American Prospect: The Unsavory Side of Airbnb

By Steven Hill, American Prospect, November 1, 2015/Fall Issue

How the popular matching company facilitates landlord conversion of entire rental buildings to de facto hotels. 

“Belonging is the idea that defines Airbnb,” says its young, 34-year-old billionaire CEO and co-founder Brian Chesky. “Really, we’re about home. You see, a house is just a space, but a home is where you belong. … That is the idea at the core of our company: belonging.”

Airbnb has captured the imagination of both travelers and homeowners. Most of its hosted rentals are an inexpensive, adventurous way to travel, as well as a source of extra money for some residents. Airbnb is cool. No question, there is a legitimate and innovative use for web and app-based companies that match residents and travelers. Craigslist was an early, successful pioneer in this digital space.

Launched in a San Francisco apartment just seven years ago, Airbnb has taken this service to a dramatically new level of expansion. It has become a global behemoth with a market valuation of $25 billion—more than three times that of the 50-year-old Hyatt Hotels chain.

But in touristy cities with housing shortages and hot real-estate markets—New York, San Francisco, Los Angeles, and many more—Airbnb plays a less savory role. Not only does Airbnb facilitate illegal conversions of entire buildings from tenant apartments to de facto hotels, it has also become part of the landlord lobby that resists enforcement of local laws prohibiting such abuses. To be sure, places like San Francisco would suffer the effects of conversions even without Airbnb, but the evidence shows that Airbnb supercharges the process.

Take the case of Chris Butler, who was evicted from his rent-controlled apartment on the grounds that the owner’s husband needed to move in (a legally acceptable reason for evicting a tenant, called “owner-occupied move-in”). Yet the husband never moved in, and instead the owner listed that unit as well as another on Airbnb for $145 a night, considerably more than the $60 a night the tenant paid. So the tenant sued the landlord for unjust eviction. “They forced me out of a home I loved,” says Butler. “It was incredibly difficult to find a place, especially because I have a really old dog. I ended up paying over double what I was paying there.”

In another lawsuit, tenant Susan Whetzel claims that she was illegally evicted from her rent-controlled apartment, which was then rented out via Airbnb. The owner claimed that he was converting his three-unit building into condominiums, but the building was never converted. Whetzel claims she was harassed by the owners until she finally moved out, and then discovered her apartment listed on the Airbnb website for $250 a night, more than four times her rent. With an attorney’s help, she filed suit, asking for her apartment back, plus damages. Her lawsuit is still pending.

San Francisco City Attorney Dennis Herrera also filed a lawsuit against two property owners, accusing them of evicting longtime tenants, two of them disabled, so the owners could illegally convert the residential buildings into pricey tourist hotels using Airbnb, VRBO, and other short-term rental services. Another city attorney’s investigation found that iconic residential developer Angelo Sangiacomo had been brazenly renting out 16 rent-controlled units as short-term tourist hotel rooms, marketed as “the SOMA Suites Hotel.”

These are just a small sample of the many tenants who have been “Airbnb’d.” Yes, besides being a multibillion-dollar hospitality company, Airbnb is also now a verb. For many in the city of Saint Francis, to be “Airbnb’d” is a decidedly nasty experience.

In a tight housing market, rent-controlled apartments are prey for what we might call “slamlords,” who promote condo conversions or renovations that would justify massive rent increases. Airbnb provides another layer—a powerful financial incentive as well as a technique for landlords to convert their apartment buildings into tourist hotels. An accidentally leaked memo from huge real-estate developer Coldwell Banker Commercial put the net annual income for renting units of a Los Angeles apartment building to local residents at 5.6 percent. But if those units were rented via Airbnb, the projected rate of return was 13 percent—well over twice the profit.

Theresa Flanderich is a retired nurse who has lived for 30 years and raised her son in a two-bedroom apartment in charming, touristy North Beach in San Francisco—and has been desperately fighting eviction as a landlord tries to remove her (and other tenants in her building, including a man in advanced stages of Parkinson’s disease). She gave me a tour of her neighborhood. Just on her street alone, Theresa can point to five buildings where all the tenants have received eviction notices.

