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Tuesday, August 13, 2013

Rent My Flat (Black Market Edition)

New York’s Swipe Against the Sharing Economy is Crony Motivated

Back in May, a ham-fisted New York City law thumped the sharing economy.

Nigel Warren, an East Village resident, was fined $2,400 for running an illegal hotel because he rented his bedroom out to a visitor for three days. He wasn’t operating a sleazy flophouse, and the entire transaction was markedly casual, but he was prosecuted nonetheless. 

Warren’s offending transaction took place through Airbnb, an online hostelling website. While there is nothing illegal about Airbnb itself, a New York state law prohibits renting out a room for 29 days or less. 

Airbnb works on a peer-to-peer structure, connecting people with extra space to people who can’t (or don’t want to) shell out for a regular hotel. Its dynamic and decentralized model lets it fill a niche that large chains cannot squeeze into. One can’t help but suspect big hotel powers might be lurking behind a law that forbids short stays anywhere but in hotels.

The law Warren violated dates all the way back to the bygone days of 2010, when Empire State legislators crafted a mandate ostensibly to stop landlords from converting unsafe apartments into black-market hotels. Airbnb spokesman David Hantman endorsed the essence of the law but decried its application, saying “the State of New York passed a law designed to crack down on bad actors that operate illegal hotels—a goal we all share. Unfortunately, the 2010 law also had the unintended consequence of impacting regular New Yorkers.” The company is appealing Warren’s fines and, in the long term, is pressing for laws that better reflect the new sharing economy. 

Hopefully they’ll succeed in both.


Avoiding the Crap-Shoot

The technology Airbnb relies on is not radical; people have found short-term bunks online through Craigslist for years. What’s radical is the execution. The major drawback of Craigslist is that it’s difficult to ascertain if a cheap room is a good deal or merely a squalid hellhole priced to reflect Geneva Convention violations. (After my first month in New York City I began scouting for apartments on Craigslist. One place was four walls and a roof erected around a bedbug orgy. While touring the property, my would-be roommate at one point explained, “That turtle’s not usually in the bathroom.”)

Airbnb largely compensates for the crap-shoot nature of Craigslist by adding glossy photos, profiles, reviews, and even insurance to its website. It also handles payments and customer service in the event of disputes. Hosts set up their own personal profile along with the location of their apartment, amenities, and pictures. Guests review their experience afterward, building up the hosts’ rankings on searches and establishing credibility. Hosts likewise evaluate guests. This creates an internal appraisal system wherein hosts can steer potential troublemakers away from their spare bedrooms, and guests can avoid Bates Motel scenarios.

Yet city officials trumpet safety as the primary justification for banning such transactions. According to the logic of New York officials, a suitcase-clutching transplant fresh off the bus (as I was, late last year) might be swindled by slick Airbnb operators—and we can’t possibly fend for ourselves absent their intervention. Laws like the one that snared Warren graciously save us the trouble of working out our own pricing for whatever risk and inconvenience a non-hotel option might entail. 

In my case, I opted for Airbnb because I regarded the cheaper price as worth any purported risk. In retrospect I’m pleased with what I got. I’ll also note that, over the course of my travels, I’ve stayed in legally-operating motels that were so terrible, no self-respecting ghost would deign to haunt them. So I usually go for cheap over “certified” and accept the consequences of my decisions. 

Airbnb is particularly helpful to prospective newcomers. Getting a toehold in New York is surprisingly difficult for outsiders, in part because of housing costs (we might as well measure rent prices in ransom notes), but also because the city’s laws so strongly favor existing tenants. Landlords have little incentive to rent a room for only a month or two while a recent transplant finds a long-term address. Aside from the hours of labor lost by frequent room turnover, landlords are wary of all potential lodgers. Often it is easier to let troublesome or late-paying tenants’ leases expire than to go through the courts to extricate them. The result is, not surprisingly, that landlords often require heady benchmarks to signing over a lease in the first place—an income 40 times greater than monthly rent, a credit check, or the signing over of vital organs as collateral are not uncommon. Thus for people like me, a casual short stay through Airbnb makes transitioning to New York City that much easier.

