Is the home-sharing economy in trouble? More legislation to come

NATIONAL REPORT—The hotel industry has long decried the home-sharing industry, citing differences in regulation as a major factor. But, recently, this started to change, with some cities passing new laws aimed at curtailing illegal activity on sharing-economy websites.

Cities such as New York and California’s San Francisco, Santa Monica and Anaheim have all been a part of these efforts, and the home-sharing industry has responded with lawsuits. For instance, in June, Airbnb sued the city
of San Francisco, citing the Communications Decency Act (CDA) and the First Amendment. Last month, New York’s Governor Cuomo signed into law a bill passed this summer that outlines enforcement of illegal short-term rentals. Similar to San Francisco, Airbnb filed a lawsuit, citing the CDA and the First Amendment.

“A lot of that legislation is aimed at holding the people who publish these unlawful short-term rental listings criminally liable—misdemeanors— and asserting fines against them,” said Vincent Loh, senior associate, Michelman & Robinson, LLP. “What Airbnb and other short-term rental companies have been doing is arguing that these laws that attack the publishing of unlawful listings violate the first amendment of the United States Constitution as well as the CDA. To sum, the laws generally attack the publishing of unlawful ads, and that’s why the general defense has been that laws violate the first amendment and the CDA.”

Results of this tactic have been mixed. In the case of Anaheim, the city advised it would not enforce its ordinance against short-term rental companies. In San Francisco, where the law focuses on the booking of an unlawful short-term rental—as opposed to the publishing of it—a judge recently struck down Airbnb’s bid to block the ordiance, and the company reportedly plans to work with the city to regulate rentals. Loh, who spoke with Hotel Business before the decision, said, “To the extent that the law is interpreted as it not being a publication—not attacking publications and therefore free speech—then a lot of other cities are going to try to model their ordinances after the San Francisco ordinance.”

San Francisco’s Board of Supervisors also recently voted, in a 6-2 decision, to limit the short-term rental of a residential unit to no more than 60 days per calendar year if the unit was registered on or after Oct. 11, 2016.

Ryan Meliker, a lodging REIT analyst with Canaccord Genuity, a full-service investment bank whose clients include several hotel lodging REITs, noted that the home-sharing economy hasn’t had a large effect on the hotel industry. “We looked at the impact that we thought Airbnb had in 2015 and we estimated that in terms of RevPAR growth, it had a 0.1% impact on the U.S. overall RevPAR growth in 2015. Most of that impact was really driven during compression nights when cities are effectively sold out, an inability to push rates aggressively because more Airbnb supply comes on, undercutting pricing and limiting a big uplift in rate growth during those periods,” Meliker said. He noted that Airbnb has yet to take a huge chunk of business travel, and added, “That’s the bread and butter for hotels, especially in those core urban markets where Airbnb has been a bigger player.”

However, he said, the home-sharing economy has had a greater impact on cities like New York and San Francisco, where we’re seeing these ordinances come from. “In markets like New York, San Francisco, New Orleans, L.A., Honolulu, markets with a lot more leisure demand than the typical markets that are urban centers, those are the cities where you’ve seen an impact. The impact we’ve estimated is as much as close to 1.5% on RevPAR growth in the year. It can be meaningful in some of those markets.”

But, he said, the real driver of these laws has nothing to do with hotels. “It’s affordable housing. You’ve seen a lot of data come out that Airbnb is impacting rents and cutting into available rental properties,” he said, noting that professional landlords can get higher revenues renting on Airbnb year-round than leasing the property as a permanent residence.

For instance, a study released by Penn State this year—funded by the American Hotel & Lodging Association (AHLA)—found that multiple-unit operators account for nearly 40% of the revenue on Airbnb. In New York, 24% of the revenue was derived from full-time hosts who made up 3% of operators; in San Francisco, 22.4% of the revenue was derived from full-time hosts who made up 2.9% of operators. For its part, Airbnb has been vocal about eliminating illegal properties from its site.

One thing it seems everyone can agree on: More legislation is coming. Meliker cited two letters that were sent to the Federal Trade Commission (FTC) asking the entity to look into the short-term rental business—one from a group of senators, including Elizabeth Warren (D-Mass), and the other from a group of politicians in cities nationwide. “It’s just going to spread and get worse, and I think the FTC will step in at some point. That regulation is going to curtail supply growth. Does it end Airbnb? Absolutely not,” said Meliker. “The challenge you have with Airbnb is there are two sides: the people renting out spare rooms to make a few extra bucks—that’s a great business—but then there’s the professional landlords essentially creating short-term hotels illegally who are driving rents up. Over the course of time, that will be regulated in a big way and it will curtail supply growth. These things don’t happen fast, but over the course of 2017, we’ll see a lot more regulation.”

Loh agreed we’ll see more regulation—but this isn’t the end of the home-sharing industry by any means. “Ultimately, there’s going to be increased legislation trying to impose the same standards as the hotel industry. It’s a relatively recent phenomenon and it takes a while for the law to catch up,” he said. And, he noted, while home-sharing sites have been aggressive with legislation, it’s also in their interest to work with the cities involved. “I don’t think they’ll remain static. I think they’ll work with cities to make sure they’re welcome in the communities,” he said.  HB

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