AirBNB: the Controversy

AirBNB launched in 2008, then called Airbed & Breakfast. Over the next two years, the company boomed, changing its name to AirBNB and reaching 1 million nights booked in 89 different countries by the spring of 2011.

AirBNB quickly became a well-known alternative to hotels. It is attractive due to its affordability, personalized home feel, kitchen space for cooking to further save money, and friendly hosts available to give information and tips about the city from a local’s perspective. A growing number of people choose AirBNB over hotels, and hotel lobbyists as a result began to battle against the current practices of short-term rental companies like AirBNB.

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AirBNB remains largely unregulated, existing in a legal grey area. Normally it is considered OK if you are the owner or you have the owner’s permission as well as the permission of the other residents in the building. If you or a roommate are living at least part of the time in the apartment, then technically it is perfectly legal in the US to use the apartment additionally for AirBNB purposes, as was determined in the 2013 NYC court case against Nigel Warren, whose fine of $2,400 was eventually lifted, with the help of AirBNB, after proving that a roommate was there for part of the time.

The legal war continued for a year between AirBNB and NYC, but throughout that time AirBNB more than doubled its guests served, from 4 million to 9 million in only 8 months’ time. Eventually NYC gave over the information of its hosts who rent out multiple properties without its main occupant present, but given that they number in the tens of thousands, it is still a daunting task to enforce regulations even when they are established.

Cities across the country are grappling with these questions.

Like New York, Santa Monica banned short-term rental of entire homes when the host is not present and additionally imposes a 14-percent tax when a host rents out a room in his house.

Cities, one by one, are establishing their own rules. San Francisco residents are now permitted to rent out homes for a maximum of only 90 days a year. In Philadelphia, the maximum is 180 days and hosts must also pay an 8 1/2% hotel tax to the city.

In many markets, Airbnb and similar short-term online rental marketplaces are technically illegal, but lax enforcement of existing laws has allowed these entities to grow exponentially in size.

Their increasing popularity, together with unclear regulatory structures, has prompted many local governments to examine new ways to tax and regulate these companies.

Airbnb has led aggressive outreach programs in several cities, engaging local officials, agreeing to collect and pay some taxes, and pushing for favorable rewrites of local planning law.

Hosts are responsible for filing their own income tax as self-employed real estate business owners. AirBNB has begun including a hotel tax within their fees in many cities, and the number of cities included is growing. It is a relatively slow process, however, as AirBNB must work with each city individually. In fall of 2014, AirBNB began collecting a 12% occupancy tax from guests and hosts to pass along to the government of their behalf in Amsterdam, San Jose, Chicago, and Washington, D.C.

The main problem remains that most of the apartments are zoned as residential, and therefore to be perfectly legal, in additional to paying all taxes, hosts much check zoning laws and possibly be required to register the business and get the apartment approved for <30 nights occupancy use.

What makes this not very straightforward is that the majority of hosts let only one property–their own home. The number of hosts that have multiple for-profit properties listed on AirBNB is only about a maximum of 1 out of 10 in most cities. Therefore the law would be applied differently to different hosts on AirBNB, which makes regulating AirBNB as a whole unclear.

Vijay Dandapani chairs the New York City Hotel Association:

“We have a fire command system, security systems that give you protections from intruders, and so on. The moment you get into converting your house into a hotel, which is de facto what is being done nowadays, none of those protections are there.”

The question is: how much freedom do people deserve? These are properties either they own or another owns with whom they have a contract and consensual agreement with. We aren’t required to have such stringent standards for fire command and security systems in our own homes, even when sublet for at least 30 days, so why does it suddenly become an issue when renting for less than 30 days? I suppose the line must be drawn somewhere, but the line seems to be pushing its limits against personal freedom and our own responsibility for the consideration of our own personal safety.

This is a community issue. If the neighbors in the apartment building have no problem with the use of the apartment as a vacation home, then it’s really none of the state’s business what the apartment is being used for. I could be knitting 24/7 in my residence and selling my self-made scarves and sweaters to all the strangers kind enough to stop by–it would be absurd to prosecute me for refusing to declare this as a business.

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This is where it becomes interesting, because the state doesn’t care much about 5 or 10 scarves being sold every once in a while under the table, but to sell 30/day every day, advertise, and put a sign up on my door saying “Welcome, come inside and buy my knitwear!” Suddenly there is pressure to pay income tax and it becomes a question whether I am illegally using a residential zone as a commercial one.

The shared economy has reintroduced power to the people and the community by introducing platforms that create free, largely unregulated markets. This is a good thing. There was a time with the government kept out of people’s business for the most part. The power and control of the government has continued to increase and the internet is making this a great deal easier for them. The idea that every bit of gain we make must be shared with the government is absurd in my opinion, but the government prefers to control and profit from all markets, always. Free markets are so natural–people are attracted to freedom and personal/mutual gain, which is why services such as AirBNB and Uber grow exponentially and very quickly overtake heavily regulated markets.

I have no qualms with the income tax, but I personally think the hotel and occupancy tax is unfounded. Again, you have to draw the line somewhere, but I favor privacy, personal freedom, and decisions based in the immediate community for such limited scale uses of property.

Even so, like many hosts, we simply wish to continue doing what we do; if we have to make less money by paying an assortment of taxes and fees, then so be it. But it will be great when the day comes when we hosts no longer have to feel like we might be doing something wrong when everyone directly involved is happy and we are contributing to the vitality of a booming free market.

 

 

 

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