For individual apartment renters the system is likewise appealing. The New York rental market more or less comes in four price categories: “Really?,” “For this?,” “Mind-boggling,” and “Trump.” Suppose you pay several thousand dollars for the privilege of living in a Manhattan closet. At some point you feel compelled to go on vacation to a place with trees, or at least with locals who don’t interpret direct eye contact as a prelude to murder. While on vacation, through Airbnb, your room can make money for you. I have writer friends who intentionally found an apartment with an extra bedroom so that they can perpetually rent it out to offset their own housing costs.


Squeaky Wheels 

But convenience aside, say critics, there’s a public-safety issue. City Council Speaker Christine Quinn asserts that unregulated hotel rooms endanger tourists and irritate residents who must deal with strangers coming in and out at odd hours. On Stossel, State Senator Liz Krueger likewise defended the law: “Tenants all over the city are begging their legislators to help. They were being harassed by strangers in the middle of the night entering the building, moving into the apartments next door… violating the fire code, the safety code, and harassing people, sometimes very aggressively, out of the building.”

Indeed both are correct to note that a string of drunken tourists loudly stumbling through a building constitutes a safety risk: If sloshed visitors made noise in my building late at night, my neighbors would almost certainly shoot them.

But if we’re considering the well-being of my neighbors themselves, there are a few problems to the “public safety” approach. First, there is nothing to stop any tenant in the city from bringing in a chorus line of last-call pickups from the local tavern each evening. Nor to keep unsavory guests from sacking out on their couch, which is entirely legal so long as it’s free. Where’s the proof that renting out your space makes anyone less comfy or safe?

We might ask: Is public safety really improved by a one-size-fits-all mandate in a city of several million people of differing circumstances? Arguably not. The enforcement mechanism is weak: city officials do not actively troll websites for short-term hotel infractions. They rely on formal but anonymous complaints, presumably filed by neighbors, landlords, or (potentially) competing hotels. A better mechanism to promote consumer concerns and public safety is to empower the enforcement of private contracts—most landlords already forbid their tenants to sublease, but face protracted legal battles in New York’s letter-friendly system when confronted with renter violations. Indeed, landlords can be held legally responsible for their tenants’ illegal actions, as Warren’s initially was.

A second alternative, presently under consideration in San Francisco, is to license micro-hostelling rather than allowing a blanket prohibition on short-term stays. While San Francisco is rarely lauded as a bastion of limited government, its officials are preternaturally concerned with keeping business friendly to Silicon Valley and to tech startups. Proposed legislation would allow Bay Area residents living in buildings with four or more units to rent out their primary residences for fewer than 30 days at a time. Building owners could override the legislation and restrict their tenants from subleasing.

State Senator Martin Golden has introduced similar legislation in New York. Meanwhile, Airbnb is lobbying City Hall for laws that would require hosts to pay occupancy taxes like hotels and register their activities with local government, but otherwise legalize micro-hostelling. Not surprisingly, the Hotel Association of New York City opposes this measure, falling back on concerns that private rentals will have subpar safety.

Whatever the solution, a law prohibiting anyone in any circumstance who happens to fall short of established hotel status from renting a room out is clumsy at best and corrupt at worst. Yet even under the current ruling, it’s unlikely Airbnb will disappear. In the wake of Nigel Warren’s fine, New York still has an estimated 30,000 residents using Airbnb. A likely but irksome possibility is that future Airbnb hosts will pay for licenses, effectively purchasing their freedom to rent. Until then, the service is exactly the sort of thing governments tend to hate: a solution generated spontaneously from the ground up without the help of centralized experts. When faced with such a development, the reaction of officialdom is to regulate or forbid that which it does not yet understand.