Airbnb Is a Fascinating, Useful, and Popular Service. Is It Also Illegal?

Commentary about business and finance.
June 5 2012 1:34 PM

Legalize Airbnb!

Renting your bedroom to a stranger is probably against the law in most cities. It’s time to change that.

Apartment Interior.
Airbnb has the potential to boost local economies by increasing overall tourism

Photograph via Thinkstock.

The tech startup world exists in a perennial haze of hype. New companies need to raise equity and use shares to compensate employees, downplaying actual revenue for promises of vast future growth. So it was a bit refreshing to hear from a tech startup PR guy who didn’t promise to revolutionize the world. When Slate first covered Airbnb a year ago, we asked whether it “might even disrupt the hotel industry” or was “an overhyped media sensation, nothing but a posh Craigslist”? Under normal circumstances, I’d expect the company to be loudly trumpeting the former theory, but instead Airbnb came to Washington this week to explain how small and unimportant it is.

The problem, you see, is that Airbnb may be illegal.

If you own—or even rent—a home, then who comes and goes from your house is largely your own business. If a friend wants to spend the night on your couch or in a spare bedroom, or borrow your place for a week while you’re out of town, then good for you. If your goodwill is repaid in the form of being treated to dinner or hosted at your friend’s house on some future visit, then there’s nothing wrong with that. Companies have arisen to extend the logic of this kind of old-school mutuality. Home Exchange lets you swap houses with someone you’re not friends with, and CouchSurfing appeals to a deliberately anti-commercial DIY spirit. What makes Airbnb different is that in exchange for staying in someone’s house, you must give your host money.

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As a logistical matter, the Airbnb model has a lot of advantages. I love to travel but I don’t have any room to spare in my apartment. But my wife and I do have more money than we’d have if we lived in a bigger place. So rather than trading space we don’t have for accommodations in other cities, the Airbnb model lets us trade the money we do have for the space we want.

When we went to Buenos Aires for our honeymoon, we used Airbnb to book a delightful little apartment in Palermo Hollywood owned by a man who lived nearby and operated it full-time as a rental property. He was able to offer a local mobile phone and helpful restaurant recommendations, arrange a reasonably priced taxi to the airport for us, and even participate in a little mutually advantageous black-market currency exchange. It was cheaper than a hotel, and in exchange we gave up services we didn’t really need. We’re perfectly capable of making our own bed in the morning, and access to a normal refrigerator and kitchen is in practice more valuable than bellhop service.

Airbnb tells me that such full-time operators are very much the exception, with about 90 percent of listed properties being the occupants’ own homes. But an ambitious fast-growing firm should certainly hope that enthusiasm for the product will lead to growth of Airbnb operators and the toppling of the existing hotel paradigm. After all, what kind of startup doesn’t want to trash the incumbent dinosaurs?

Here is where Airbnb’s commercial opportunity runs up against the law. Airbnb came to Washington to promote the idea that it’s facilitating a peer-to-peer “sharing economy,” not empowering a new breed of cold-blooded hospitality entrepreneurs. They emphasized that Airbnb is in many ways not directly competitive with existing hotels, simply adding to the frequency of trips and giving tourists access to neighborhoods that aren’t currently served by major chains. That’s may be true, but one reason those neighborhoods don’t have hotel beds is that in most cities you can’t just slap up a hotel in a residential neighborhood or turn an existing residential property into one. Big cities draw a fairly firm distinction between a house and a hotel, but Airbnb’s entire business is based on obscuring that line.

The shoot first, ask questions later approach to enlisting tens of thousands of people as unlicensed hotel operators is arguably Airbnb’s most important contribution to the world. If they’d asked permission from cities to enable citizens to rent out their bedrooms willy-nilly, it almost certainly wouldn’t have been granted. But by simply plowing ahead, many cities are now confronted with the fact that a literal reading of their regulations seems to prohibit a clearly useful service. Smart cities should see this as an opportunity rather than a threat. Getting ahead of the curve on creating a clear legal framework for small-scale short-term rentals in residential neighborhoods will let people invest resources in making their properties appealing.

Oceanside vacation communities typically make special regulatory provision for short-term rentals That precedent should serve as a reminder that visitors aren’t best regarded as a resource to be milked by hotels. Rather, hotels merely facilitate visiting, while the visitors bring broad-based benefits to a local economy by patronizing a range of business and institutions. And Airbnb seems to serve visitors who otherwise might not visit a city. A large number of short-to-medium range trips can be made very cheaply by car or bus, but the cost of accommodation, especially in a city, can still serve as a major deterrent. The Airbnb model clearly isn’t right for all travelers on all trips, but for many visitors hotels offer a Hobson’s choice. Either you take a cheap room in an inconvenient location or an expensive room offering services you don’t need.

Making more beds available—especially in residential neighborhoods—should induce more trips by casual visitors who are ill-served by the business focus of most big-city hotels. That brings broad-based benefits to the local economy that far outweigh any harm done to the traditional hotel sector. Formally legalizing small-scale short-term rental operations would also give cities a context in which to tax these businesses, a crucial issue in these revenue-hungry times.

In March, San Francisco Mayor Edward Lee announced the formation of a Sharing Economy Working Group to help address the issues posed by the rise of new tech companies that blur the lines between formal commerce and traditional exchange economies. It’s a good idea and something other cities should consider. Activity that’s genuinely harmful to others needs to be stopped whether or not money changes hands. But letting people stay temporarily in unoccupied rooms or houses is the opposite of harmful: More visitors is good for almost any town. It’s time for cities to take note of what’s happening on the ground and start making changes to ensure that it’s legal.

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