Airbnb and NYC
There is a bill in front of the NYC City Council called Intro 981 that will impose reporting requirements on Airbnb and their hosts in NYC. There will be a public debate on that bill this coming week.
The backdrop here is the growing housing affordability crisis in NYC and the idea that Airbnb is a significant contributor to it.
While I am not an expert in the economics of housing, I have lived in NYC for the past thirty-five years (my entire adult life), and my wife and I are also landlords in several of the neighborhoods in Brooklyn where rents have been rising most quickly. I have a layman’s understanding of the issue and an on the ground feel for it.
It is my view that we have a fundamental supply and demand problem at work in the rapidly gentrifying outer boroughs of NYC (most acutely in Brooklyn, Queens, and the Bronx). NYC has added almost 500,000 residents this decade alone, a 5.5% increase in population from 2010 to 2017. This is driven by multiple factors but there are more people choosing to live in the five boroughs and less people choosing to leave them.
A major change in the last fifteen years is the emergence of the boroughs of Brooklyn, Queens, and the Bronx as the preferred place to live for many young professionals. They moved into these communities in their 20s to escape an increasingly unaffordable Manhattan and have stayed and are now raising their families in them.
This sea change in demand for housing has not yet been met with an equal increase in supply. There are cranes all over Brooklyn and Queens so I am optimistic that we will see the increases in supply that we need, but there is a lag in the supply of housing coming to market. And we need two kinds of supply, market-rate housing for those that can afford it, and subsidized housing for the displaced families that no longer can afford market rate housing.
And so where does Airbnb fit into this picture? It’s a reducer of supply to some extent as landlords take rental units off the market and list them on Airbnb instead. But having looked at multiple studies on this issue, I believe that Airbnb is a marginal player in this story, not the root cause of the problem. If Airbnb decided to stop operating in NYC (a terrible outcome in my view), I do not believe we would see a material change in the affordability issues that plague NYC.
And yet, elected officials in NYC and NY State have chosen to make Airbnb the poster child of the problem and impose restrictions and constraints on their operation. And, of course, the industry that Airbnb most threatens, the hotel industry and its labor unions, have fought back aggressively and effectively. It is hard to know what is good policy and what is good politics. I suspect we are seeing a lot of the latter and not enough of the former.
I am for reporting of listings as required by Intro 981. But I am not for the city using that data to come after hosts and harass them. Similar reporting requirements that have been enacted in SF, Chicago, and Seattle have included those protections for hosts. Intro 981 should too.
But more than that, I am for a comprehensive solution to the issues that short-term rentals raise. I am in favor of requiring a mechanism for neighbors to register complaints. And I am in favor of requiring Airbnb to collect taxes on short-term rentals in NYC and NY State, which is estimated to produce $100mm of incremental revenues for the City and State. A comprehensive bill that would legitimize the short-term rental market in NY State and NYC would unlock those revenues but the forces at work against Airbnb are fighting it. That makes no sense to me.
It is time to accept that Airbnb is here to stay in NYC and NY State. It is time to legitimize the practice of short-term rentals. It is time to put sensible complaint mechanisms and reporting requirements in place. And it is time to start collecting the taxes on this activity and using those revenues to solve other pressing issues like transportation, schools, and most importantly, our ability to house those who can’t afford to pay market rents.
I would encourage our elected officials to do all of that.
I agree 100%. I saw a recent article in Fortune where they blamed AirBnB and VRBO for a drop in second home prices. The data was marginal at best. They have become scapegoats for the less informed.I am staying in NYC for the next several days and using a traditional hotel. What I see is them becoming more competitive – which is a good thing for consumers. However, since I started using Uber I have never once taken a traditional taxi afterward. But again, that is a good thing for me – the consumer.
I haven’t seen or personally run the numbers, but wealthy foreigners buying apartments that are used two weeks of the year seems like a bigger issue to me, or at the very least should be considered in the same conversations.You don’t really “feel” the empty housing in a giant city like New York… to get a sense drive in Monaco at night outside the very center. The darkness is just spooky.I’m all for foreign investment — but not at the expense of local housing. Non-primary residences should be scrutinized and heavily taxed.
