Room Versus Board

by Brendan O’Connor

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On Monday, an anti-Airbnb advocacy group called “Share Better” released a minute-long satirical video titled “Save the Moguls.” It’s a parody of the charity-drive commercial genre: There’s a female voice-over, a sparse piano-driven score, and downcast subjects, whose strife your money can alleviate. In this video, however, instead of homeless people or animals, the subjects are something called “real estate moguls,” and rather than a donation, the real estate moguls need the booking fees that they collect when you stay in their de-centralized hotel, distributed across Airbnb. It’s not that funny. But that’s okay! Being funny isn’t the point; it’s that the people benefiting most from Airbnb aren’t the hosts or the guests, but the arch capitalists overseeing the whole sharing-based affair. Of course, Airbnb rejects this premise. “This ad is dishonest and the hotel industry lobbyists who paid for it should know better by now,” an Airbnb spokesperson said in a statement.

In New York, it is illegal to rent out an apartment for fewer than thirty days if you — whether owner or tenant — are not also present in the apartment. It is not surprising, then, that according to data provided by Airbnb to New York State Attorney General Eric Schneiderman under subpoena last year, nearly three quarters of Airbnb listings in New York between January 2010 and June 2014 appear to have been illegal. But that, in and of itself, doesn’t tell us much; the law that defined these parameters was passed in 2010, before Airbnb was as ubiquitous and successful as it is today. (It was intended for a wholly different purpose: to crack down on operators who crammed people into unsafe and unclean spaces.)

Airbnb’s statement continues: “Ninety percent of Airbnb hosts in New York simply rent out the home in which they live.” While this is probably true, without more information about the rest of Airbnb’s hosts in New York, it is mostly meaningless. According to the data Airbnb provided to the attorney general, six percent of hosts accounted for thirty-seven percent (a hundred and sixty-eight million dollars) of all host revenue in New York. The AG refers to these hosts as “commercial users,” defined as hosts who list three or more unique units. According to the report, the single most successful Airbnb host in New York “controlled two hundred and seventy-two unique units and received revenue of 6.8 million dollars. This individual received two percent of all New York host revenue for private stays and personally earned Airbnb close to eight hundred thousand dollars in fees.” Altogether, the top twelve hosts on Airbnb — commercial users, all — controlled eight hundred and one unique rental units, accepted over fourteen-and-a-half thousand reservations, and generated more than 24.2 million dollars in revenue. Airbnb declined to answer questions about how much of their revenue is presently accounted for by the ten percent of hosts who do more than “simply rent out the home in which they live.”

“This is a story of personal empowerment and benefits to the city; no amount of advertising will convince New Yorkers to choose hotel industry moguls over regular people,” Airbnb’s statement about the video concludes. In fairness, “real estate moguls” may have been overstating the case, but Airbnb’s framing the issue as a choice between “hotel industry moguls” and “regular people” is just as egregious an overstatement. Per the AG’s report, thirty-eight percent of all fees Airbnb received in 2013 were generated by apartments that were booked, cumulatively, for six months out of the year or more. That is to say: These apartments were taken off the long-term housing market, shrinking an already diminished supply of housing in order to meet the demand of people who don’t actually live here.

In January, Airbnb executives made a contentious appearance before the City Council to answer questions about illegal listings on the platform. “The representatives from Airbnb were so difficult and were evasive in some ways and at times too cute by half,” Councilman Mark Levine told Crain’s New York afterwards. Later that month, the De Blasio administration began enforcing the ban on illegal rentals more strenuously than it had: According to the New York Daily News, during the first four months of 2015, the Office of Special Inspections issued five hundred and sixty-eight violations to illegal hotel operators, as compared to three hundred and ten during the same period in 2014. De Blasio has proposed doubling the office’s budget for 2016. In February, Public Advocate Letitia James released a list of the thirty top illegal hotel operators in New York City. Since 2011, the top three operators, High Point Associations, M 317–319 Realty, and Lighthouse West 49th St LLC, were all fined tens of thousands of dollars. In that time, the city fined the top thirty illegal hotel operators seven hundred and ninety-six thousand dollars altogether. In June, legislation was introduced to the Council that would increase first-time fines for illegal hotel operators from a thousand dollars to ten thousand dollars and increase the maximum from twenty-five thousand dollars to fifty thousand dollars.

