Daniel Arauz/Flickr (CC BY 2.0) | Remix by Jason Reed

What an 8-hour city council meeting taught us about Airbnb’s future

Airbnb's 'disruptive' business model is a tough nut to crack.

Mar 1, 2020, 10:47 am*

Tech

Clocking in at about eight hours and accompanied by 255 pages of testimony, the New York City Council hearing on short-term rentals and illegal hotels that took place last month could have serious consequences for apartment rental websites like Airbnb.

Ever since the passage of a 2010 state law amending New York’s multiple dwelling law, Airbnb and other short term rental websites have operated in a legal gray area in New York. The law stipulates that “a Class A multiple dwelling [or a large, multi-family apartment] shall only be used for permanent residence purposes,” defining “permanent residence” as “occupation by a natural person … for thirty consecutive days or more.” Under such circumstances, Airbnb hosts in New York who rent out their apartments while on vacation in multi-family buildings may be breaking the law.

As the largest and one of the most frequently visited cities in America, what happens in New York will certainly not stay in New York—it will likely serve as a model for other cities scrambling to deal with the “disruptive” business model of tech companies like Airbnb.

Fears of vulnerable people reignite the decades-old debate over short-term rentals

The tone for the entire hearing was set by two testimonies from elderly residents of rent-regulated apartments, Audrey Smaltz and Ann Cunningham. Their testimony highlighted the fact that the elderly are particularly vulnerable populations when it comes to the adverse effects of illegal hotels.

Ms. Cunningham, whose building ended up expelling tourists in 2012, spoke of “repairs going unmade, drugs and prostitution in the building, and constant harassment by a landlord who sought to kick out long term tenants in favor of tourists” making her feel unsafe in her own home.

Ms. Smaltz testified, “My friends and neighbors are being replaced by strangers and tourists. … We don’t want that. We are all senior citizens and want to live in the same safe, peaceful building we have always lived in.”

Smaltz said that at one point, a tourist wandered onto her terrace on the tenth floor—a frightening experience that made her realize just how unsafe a situation her building owners had created.

Marti Weithman, Director of the Goddard Riverside SRO Law Project, elaborated on how illegal hotels crept onto the market over a decade ago, starting in single room occupancy (SRO) apartments on the West side. These apartments offer access to shared amenities, like bathrooms and kitchens, while providing private rooms for tenants. They often are homes for “some of the most vulnerable and marginalized residents in the city, including the elderly, disabled, and people who otherwise would be homeless,” she said. Since their layout resembles that of a hotel, they were some of the first properties to turn into illegal hotels.

Granted, Airbnb did not create this issue, but as Ms. Weithman notes, the company and other booking websites “facilitate the easy dissemination of advertisements for illegal short-term rentals.” Sarah Desmond of Housing Conservation Coordinators laid the blame on “mass-deregulation of affordable housing” for allowing this situation get out of hand. Websites like Airbnb, Bookings.com, Hotels.com, Yourstay.com and others that came up appear to simply be taking advantage of considerable loopholes.

As Manhattan Borough President Gale Brewer stated “this is not just about adopting to new technology—this is a very old fight to protect our housing.” There was a consensus throughout the hearing, however, that new technologies have made it easier for bad actors to abuse a regulatory environment in which, as Ms. Brewer described it, “nobody really knows the law.”

No doubt, decades of deregulation provided fertile ground for the tech industry’s “disruptive” business models to flourish, but whether intended or not, the side effects now linked to these models will make the public and city governments more skeptical in dealing with the industry.

Effectively enforcing laws against illegal Airbnb rentals is hard

The second set of testimonies the hearing examined came from city officials tasked with addressing the short-term rental issue. No one said it explicitly, but it would appear that the City’s Office of Special Enforcement (OSE), an inter-agency office tasked with enforcing the city’s multiple dwelling and illegal hotel laws, has been operating with a “broken windows” approach to tackling this situation.

As a complaint-driven department, OSE investigates problems that residents call in on the city’s 311 hotline, which vary widely. In 2014, the office responded to 1150 complaints related to illegal hotel operations, conducted 883 inspections, and issued a total 886 violations. According to testimony from Elizabeth Glazer, Director of the city agency that oversees OSE, the office’s “targeted enforcement” policy and current law “enables the office to focus on the most egregious offenders.”

But several City Councilmembers seemed far from convinced that this was the case. Council Member Helen Rosenthal expressed her incredulity that OSE thought it could respond effectively to the illegal hotel problem by only going after complaints the office received through 311. She and other councilmembers thought the office was not being proactive enough by responding to just around a thousand complaints “when we know there are over 2000 illegal listings in Councilman Antonio Reynoso’s district, let alone the Upper West Side,” which she represents.