Rent control is also a problem. If landlords were able to charge market rates for rent, the market might be able to sort itself out. Some rents are artificially too high because some rents are artificially too low.
Not to mention fraud. I think my BIL has a unit that he rents and then rents out where the actual landlord is locked into rent control.So here is the way it works (from what I have gathered).Rent controlled landlord rents for $x dollars to a tenant (who is grandfathered).That tenant rents to my BIL for $y*$x and makes a profit.My BIL rents out to someone else and he makes a profit. Meanwhile he lives in another state.
Never happen, not in liberal nyc, and perhaps rightfully so. There are 1M rent stabilized apts in NYC. Annual rent increases are determined by a rent guidelines board. An apt becomes destabilized when rent reaches $2,700, while a tenant can be evicted from a rent stabilized apt if h/her annual HHI exceeds $200K for 2 yrs. Is there abuse (on both sides)? Absolutely, but the vast majority of recipients could never afford fair market value w/ out the financial protection that stabilization provides. Political suicide for anyone suggesting it should be done away with. Rent stabilization is sort of like a basic income guarantee on the cost side, but unfortunately it’s at the expense of landlords, many who are small and whose financials are inextricably tied to the whims of city gov’t. Crazy dynamic, and a bit antithetical to capitalism. NYC is in a heap of financial trouble; failing infrastructure and limited means to fix a myriad of problems.
Hey Arnold. Hope you’re doing well. Finished all my exploratory meetings w/ that Seattle company w/ spoke about, including w/ the #3 guy in the joint. Interesting experience. Hard to think I’d pull the trigger if anything came of this, though. Just bad timing (from my perspective).
Was thinking about that and you the other day.If you care to chat, ping me via text.
As a Brit living in NYC it feels like NYC’s housing problems are a few years behind London but on the same trajectory. It is fundamentally a supply and demand issue aggravated by other factors (investment property, planning laws etc) but in both cases officials are trumpeting short term and economically ineffective measures to detract from the fundamental investments in supply and infrastructure that are needed.
The real culprit of the NYC housing crisis is pied-a-terres. We actually give tax breaks Russian oligarchs would spend fewer than 2 months a year in NYC. Almost half of upper manhattan is empty most of the year:https://www.nytimes.com/201…What do you care about — the cost of the night’s stay or the annual cost of renting or owning an apartment?Airbnb allocates space more efficiently, reducing unused spaces in desirable places like NYC. It is an unmitigated positive contributor by lowering the cost of a nights stay.BUT it does raise the price of traditional owning or renting. Why? Because it increases the revenue potential of all spaces. This is a good thing! It increases the cost of pied-a-terres and of the luxury of excluding people from your spaces when you aren’t there.What we really need to do is to tax people who *don’t* let other people use their spaces when they are gone.
Let’s not forget that Airbnb HELPS affordability by allowing people to stay in their homes despite increasing rents by renting out unused space.
Airbnb HELPS affordability by allowing people to stay in their homesThat’s PR that airbnb floats to further their business. You know this (in part) because they run those tear jerker commercials and ads featuring widows and other empathetics. What it also does is provide a way that the landlord can get higher rents (with the tenant doing the work (my other comment as to my own practice)). Ditto for the tear jerker airbnb ads about old widows who are lonely and have airbnb which allows them to meet all sorts of new people. The fact that some people benefit from airbnb is not questioned. That that alone should discount the downside of it has not been proven (especially since make no mistake it’s all floated by the company). Clever on their part and I take no issue with that btw it is exactly what I would be doing.
It may be PR but it is very real for those of us (including me) who want to stay in the family home and use the extra space when kids leave to pay for their college or other necessities.