Theresa shows me one building, pointing out four lockboxes that are visible on the banister outside the front entryway to four apartments—the telltale sign that this building has been Airbnb’d. The constant carousel of new faces can check themselves in and out of each apartment, accessing the key via the lockbox for which they are given the combination, without ever meeting the landlord or manager. The transaction can be completed anonymously, facelessly, over the Airbnb website or app. Where before this building housed families who were part of the neighborhood, now, says Theresa, it’s an Airbnb tourist hotel.

Theresa has had to turn into a tenant-rights activist to fight her own eviction. She and her neighbors formed the North Beach Tenants Committee. Joe Tobener, a San Francisco attorney who is representing Chris Butler in his lawsuit, has represented many of these tenants. “We get about 60 calls a week,” he says, many of them from people being illegally displaced so landlords can use Airbnb, VRBO, or other services to rent to tourists. “There’s so little enforcement [in San Francisco], it’s like the Third World,” he says. “Airbnb is contributing to the displacement of long-term tenants.”

According to a report by the city’s Rent Board, nearly 2,000 tenant units had evictions in 2013, a 13 percent increase from 2012. Since most rented locations house more than one person, housing experts have estimated that figure represents at least 5,000 individuals evicted in 2013.

HOW MUCH OF THIS displacement and damage is attributable to Airbnb? The answer to that is a matter of much controversy, and is mired in a lack of reliable data—to which Airbnb itself contributes, by refusing to provide even anonymized data to city officials. All of this plays out intensely in local politics.

San Francisco, like New York and many other cities, has had a housing crunch for many years. The causes are multiple, ranging from zoning rules to rising market values and a scarcity of public funds for affordable housing. City Hall utterly failed to anticipate the current housing shortage, a study by The San Francisco Examiner revealed. From 2007 to 2014, more than 19,000 new housing units were built in San Francisco, but two-thirds (nearly 13,000) of them sold at prices only affordable to the rich. Five thousand of them (28 percent) were priced for the poor, and only 1,213 (6 percent) were priced for the middle class. The economics are simple: Developers profit a lot more by building high-income housing for wealthy techies and the Chinese and international elite. So not all of San Francisco’s housing crisis reflects the impact of Airbnb.

Airbnb claims that with San Francisco having 220,000 rental units citywide, the company’s nearly 6,000 hosts represent too small a footprint to make a difference on the overall housing market. That sounds reasonable until you look at the numbers more closely. A study from the nonpartisan legislative analyst’s office in San Francisco, which serves the Board of Supervisors (the name for the city council), estimated that between 925 and 1,960 units citywide have been permanently removed from the housing market because of Airbnb activity. To Airbnb, that is a small amount of lost housing, compared to citywide supply.

But with a perilously low vacancy rate of a mere 2.9 percent—around 6,400 units across the entire city—Airbnb is devouring a huge chunk of available vacancies. If the upper figure of 1,960 units lost is correct, the legislative analyst’s office concluded that Airbnb is single-handedly removing nearly a quarter of available vacant units from the housing market. Certain popular neighborhoods like Haight-Ashbury and the Mission have been hit even harder, with Airbnb listings consuming nearly a third of the vacancies there. The U.S. Census estimates approximately 2.3 persons per San Francisco household, so that would amount to over 4500 people who potentially have lost access to housing as a result of Airbnb listings.

San Francisco, like most cities, has had a long-standing law prohibiting the renting of a domicile for less than 30 days. The reason was to prevent the city’s residential housing stock from becoming tourist hotels. In San Francisco, almost two-thirds of residents are renters (compared to a national average of one-third renters), yet property owners and wealthy developers wield tremendous political and economic clout.

Not surprisingly then, the Airbnb-ing of San Francisco is part of what Tenderloin Housing Clinic Executive Director Randy Shaw has called a “massive rezoning of the entire city for tourist use.” Ted Gullicksen, who was executive director of the San Francisco Tenants Union, said, “We call it the ‘hotelization’ of San Francisco. Seniors, families, and low-income tenants are being pushed out.”

As a result of all this disruption, Airbnb has found itself in the middle of political battles in many cities. The company’s executives have disavowed responsibility for any of this ravaged landscape, claiming that Airbnb is merely a booking agent, an intermediary facilitating commercial transactions between two parties. And it has found a willing army to mobilize—its “regular people” hosts, who have been turned out by professional Airbnb organizers to pack city hall hearings.

