Airbnb and the Sharing Economy

By David Kong

Thursday July 9, 2015
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Welcome to the inaugural post of ‘It’s Personal’, an online forum where I will share my own experiences and opinions on the lodging industry. As the name implies, I’ll take on issues that I’m passionate about — but the secret sauce is you. I am hopeful we can start a discussion and want to hear your feedback.

Let’s start by looking at Airbnb, the online room sharing service that connects travelers with available homes, apartments and spare bedrooms, which is viewed by some as a threat to the hotel industry. Many hoteliers are concerned that Airbnb will siphon off their business. But are they really a threat?

For starters, I think it’s important to note that Airbnb has achieved a remarkable expansion in a relatively short period of time. Since launching seven years ago, the company reports that it has served over 35 million people and boasts over 1.2 million listings spread across 190 countries. And despite a raft of regulatory issues facing the business, Airbnb recently raised over $1.5 billion and is now valued at $25 billion, a figure well above $21 billion Marriott International and one that places it amongst the upper echelon of private U.S. technology companies, such as Uber, Snapchat and Dropbox.

The engine behind Airbnb’s success, of course, is the very same one that’s behind Uber, HomeAway, Lyft, SnapGoods or DogVacay — the sharing economy, or collaborative consumption, a business model which leverages internet efficiencies to match unused products or desired services with interested consumers. It is unlikely that this trend will be slowing down any time soon. In fact, according to PWC, online sharing businesses will generate revenues of up to $335 billion by 2025.

Yet, some people in the industry feel we have nothing to fear. After all, 2015 is shaping to become the best year ever in the history of the U.S. hotel industry. In addition, hotels have a distinct competitive advantage —the ability to deliver a consistent guest experience. Every room is different at Airbnb. You can’t mingle with staff and fellow guests in a lobby. Need a document printed? Want your room cleaned at 11 p.m.? A wake up call with a friendly voice followed by a fresh, well-done complimentary breakfast? Need a suit pressed before your business meeting? You’re on your own with Airbnb.

There are several areas of concern with Airbnb. As anyone who manages a hotel will tell you, our industry is taxed and regulated. We pay hotel taxes, state, local and tourism taxes… there’s income, liquor and rental taxes, amongst others. And then there’s a whole host of insurance, health and safety obligations that come with considerable oversight (meeting these exacting standards is a very good thing ─ guest safety is the top priority for any hotel).

There are only a handful of cities that levy hotel and accommodation taxes on short term rentals. In addition, these laws are not being adequately enforced. Also, there remain tremendous gaps in regard to health, safety and disability compliance standards. Indeed, staying at an Airbnb room, or having an Airbnb guest living next-door, exposes one to a litany of risks that allows little in the way of recourse when things go terribly wrong.

The ongoing legal dogfight in New York City exposes another pejorative impact of the room sharing business model, one that’s received far too little attention. Airbnb and other short-term rental sites drain affordable housing, turning available real estate into tourist destinations. An October 2014 report from New York Attorney General Eric Schneiderman indicates that the volume of Airbnb rooms in New York City surged from 2,650 in 2010 to 16,500 in 2014, and that nearly three quarters of the listings violated city or state laws. Add 1,150 illegal-hotel complaints and 883 inspections to this picture, and the economics behind room sharing appears in a different light.

The American Hotel & Lodging Association is doing a laudable job in forming alliances and educating the FTC, legislators and municipalities on these issues and encouraging regulations and laws to be passed. It is also important to clearly identify what the industry is concerned about.

It seems the industry should accept that the sharing economy is here to stay. However, we should be concerned with commercial real estate landlords who buy up affordable housing to rent out on Airbnb. It is estimated that in New York City, in excess of 40% of Airbnb rentals belong to these landlords, who reaped nearly $175 million in the last year alone. Faced with this reality, the New York City Council recently proposed new legislation that would impose stiff penalties for landlords who violate the City’s ban on short term rentals ─ fines for first offenders would increase tenfold, from the current $1,000 to $10,000, with the maximum penalty jumping from $25,000 to $50,000. In the years ahead, other cities should follow New York’s lead.

We should also clearly identify the responsibility of Airbnb and other online short-term rental marketplaces. Through legislation, they should be required to report who is hosting, where and how much they charge. They should be required to collect the taxes owed and also verify that the rentals meet local, state and federal requirements on health, safety and disability access requirements. Only then can the interests of the public be truly protected.

As responsible members of the hotel community, we should support the efforts of the American Hotel & Lodging Association as it educates government officials and elected representatives. Additionally, and importantly, when matters such as short-term rentals are being considered at federal, state and local levels, we need to be involved and ensure our voices are heard – loud and clear. Only through our being involved in matters of this nature can we ensure that our interests, as well as the interests of the travelling public, are being protected.

I look forward to sharing my experiences and observations on a regular basis with all of you. And most importantly, hearing back from you.

Let’s start the conversation.

Please join the conversation by connecting with me on LinkedIn. Or you can send thoughts directly to itspersonal@bestwestern.com