Other council members expressed their concern that OSE’s enforcement tactics were harassing small-fry Airbnb hosts and actual bed and breakfast owners. Council Member Robert Cornegy repeatedly voiced his concern that bed and breakfast owners have been getting caught up in an enforcement spree ever since Airbnb started making headlines. Vanessa Milando of Ivy Terrace B&B spoke of how “our ‘brick and mortar’ B&Bs have become the unintended targets of this law,” testifying that, in the last year, her profits have gone down by 19 percent.

“Broken windows” enforcement hasn’t worked, and Council seeks a new strategy

Despite issuing hundreds of violations and investigating over a thousand cases, OSE has only pursued one lawsuit in the past year, apparently relating to fire safety issues. As the City Council listened to testimony from OSE representatives and barraged them with questions afterward, it became apparent that this small, complaint-driven department lacked the resources necessary to be proactive in pursuing serious litigation against illegal hotel operators.

Councilmember Rosenthal asked as much directly: “If you had more staff, could you respond more quickly, issue more violations, and bring more cases to court?” Others pointed to the State Attorney General’s report on Airbnb, which discovered that an upper echelon comprising 6 percent of Airbnb hosts in NYC are commercial entities listing hundreds of properties and receiving 36 percent of all Airbnb bookings in the city. Public Advocate Letitia James demanded that OSE change strategies and submit a plan for how it can use more resources to go after those big players.

This does suggest that Council seems inclined to crackdown on illegal rentals, but it more importantly shows that Council is serious about going after big illegal hotel operators. As Alexis Goldstein notes about the SEC’s “broken windows” enforcement in the finance industry, when a regulatory agency doesn’t have the resources necessary to go after serious breaches of the law, it can easily pad the books by going after smaller players. It would seem that that will no longer work for OSE.

Airbnb makes an easy target for elected officials with an agenda

It’s worth repeating that Airbnb isn’t responsible for creating this economic dilemma, which came into being thanks to elected officials who promoted a lax, confused regulatory environment for housing in cities across the nation. Tech corporations like Airbnb thrive off these kind of situations by taking advantage of the hazy legal status of the “sharing economy” —the subset of start-ups that operate by putting consumers and providers of a service in contact with one another. As they argue, they simply provide a platform and are not liable for what their users do.

The fact is, between 1991 and 2008, the share of rent-regulated apartments in New York City dropped from 74 percent of all units to 64 percent thanks to policies enacted by both the state and local government.

A series of state laws, starting with the Rent Regulation Reform Act of 1997, which received tweaks in 2003 and 2011, made it easier to decontrol apartments once vacated if they can fetch a price of $2,500 a month or more on the open market. That isn’t Airbnb’s fault. Likewise, the inclusionary zoning approach touted by Mayor Mike Bloomberg, and now Mayor Bill de Blasio, make big promises in terms of expanding affordable housing but fall short in terms of implementation. Though a boon for real estate developers, this plan may hardly benefit average New Yorkers—target rent prices for “affordable” units in inclusionary zoning projects are often far from affordable for most people.

Rents deemed “affordable” at the ongoing Atlantic Yards project, for example, could be as high as $3,000 per month.

The illegal hotel problem has exacerbated New York’s affordable housing crisis by encouraging landlords to take units off of the market to use as transient housing, but it is not its cause. City officials may think they have found an easy scapegoat in Airbnb, but they cannot solve this problem without doing anything to increase the stock of low-income housing in the city or protecting rent-regulated apartments.

Gridlock between politicians and Airbnb has only just begun

The tensest exchange of the hearing came about three and a half hours in, when Airbnb representative David Hantman spoke before the council. While Hantman was clear in saying that Airbnb does not support illegal hotels and aims to provide a “quality experience” to all guests, Council Member Jumaane Williams, who chaired the meeting, bluntly interjected “it’s like grating on a board every time I hear you say ‘quality experience’ but never mention legality.”

“Whether you think the law is right or wrong—I am always one for a good protest—so I’m down to protest laws that are wrong. … But I cannot understand … how you can sit there and never mention violations of city, state, and federal law,” Williams added.

Hantman later clarified his company’s position quite firmly: “We believe very strongly that you should be allowed to rent out your own home whenever you want.”

Clearly, the conflict between Airbnb and the city of New York will not be ending anytime soon. But change can also come from below. Uber’s impact on the taxi industry has been widely discussed; less often noted is the fact that cabbie-run co-ops have also been on the rise, as the industry seeks to compete with these new models. At risk of closing with platitudes, perhaps the only way to respond to Airbnb’s disruptive business model is through “innovation,” that seemingly magical panacea-word for all our present society’s ills.

For the New York City Council, it will be necessary to rethink the way it allocates funds into the city’s enforcement activities to focus on big illegal hotel operators while also getting serious about affordable housing. For ordinary New Yorkers whose rents continue to rise, organizing around cooperative housing is a greater imperative than ever. And as for Airbnb, it may just have to “innovate” its way into following the law.  

Photo via Daniel Arauz/Flickr (CC BY 2.0) | Remix by Jason Reed

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*First Published: Feb 7, 2015, 11:30 am