One of the clear redeeming aspects of the Airbnb platform is how it has permitted some everyday San Franciscans to rent out a spare room and earn income during an economically troubled time. After interviewing some of these “home-sharers” (as they call themselves), I’m convinced that this service is a genuine boon to them. During legislative hearings and before the media, the Airbnb spinmeisters have portrayed these home-sharers as the face of the company.

But here’s what’s deceptive about that framing: Data analysis of Airbnb usage in San Francisco tells a decidedly different story about who is benefitting. Although Airbnb refuses to share its numbers, a 2014 report commissioned by the San Francisco Chronicle found that of the (at the time) nearly 5,000 homes, apartments, and private or shared rooms for rent via Airbnb, two-thirds were entire houses or apartments with no owner present during the rental period, and almost a third of Airbnb rentals were controlled by people with two or more listings. Some of the “whole house” or “whole apartment” rentals are from hosts who happen to be away. But many others are being rented out by professional property managers who are handling multiple Airbnb rentals on behalf of absentee home- and condo owners. A separate study conducted by data analyst Tom Slee found similar results. He calculated that about 70 percent of Airbnb revenue comes from hosts who are renting out an entire home or apartment, and 40 percent comes from Airbnb hosts with multiple listings.

In other words, a great deal of Airbnb’s revenue and commercial activity in San Francisco does not come from the listings of “regular people” who own and live in their homes and are merely renting out a spare room. Instead, an increasing amount comes from the types of professional landlords who are removing housing from the market and making it exclusively available for tourists. Many of these landlords are getting rid of rent-controlled housing, and are even evicting thousands of people like Chris Butler, Susan Whetzel, Theresa Flandrich, and her neighbors. It would be useful to know how the number of Airbnb de facto hotel rooms in San Francisco and elsewhere compares with bona fide host rentals. But, of course, the company won’t share that data.

Whatever its remarkable founding origin as a rags-to-riches story that began in Brian Chesky’s living room in 2008, Airbnb has morphed into a giant loophole for professional real-estate operatives, allowing them to evade long-standing city laws that previously had protected the local housing stock by banning short-term tourist rentals.

San Francisco Planning Commissioner Hisashi Sugaya (who later left the commission)said, “Short-term rentals have been around a long time. It hasn’t been a big to-do. But these companies [like Airbnb] have shoved it back in the city’s face by enhancing the ability of people to break the law.”

SAN FRANCISCO ISN’T the only place where the Airbnb-ing of the local housing stock by professional landlords has caused an uproar. Airbnb has been fined in Barcelona (for violating local laws), pilloried in London, its hosts subjected to unannounced inspections in Paris (for illegal rentals), and banned under most circumstances in Berlin (to protect the city’s housing stock). In New York, State Attorney General Eric Schneiderman launched an investigation, including subpoenaing data from Airbnb and, when the company refused to comply, taking it to court. His investigation found that nearly 40 percent of Airbnb’s $451 million in revenue—some $168 million—came from hosts who had at least three listings on the site. In a story similar to San Francisco’s, many of Airbnb’s 25,000 or so “hosts” are not in fact “regular people” looking to rent out a spare room in their home; they are professional operators who took on multiple leases in desirable locations, resulting in whatThe New York Times called the “professionalization” of short-term rental hosting.

One of those New York City operators, Robert “Toshi” Chan, was revealed to be the Airbnb “host” of more than 200 apartments in dozens of different buildings, known collectively as Hotel Toshi. He leased the apartments from landlords for 20 percent over market rate, and then re-rented them on Airbnb as illegal short-term rentals for fabulous amounts. Eventually, Toshi’s illegal operation was uncovered and he was shut down, agreeing to pay a $1 million settlement for not obtaining proper hotel permits or insurance.

The state attorney general’s report also exposed that nearly three-quarters of all Airbnb rentals in New York City were illegal and in violation of numerous hotel-tax, zoning, and other laws, including the law forbidding short-term rentals of less than 30 days. Yet Airbnb has defended its practices by doubling down with its company line that New York City, San Francisco, and other cities are operating under an old business model. In a June 2014 interview with host Katie Couric, CEO Brian Chesky complained that a “lot of the laws are 20th-century laws, or sometimes even 19th-century laws, in the 21st century.”

