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15th of October 2018

Economy



With an eye on rising rents, cities start to regulate Airbnb

In barely 10 years, Airbnb has grown to be a sharing website that puts 4 million rooms, homes, and apartments worldwide onto the daily rental market. That’s more than the Marriott and Hilton hotel chains combined. But from Dublin to New Orleans, people are questioning if Airbnb is adding to a squeeze in housing affordability by shifting units off the long-term market. Boston is among those setting new rules. As of 2019, the city will ban Airbnb “investor units”: properties that people rent out daily and do not live in. City Council President Andrea Campbell voted for the plan but notes that other factors affect Boston rents, including outdated zoning laws and city-owned vacant lots. Experts say the concerns about Airbnb are overblown and note that the hotel industry is a big lobbyist for restrictions. Meanwhile, the changes could be hard on people like Sean Cummings, an artist and entrepreneur whose family’s primary income is from Airbnb. “I don’t know what’s going to happen,” he says. “I have three listings right now; I could end up with zero next year.”

Boston

On a rainy September afternoon, Sean Cummings hustles to an apartment in the Fenway neighborhood of Boston, a plastic bag filled with clean sheets thrown over his shoulder. With his muddied sneakers, square black glasses, and disheveled brown hair, Mr. Cummings looks very much like the free-spirited artist he is. But he is also an Airbnb entrepreneur.

Cummings saw the potential to earn good income from the online platform, which enables people to rent out their homes or rooms to strangers. In 2010, as a newly minted architect with mountains of student debt, he started renting out apartments on Airbnb. By 2016, he was making six figures – enough for him and his wife to send their kids to private school while launching an art business.

“Parents told us, you can be whoever you want to be! So here we are, we’re being who we want to be,” Cummings says as he strips a queen-size bed of its sheets in a creaky studio apartment.

But all that could soon change. The Boston City Council in June passed new rules that will outlaw many of Airbnb’s entire-home listings, including “investor units” that are not owner-occupied, such as those rented by Cummings.

Boston’s move is part of a wider trend, as a range of cities weigh greater regulation of the gig economy and Airbnb in particular. This fall, city governments from Dublin to Paris, New Orleans to Baltimore, are considering rules aimed at what they see as Airbnb fallout: noisy tourists and soaring rental prices. At stake is a balance between small-business freedom and market oversight.  

“You have to be careful with these regulations, thinking about how you balance all the interests,” says Geoffrey Parker, an engineering professor at Dartmouth College in Hanover, N.H., and author of “Platform Revolution.” “You’re trying to achieve a policy goal, which is a valid one, but the question is, who is going to bear that cost?”

A housing crunch

Though many factors are coming into play, the debates about Airbnb typically center on one issue: affordable housing. At $2,200 a month, the median rent in Boston is one of the highest in the country, and it continues to increase by 2 to 3 percent annually. In the extremely dense New York metropolitan area, renting space to tourists is even more contentious. The worry is that some landlords are converting long-term rentals into short-term ones, driving up housing costs for full-time residents.

But experts say the concern, while it may have validity in cities with particularly high tourist-to-population ratios, lacks solid proof.

“In cities like New York and Boston, given the high cost of residential housing, there is little or no evidence that you can actually take a unit off the longer term market, run it as an Airbnb, and make money,” says Arun Sundararajan, a professor of business at New York University and author of “The Sharing Economy,” a book that explores how on-demand platforms will change society.

Mr. Sundararajan’s recent research finds that Airbnb hosts in New York would need to rent out their units for an average 216 days a year to break even on their long-term rental costs. The average Airbnb unit is rented for 45 days a year, suggesting that the typical host is trying to make a few extra bucks here and there, not relist entire properties year round.

'Other pieces' to the puzzle?

Boston City Council President Andrea Campbell voted in favor of the regulations, but says it remains to be seen if the rules will have their intended effect.

“We’re taking action based on different assumptions ... [but] we cannot as a city guarantee that these units are (1) going to become affordable and (2) that they will go to long-term tenants,” she says. “We already have folks who are thinking of other ways to go around this regulation.”

The rules in Boston will eliminate “investor units,” or properties that people rent out on a daily basis but do not live in, starting in 2019. Owners can continue to rent out private rooms in their homes, so long as they register with the city and pay an annual fee.

Ms. Campbell believes there are other factors affecting rental prices in Boston, including outdated zoning laws and city-owned vacant lots. “There are other pieces we should be talking about and not in silos,” she says.

Hotel-industry lobbying

Here and in other cities, opposition to Airbnb may be inflamed partly by intense lobbying from the hotel industry. Over the decade since its 2007 founding, Airbnb has grown to 4 million units listed – more than Marriott and Hilton combined – and spread to nearly every country in the world.

The American Hotel and Lodging Association put together an action plan in 2017 that included lobbying politicians and funding studies to demonstrate Airbnb’s impact on rental prices, according to The New York Times. It’s uncertain how much this behavior influenced officials, though 2018 saw Boston, New York, and San Francisco pass Airbnb regulation.

“It’s clear the hotel industry is using the government to create protections for themselves,” says Louis Hyman, an associate professor of labor relations, law, and history at Cornell University in Ithaca, N.Y. He says this is typical behavior for incumbent businesses facing disruption, and governments should not necessarily listen to them.

Campbell acknowledges that hotels were involved in the City Council’s conversation, but says she made her decision based on her constituents – and that she’s open to regulatory “tweaks” in the future, depending on how the current rules play out.

For Cummings, however, the regulations most certainly spell his demise as a Boston Airbnb host.

“I don’t know what’s going to happen. I have three listings right now; I could end up with zero next year,” he says. He intends to continue listing out properties for as long as possible, and after that, turn to his side-project: a plot of land he recently bought in Vermont, on which he plans to build a set of tiny houses for skiiers and other recreationalists.

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Vermont’s Airbnb laws are less strict, requiring only that hosts comply with general safety standards and pay a tax. This makes it a more fitting place for Cummings’s real estate pursuits, he explains.

“I’m just going to move my operation to another state,” he says with a faint smile and a shrug.

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