential risks.”
Hotels and lodging businesses are required to abide by a number of laws pertaining to health, safety, and handicap accessibility, as well as discrimination.
Can the same laws that apply to public accommodation be applied to short-term rentals that take place in private homes? Should they be? Should there at least be some bare-minimum requirements for basic health and safety standards?
These are all questions that lawmakers should consider when drafting regulations, and questions that the platforms should also be proactively addressing to the benefit of the general public.
Consider How the Regulations Will Work
Even the best-laid plans can backfire. A perfect example of that is what’s happening in San Francisco.
Airbnb’s hometown approved the so-called “Airbnb law” in October 2014. That law legalized and regulated short-term rentals with the establishment of an Office of Short-Term Rentals (OSTR), requiring permanent residents to register with the OSTR to rent out their permanent residence. But since the law was passed, the city has had a difficult time getting hosts and Airbnb itself to abide by the very laws with which Airbnb worked with the city to put into law.
A March 2016 report conducted by the city’s Budget and Legislative Analyst Office showed that nearly 80 percent of Airbnb hosts were not registered with the OSTR. It was a clear sign that law wasn’t working, and it prompted city supervisors to draft an amendment to the law that would fine Airbnb and other short-term rental sites $1,000 a day for every unregistered host on their respective platforms.
Why did so few residents register? Some, like Airbnb CEO Brian Chesky, said the registration process was cumbersome and difficult to navigate, which is why he waited at least 11 months to formally register with the city to rent out his home.
Or perhaps there just wasn’t enough incentive for residents to get registered. For whatever reason, it just isn’t working. What’s happening in San Francisco demonstrates a lack of foresight on both the platforms and the city. The city assumed residents would register themselves and when they didn’t, the city expected Airbnb to do something about it. The short-term rental platforms interpreted legalization as a carte blanche mandate to simply collect and remit taxes and not be responsible for helping the city enforce the law they had a hand in shaping.
So, lawmakers need to ask themselves these questions: How will the regulations be enforced? Who will be responsible for enforcing them? Where will the money to regulate or enforce the law come from? If you require residents to register themselves, how will you run the registration system? Who will oversee it? Will it be easy for residents to sign up and register?
About Those Tax Agreements
As we’ve noted before, tax contributions from short-term rental platforms like Airbnb can be great, but they may not be as great as cities would hope them to be.
If a city does decide to collect taxes from short-term rentals, it needs to figure out which tax rates apply, and it also needs to consider the overall potential economic impact.
Hotels, for example, contribute a lot of money to cities in the form of local occupancy and sales taxes, as well as taxes related to property, payroll, real estate, and much more. Can cities collect adequate revenues from taxes to support the economic benefit of allowing short-term rentals?
Not only that, but if a city decides to regulate short-term rentals and needs to enforce its laws for rentals, it’s going to need money to do that. Can the funds recovered from taxes appropriately cover the costs of enforcing the laws? Or will they just break even? Is it really worth the overall cost?
Don’t Forget About the Local Community
The single most important party in all of this is the local community. There needs to be a continuous, open dialogue among constituents, the platforms, and local authorities for short-term rental regulations to work. If there are problems, residents should be able to notify the appropriate agencies and to know that their complaints and concerns aren’t just being heard, but are also being acted upon.
“Something that needs to be considered is the impact of transient residents on long-term residents,” Goldman said. “The neighbors of a community may be disturbed or concerned about safety if they see a lot of people going in and out of these short-term rentals in their neighborhoods.”
Marsh noted London’s “complaints-driven approach” as a “really great and very enlightened approach where they’ve found the right balance between the interests of the neighborhoods, residences, building companies, and the interests of the tourists and the interests of the common sector.”
In certain cases, a local council can request to be exempt from London’s new short-term rental laws, which allows Londoners to rent out their primary residence for up to 90 nights a year without having to seek permission from their local council.
“Ultimately, they’ve devolved political authority’s responsibility for policing activity if it becomes egregious,” Marsh said. “There are certain areas of London where those authorities are very engaged because they just know it’s causing problems for all of the neighborhoods. There are other areas of town where it’s just not a problem, and it’s a healthy part of the mix of business and leisure travel now in the industry.”
Can more cities follow London’s lead in adopting short-term rental regulations that balance the needs of all involved? We certainly hope so.
This manifesto is just a start, but we hope it can provide the framework for legislation and for partnerships among the platforms and cities to enact some real, positive change.