Meanwhile, in Los Angeles, a study of Airbnb listings by the Los Angeles Alliance for a New Economy (LAANE) found that while a majority of the 8,400 hosts were the over-hyped “regular people” renting a spare room in their home, those rentals generated just 11 percent of the company’s revenue. The other 89 percent was generated by professional landlords and agencies, and those renting out an entire home or apartment rather than a spare room. As in San Francisco, many of these are being rented out by professional property managers on behalf of absentee owners. One apartment building with 227 units in downtown Los Angeles had 20 percent of its units listed on Airbnb. The LAANE study also found that more than 7,000 houses and apartments had been removed from the rental market in metro Los Angeles for use as short-term rentals, which represented “nearly seven years’ of affordable housing construction at the current rate of housing development.” Touristy Hollywood, Santa Monica, and hipster Venice Beach have been particularly devastated. Similar problems were uncovered by a study of Airbnb in Portland, Oregon.

How about cities outside the U.S., in Airbnb’s far-flung global operation? Using the same statistical methods from his San Francisco and New York studies, Tom Slee collected data on more than 90,000 hosts and 125,000 listings—about a fifth of Airbnb’s total at the time—from 18 major cities all over the world, to draw a portrait of Airbnb’s global business. His findings follow the pattern in San Francisco, New York City, Los Angeles, and other U.S. cities. Forty-four percent of Airbnb’s revenue and 45 percent of guest visits in these 18 cities came from hosts with multiple listings. In certain cities, including Rome, Barcelona, Tokyo, Mexico City, Rio de Janeiro, and others, 60 percent or more of guest visits came from hosts with multiple listings, with London and Berlin showing a 50-50 split.

What all these cities have in common is that they are major tourist meccas that already had housing shortages and affordability pressures. In cities and towns with ordinary housing markets, services like Airbnb can provide a useful add-on to existing lodging options for tourists. But in these magnet cities, the evidence is compelling that, while Airbnb has offered the “regular people” standard as the face of its company, in city after city the data do not support this “couch-surfing” narrative. Instead, a significant chunk of the local housing stock is being turned into tourist hotels run by professional landlords and property managers.

Airbnb has resisted, with all the lawyers and lobbyists that a billion-dollar company can hire, any attempts to regulate their business model, not only in San Francisco but everywhere else. In San Francisco, Mayor Ed Lee’s chief financial benefactor, Ron Conway, who is a billionaire Silicon Valley venture capitalist (and the most influential Republican in this most Democratic of cities), has a significant financial stake in Airbnb. So does billionaire tech investor Peter Thiel, a politically connected local who co-founded PayPal and whose net worth in 2013 shot up from $1.4 billion to $2.2 billion. The Bay Area is perhaps the most pro-technology region in the country, so the failure to enforce local law has also been aided by an influential core of public officials who are in fawning thrall to the techno sapiens gurus of Silicon Valley.

Documents obtained by the 48 Hills investigative website through a Public Records Act request found that regulators had known about the increasing number of illegal rentals since 2011, yet did nothing about it. Indeed, it is a simple matter to look on the Airbnb or VRBO websites and see who the violators are; their websites are virtual advertisements for the hosts’ criminality, with homes brightly photographed and displayed. But city officials declined to “troll” (as one city memo called it) the websites, and adopted an exasperating hands-off policy of only responding when someone filed a complaint. Despite the fact that thousands of violations had been occurring every week for several years, a city-planning staffer’s memo dated April 4, 2014, noted that only three cases had been sent violation letters, and only 15 cases had been closed since 2012.

The Board of Supervisors eventually passed legislation to legalize and regulate short term host rentals such as Airbnb, attaching a few timid conditions that hosts are supposed to follow. But as critics had predicted, those conditions have proven impossible to enforce, particularly since the legislation inexplicably failed to require Airbnb to provide the data about hosts that would enable enforcement. Even though hosts are required to register with the city, to date only about 14 percent have. A San Francisco housing inspector told me: “The board allocated no new funds or resources for enforcement, and the Planning Commission which was assigned enforcement responsibility is not set up to do this. They don’t even want to do it.”

