Will Airbnb’s $21 Million Olive Branch Get It Legalized in New York?

By
Not an Airbnb apartment. Yet.Photo: Shutterstock

The path to legality for "sharing economy" start-ups has gotten pretty well-worn by now. First comes the stealth move into a new market, then comes the objection from industry trade groups who seize on some arcane law to declare the start-up illegal, then comes the crackdown and chest-puffing, then the start-up begins mobilizing an army of fans and sending out angry letters accusing trade groups of corruption, then the hearings and task forces, and finally, the eventual cake-splitting resolution. It's a nasty, time-consuming ritual, but it's become so routine that an entire cottage lobbying industry has blossomed to ease the process for companies like Uber.

Until recently, ad hoc rental platform Airbnb followed this model to a T in its quest to become legal in New York City. Then, something odd happened: Airbnb capitulated to the hotel industry, and the hotel industry kept on fighting.

Unlike Uber, which prefers the guns-a-blazin' approach to regulatory conflict, Airbnb plays a gentler game. It's been spending hundreds of thousands of dollars on lobbying, hiring connected insiders and making cheery infographics about how much it really wants to pay taxes, buy textbooks for New York City schoolchildren, and usher in a brighter tomorrow. Airbnb CEO Brian Chesky has adopted the pose of the friendly, misunderstood Silicon Valley underdog, just trying to get his idea to the masses. (Compare Chesky's "I want to live in a world where people can become entrepreneurs or micro-entrepreneurs" to Uber CEO Travis Kalanick's "I don’t care who the fuck they’re protecting, that’s corruption.”)

Hotel owners haven't been swayed by Chesky's aw-shucks attitude. (Maybe because he's been less conciliatory in private.) They want to drive Airbnb out of New York City, because it's cutting into their profits and providing tourists with a cheaper, less-regulated alternative. They've claimed, somewhat disingenuously, that letting people rent out their apartments to strangers would contribute to an affordable housing crisis (you can get there, but it takes a few leaps), that Airbnb rentals wouldn't be required to adhere to the same safety standards as regular hotels, and — most important — that Airbnb was allowing its hosts to dodge millions of dollars in occupancy taxes.

The tax argument was the one that stuck — last year, New York Attorney General Eric Schneiderman subpoenaed Airbnb for a list of users in order to figure out how many of them were shirking their occupancy tax duties — and hotel operators repeated it ad nauseum.

"These people don't pay taxes," one hotel operator said last August.

"These illegal facilities are impinging on available housing stock, lost revenues for the city, and potential job losses for NYC’s tourism industry," a hotel industry rep said last month.

Now Airbnb has changed course and announced that it wants to pay its tax bill — or collect taxes from its hosts and pass them on, more accurately — which they've tallied at $21 million a year. Right on cue, hotel owners are changing their tune and insisting that Airbnb not be allowed to pay taxes as a regulated entity, because that would bring them under the umbrella of legality. “For them to turn over a law to collect taxes is them just trying to legitimize what we see as an illegal business,” Geoffrey Mills, chairman of the Hotel Association of New York City, told the New York Post.

There's a deft bit of circular logic hidden inside that statement (Airbnb shouldn't be legalized because it's illegal). But surely, the hotel industry has other reasons to oppose Airbnb; after all, this is a start-up that has gotten bad press for all manner of sketchy use, and whose shoot-first, regulate-later approach to expansion should raise some hackles. I asked Mills of the Hotel Association what his remaining non-tax objections to Airbnb were, and he framed it as a quality of life issue.

"Residential zoning laws prevent short-term illegal conversions in order to protect limited, affordable housing stock from being turned into makeshift hotels, which raises rents, creates a nuisance to neighbors as well as unanticipated impacts on the quality of life in communities all over the city," Mills told me. This bit of concern-trolling is a red herring, of course, (does anyone really think New York's hotel owners care about affordable housing, rather than protecting their economic interests?), but it's a signal that the hotel lobby isn't ready to give up the fight.

There are actually two laws standing in Airbnb's way. One is a law that says that only hotels are allowed to collect and pay occupancy taxes. Another is a law that prohibits New Yorkers from renting out their homes for less than 30 days without the primary occupants being present. If Airbnb wants to operate legally in New York, it will need to find a way to get both overturned.

In San Francisco, Supervisor David Chiu recently introduced a bill that could show a way forward. Under San Francisco's proposed law, the ban on short-term rentals would be lifted, and in return, Airbnb hosts would be required to register with the city, pay occupancy taxes, and fulfill certain other obligations. It's not the deal either side wants, but it's a way for a city to acknowledge Airbnb's right to exist while also addressing the hotel industry's actual concern — that the site will pick off its bookings — by putting up barriers to entry for Airbnb hosts.

People have compared Airbnb's fight for legitimacy with Uber's. The two companies are actually fairly different when it comes to the risks they pose to incumbents (for one, car service is a commodity, whereas Airbnb and traditional hotels offer different amenities and could coexist just fine). But the counter-campaigns look a lot alike. Taxi owners don't want to see the value of their medallions diluted by new entrants, and hotel owners don't want official status given to quasi hotels that don't have to jump through the same kinds of regulatory hoops they once did.

Now that Airbnb is offering to pay its share of the occupancy tax, the question that's left is whether the hotel industry will make room for a compromise. I hope it does; with the right controls in place to prevent overaggressive landlord behavior and a registration system that puts Airbnb hosts on the books, the site could be a huge benefit to thrifty tourists and New Yorkers looking to lower their rent burdens by taking in strangers. But more likely is that it will take some legislative strong-arming (and a few million more lobbying dollars) for Airbnb to get its way. If even a $21 million white flag can't loosen the hotel industry's opposition, it's possible that the only choice left is playing hardball.