Airbnb is not wrong about the source of funding for the ad: Share Better is backed by the Hotel Trades Council, the large and powerful New York hotel workers union. In the fall, Capital New York reported that Share Better planned to spend around three million dollars on its anti-Airbnb campaign; in March, Crain’s New York reported that Airbnb spent fifteen million dollars on television ads in the second half of 2014, while billboards and subway ads cost millions more. According to New York state disclosure records, since 2010, Airbnb has spent at least two hundred and eighty-one thousand dollars lobbying members of the legislative and executive branches at both the city and state levels; In the same period, the Hotel Trades Council spent at least three hundred and twenty-five thousand dollars — almost half of that in 2014 — lobbying the same people on issues specifically pertaining to illegal hotels. (The HTC spent much more than that altogether.) All of which is to say that, while clearly it is true that Airbnb faces stiffer resistance in New York than it has mostly anywhere else, the company, which is reportedly raising one billion dollars at a twenty-four-dollar billion valuation — a number that would make the company more valuable (theoretically, anyway) than giant hotel chain Marriott International — is not exactly punching above its weight.

Any company that valuable, too, is bound to pull other entrepreneurs into its orbit. One start-up whose business is contingent upon Airbnb’s continued success if Proprly: a cleaning and key delivery services for hosts and homeowners. “Airbnb is changing the landscape. It’s changing the way people view space,” founder and CEO Randy Engler, told me on the phone, speaking from California, where he lives, although his company is based in New York. “People have been using space illegally forever. Airbnb is just the first to do it so boldly.”

Proprly keeps in close touch with its progenitor. “It’s not a true partnership, but we keep close tabs on each other. It’s mutually beneficial to understand what the market is doing. When you’re a large company like Airbnb, it’s hard to understand what’s going on at the ground level,” Engler said. The company’s couriers and cleaners, Engler told me, are all contractors; mostly, they set their own schedules, and appreciate the flexibility. What Proprly and Proprly’s workers are doing is ensuring that there is another layer of quality control — should hosts avail themselves of his company’s services — in the Airbnb experience. Many of the company’s couriers, for example, are aspiring actors and actresses, Engler said. This means they know how to be cordial, friendly, and warm. Many are also multilingual, which puts international visitors further at ease. “If you’ve travelled internationally, you know when someone is really welcoming you, and when they’re just going through the motions.” What Proprly offers, Engler said, is “a really great front-desk experience, which is something that hasn’t really been done before in the sharing economy.”

A 2014 Fast Company magazine profile of Airbnb co-founder Brian Chesky describes his “eureka” moment:

During the winter of 2012–2013, he stumbled upon the introductory textbook on hospitality taught by Cornell’s hotel school. After reading it, he thought: This is what we’re missing! The story starts to sound a tad too neat when Chesky says there wasn’t a specific lesson from the 500-page text that grabbed his imagination; rather it was the whole book that crystallized the simple idea that hospitality should be at the core of what his company provides. Airbnb would no longer be about where you stay, but what you do — and whom you do it with — while you’re there.

Elsewhere, Chesky claims, “Our business isn’t [renting] the house… Our business is the entire trip.” In other parts of the world, this might be called owning the whole stack or vertical integration. Meanwhile, real estate investor Thomas Barrack is quoted in Fortune magazine, in April: “[Airbnb] is killing [the hospitality industry], of course. If you look at the hospitality industry… you have to adapt the regulatory environment, the tax environment, all of the local handicap requirements… keeping full-time employees. You just impute that on capital structure, versus a non-asset intensive engine of management, you can’t compete.”

The true innovation of the sharing economy — or maybe it’s the startup economy, or entrepreneurship (or maybe just…capitalism) — is in the continued refinement of the perception of value, not necessarily in offering new services and developing new products, but in making them available for cheaper, because, as it turns out, when you don’t pay anyone a salary or give them benefits because they’re all subcontractors, and you don’t actually have to invest in any of the infrastructure upon which your business model depends, either directly or by paying taxes, your costs are a lot lower than everyone else. “It’s New York: it comes down to money,” Engler said. “It’s super complicated, but it’s also simple: it comes down to making sure everyone gets a cut of this great thing called Airbnb.”

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