But outside San Francisco, officials in other cities seem to have reached the limits of their tolerance for Airbnb’s disruption. In New York, Attorney General Schneiderman not only forced Airbnb to give up data needed for enforcement, he succeeded in getting Airbnb to kick some of the worst landlord violators off of its platform. Recently, Santa Monica officials, fed up with the rampant hotelization of their beach town, passed a law explicitly outlawing rentals of less than 30 days, though permitting the renting of a spare room as long as hosts followed certain licensing requirements and paid the city’s 14 percent hotel tax.

And even in San Francisco, local residents have taken it upon themselves to do what the tech-enamored city officials will not do. A coalition of homeowners, neighborhood groups, and tenant-supporters have collected tens of thousands of signatures to place on this November’s ballot Proposition F, which would greatly rein in Airbnb. Among other things, the measure will limit all short-term rentals to 75 days a year, require quarterly reports from hosts, and make it illegal for platforms such as Airbnb to list hosts who are not registered with the city. Perhaps most importantly, it would require Airbnb and other hosting platforms to provide the data, such as guest and revenue reports for each host, which would allow enforcement. If Proposition F passes in Airbnb’s hometown, it may blow some wind out of the sails of the company’s soaring $25 billion trajectory.

Not surprisingly then, Airbnb is pulling out all the stops to defeat it. It is mobilizing its home-sharer hosts and its network of political insiders; its lobbyists are meeting with key leaders to win the endorsements of influential organizations. A search on LinkedIn reveals that Airbnb regularly hires staffers who have experience managing political campaigns. A December 2014 job posting for an Airbnb “community organizer” position, for example, listed “recruiting, training, and managing advocates of home sharing” as the primary job responsibility and “community organizing in political campaign[s]” as the top desired qualification for the position. Airbnb is putting all of its operational strength into defeating Proposition F, including already spending a reported half a million dollars as of early September.

But proponents have powerful political allies as well, including some labor unions and former Mayor and now Senator Dianne Feinstein, a politically moderate Democrat who calls the current law unworkable and unenforceable, as it incentivizes “illegal conversion of residences to de facto hotel rooms.” She characterizes Proposition F as “common sense change” that will “close loopholes and provide effective enforcement tools” while still allowing people to rent out an extra room from time to time, or their entire house while on vacation.

DESPITE HIS RHETORIC about sharing, trust, and belonging, CEO Brian Chesky and his investors have not backed down, except under legal pressure from officials such as New York’s Schneiderman. After all, with one stroke of the computer mouse, Airbnb could “evict the evictors”—proactively expel from its website any hosts who are effectively professional landlords or property managers operating tourist hotels. Let’s imagine for a moment that Chesky has an epiphany and decides to truly embrace the “sharing and belonging” ethos that he espouses. What could Airbnb do to partner with local governments and tenant associations, and make short-term rentals into something positive? What policies should local governments enact?

1. Delist the professional landlords and multi-property agents from the Airbnb site.

2. Cooperate with cities like San Francisco, Santa Monica, and Portland, which require hosts to register with local agencies, by delisting any unregistered hosts.

3. Pay the same hotel occupancy taxes that all hotels pay in all 34,000 cities in which Airbnb operates, or collect them from the hosts and turn them over to the cities.

4. Provide the anonymized data (host’s name and address, as well as number of rental nights and rates charged by each host) that cities need to enforce regulations and taxation.

It really wouldn’t take very much for Airbnb to be a good corporate citizen. Several of these actions are the same as those recommended by the legislative analyst office in San Francisco, yet the Airbnb-tainted Board of Supervisors backed away from imposing such a regulatory framework. That’s when local residents took the matter into their own hands by collecting signatures for Proposition F.

It’s crucially important to recognize that if the only hosts really were “regular people,” who lived in their own home and occasionally rented out a room or the whole house while away, nobody would object much. But that would wipe out a sizable chunk of Airbnb’s business model and make Airbnb much less valuable to investors waiting for a mammoth IPO. Airbnb has become its own worst enemy by stubbornly refusing to work with local officials to figure out a way to enforce sensible laws that prohibit conversions of rental apartments into de facto hotels. Consequently, a backlash appears to be brewing.

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