New York State Attorney General Eric
Schneiderman released a report last week on Airbnb’s
effect in New York City (NYC). In conjunction with the report’s release, he
issued a press release with the following statement:
“We must ensure that, as online marketplaces revolutionize
the way we live, laws designed to promote safety and quality-of-life are not
forsaken under the pretext of innovation. The joint city and state enforcement
initiative is aimed at aggressively tackling this growing problem, protecting
the safety of tourists and safeguarding the quality-of-life of neighborhood
residents.”
The key findings in the report do not provide convincing
evidence that Airbnb’s presence presents a “growing problem.” In fact, they
provide the opposite. Some key findings pulled from the Attorney General’s
press release read:
“Commercial
users run multimillion-dollar businesses”
“Gentrified
neighborhoods account for vast majority of Airbnb revenue”
“Short-term
rentals are displacing long-term housing options”
The
phenomena described by these findings do not have inherently negative effects
on the economy – or on NYC’s residents and consumers. In fact, the effects may well be positive.
“Commercial users run multimillion-dollar businesses”
implies that individuals are taking advantage of entrepreneurial opportunities
and providing valuable services to satisfy a consumer demand. Are traditional commercial hotels not running
multimillion-dollar businesses? This finding sounds like increased competition in the lodging market.
“Gentrified neighborhoods account for the vast
majority of Airbnb revenue” simply may mean that consumers value lodging in upscale
neighborhoods if the price and location align with their desired lodging experience.
“Short-term rentals are displacing long-term housing
options” is a market outcome that may simply reflect consumer preferences based
on a variety of trade-offs regarding the available price, location, comfort, amenities, and options. In a leading tourist destination
like NYC, it is not surprising that many consumers may value short-term rentals
over long-term ones. This has a positive effect, not a negative one, because increases
in short-term rentals bolster a growing tourism economy. (See FSF blog on
Airbnb and European tourism here.)
But, according the Schneiderman, the most important finding
from the report is that 72 percent of Airbnb transactions in NYC from January
2010 to June 2014 allegedly were “illegal hotels.” However, as explained in a paper written by Free State Foundation Research
Associate Michael Horney and me, “The
Sharing Economy: A Positive Shared Vision for the Future,” markets have efficient self-regulating
mechanisms. Competition between Airbnb and other home-sharing applications like
Roomorama and VRBO and traditional
hotels and inns creates a “check-and-balances” system to help ensure quality
service. Additionally, Airbnb specifically provides mechanisms to help ensure quality service, such as a feedback rating system and a $1
million insurance policy.
As Attorney General, Schneiderman’s perspective is that so-called “illegal
hotels” are automatically bad because his job is to enforce the law. But consumers
are not forced to use Airbnb; they voluntarily
choose to use Airbnb’s application engage because they value its service. If “illegal hotels”
were harmful to consumers than the revenue from Airbnb transactions ($282
million estimated for 2014) would not be increasing year-to-year.
This is not an argument for ignoring valid laws
or regulations, even one that may need updating or repeal to account for new digital
age circumstances. But apparently, Airbnb
has been compliant throughout the whole investigation by providing the data
used to produce Schneiderman’s report. And,
according to a New York Times article, Airbnb spokesman Nick
Papas said: “We need to work together on some
sensible rules that stop bad actors and protect regular people who simply want
to share the home in which they live.”
In our view, New York State’s
law which prohibits New Yorkers from renting out their apartments for less than
30 days without being present may not be sensible considering the vast amount
of tourism and business that occurs in NYC. In addition to the self-regulating mechanisms it
has instituted, Airbnb is also subject to health, safety and consumer
protection laws and regulations of general applicability. Therefore, there is
no reason to suspect that unsafe and unhealthy conditions for consumers will become
prevalent, even in what Mr. Schneiderman characterizes as “illegal hotels.”
The most important conclusion to be drawn from
Attorney General Schneiderman’s report may be one he does not intend to highlight:
Airbnb is much more important for the NYC economy than most people realize. And
this conclusion ought to lead to the derivative conclusion that the 2010 law
banning short-term rentals and any other outdated regulatory impediments should
be changed to allow for this important economic activity to benefit visitors as
well as New York residents who wish to share their residences.
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