Airbnb, New York and decline

This article is a great summary of the Airbnb story.  It also highlights the difficulties that innovation has in overcoming inertia in rigged markets like New York.  The behavior described in the article is one reason why New York is one of the poorest states in the nation in real terms. They won't stop innovation, they'll just punish New Yorkers and visitors who want to take advantage of its benefits, to the detriment of the standard of living and quality of life in New York.  Decline is an attitude of hostility to the new and the better.  And New York has it in spades.

But by far Airbnb's most significant obstacle has come from those who want to protect the status quo—hotel companies and governments collecting lucrative occupancy taxes that they say Airbnb and its hosts avoid paying. New York is Airbnb's most lucrative market, and the company's battle with Attorney General Eric Schneiderman is no doubt being watched closely by his peers across the country.

The city's 30-day minimum for apartment rentals is "a very gray law," Mr. Chesky says. The law was intended to crack down on slumlords who run illegal hotels in apartments. But since half of Airbnb's New York bookings involve entire apartments, they technically run afoul of the law. The law's passage four years ago brought out some 500 Airbnb supporters as protesters at City Hall, and the company met with city officials, most of whom had never heard of the company, Mr. Chesky says. "They met with us and said 'We've worked on this for four or five years, we're not rewriting the law and going through another four or five years.' That's when I realized we probably had a problem."

Four months ago, Mr. Schneiderman subpoenaed data on all of Airbnb's 15,000 New York hosts. In pursuing Airbnb, the attorney general may be protecting New York's 14.75% occupancy and sales tax, but he's also not disappointing the city's 30,000-plus unionized hotel workers.

Mr. Chesky insists that he has the same "endgame" as Mr. Schneiderman, and that the company is happy to cooperate with any investigation. But he adds that what happened in New York "didn't feel like an investigation, it felt like a fishing expedition."

The typical way things have played out with the New York AG's office in recent years is for companies to become the target of loudly trumpeted lawsuits that are then quietly abandoned when the company agrees to pay a substantial settlement. "We're trying to work toward a resolution," Mr. Chesky notes. "That's probably all I can say." Airbnb quickly filed a motion with the New York Supreme Court to block Mr. Schneiderman. The outcome is pending.

Airbnb argues that rather than taking away income from the city, its users bring a significant amount of business by encouraging visits by tourists who might not be willing or able to afford the city's daunting hotel rates. Mr. Chesky says that "62% of hosts in New York depend on Airbnb to pay their rent or mortgage."

The sharing economy is still so new, Mr. Chesky says, that his company is lobbying cities around the world to account for it. Sometimes Airbnb loses: Berlin passed a law that, beginning this year, requires a permit for short-term rentals, or hosts are forced to pay a stiff fine. The law won't kill Airbnb in Berlin, but it will impede the free-flowing nature of the business.

'We're not against regulation, we want fair regulation," Mr. Chesky says. "We're trying to help take this from an activity that existed under the table with Craigslist and bring it out of the shadows. We want to work with cities to streamline the process for hosts to pay occupancy taxes," he says. "People ask, 'Why don't you just pay the tax?' Well, it turns out that in cities like New York, you can't just pay the tax, you can't just send them a briefcase of money, you have to change the laws first. Onerous licensing and permitting are designed for large corporations"—not for Airbnb users

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