The issue is not whether there is a benefit to people (as you and the advertising points out). But your benefit doesn’t necessarily outweigh the downside on others.For example I own several condo properties (that I rent out) and the buildings specifically limits not only that airbnb is not allowed but that you can’t rent out to more than one tenant per year. Two of the properties are in vacation spots. The idea is that the transient usage will be detrimental to the building and the residents who actually live there. I don’t live there so it would be good for me personally if I could rent for shorter periods (can walk to the beach and one place is right on the beach). However I understand the logic and agree with it even though for me personally it would be better if that was not the case.The reason it’s pr is that it ‘pulls at the heartstrings’ not that it isn’t true to some extent. Of course there are people doing what the advertising mentions.Along the same lines there are zoning restrictions in residential neighborhoods that prevent you from using your home for certain types of businesses. The residents could make similar arguments “this is the benefit I get from not having to rent an office or a warehouse so it should be ok”. But that is not how it works. You can’t run say a group home in certain neighborhoods no matter the upside and the good.
perhaps the Dutch should be invited back to reclaim some more land from the sea. they’re good at that.perhaps Airbnb needs to purge its network of bad guests, and build a much better reputation system.perhaps this entire issue is just a proxy for a fundamental upstream issue, the grossly unequal distribution of wealth (and which is only going one way).i would not want to live in a place like NYC (or London, which is even worse, with ridiculous off-plan schemes, and dirty money flooding in from all over the world and no questions asked – the British state is corrupt).
It’s a contributor, no question. And there’s really no formula that could adequately quantify what percentage of the problem can be attributed to it. So you’re spot-on, Fred.What’s the real issue? Our politicians and the people who “listen to them” (HA!) are both knee-jerk reactors … the politicians because it suits their purposes and the responders because they don’t seem capable of discourse.And now I’m stuck. How do you fight a situation like THAT, especially in an environment where we all live in a 24-hour-news-cycle-but-only-in-our-or-Facebook’s-representation-of-our-echo-chamber?Gaaaah.
And so where does Airbnb fit into this picture? It’s a reducer of supply to some extent as landlords take rental units off the market and list them on Airbnb instead It also increases the rent that a landlord can charge a single tenant. If the landlord allows the tenant to sublet on airbnb (do all the work) they can then get more for the rental. This isn’t theory. I am doing it with medical suite rentals and office rentals. One of the ways to get a tenant to pay a higher rent is to tell them they can sublease their space (in this case to another physician) on the days they are not using it. Or to sublease exam rooms that they don’t need ‘so it’s ok if you rent 5 exams when you only need 3’. I am not a big operator but have done it enough to know the psychology of it and that it works. No reason to believe the same is not the case for residential rentals. Importantly have to point out that it’s a bit like 4 wheel drive on a car. People will often go for something just on the hope and idea that it might be needed (or in the case of rentals) not that they will even do it. Once again not theory. I am doing this.What else does it do? It inflates the cost of purchasing real estate. If you buy something to rent out and you know you can airbnb it you are going to bid more for that real estate. You don’t need a study to know that is what happens.
But having looked at multiple studies on this issue, I believe that Airbnb is a marginal player in this story, not the root cause of the problem.This is a bit like saying that some objectionable behavior is not the root cause of an undesirable outcome because there are other factors at play. This ignores the fact that it is a contributing factor (which will increase over time – see UBER) and that in itself is enough to be concerned with it. (My other comment). Of course if there was no airbnb it would not cause real estate to drop in price because there is a constant increasing demand, and well, its NYC. And that demand and lusty desire ‘floats all boats’. But on the other hand it is not making things any cheaper and is another contributing factor to increase in both the purchase price of real estate as well as what you can rent real estate for (once again to someone who operates an airbnb and therefore rents from a landlord).Likewise let’s look at ‘pop up’ stores. Do they contribute to vacant signs across NYC. You could argue that they do. Why? Because if a landlord can float a property with temporary tenants he will be more likely to sit and wait until the right tenant comes along that will pay a high rent. This is common sense.
I am not debating the issue. All I will say is that a small change in supply/demand can make a big difference. 11 people looking to buy 10 houses, a buyer loses. 9 people looking to buy 10 houses, a seller loses.This is where Economists get it wrong. I had a big argument with Jeremy Segal about this. It is easy to think that supply/demand is a curve. It is not. There are dislocations. Same for efficient market theory. Not a curve. There are massive dislocations.
>This is where Economists get it wrong. I had a big argument with Jeremy Segal about this. It is easy to think that supply/demand is a curve. It is not. There are dislocations. Same for efficient market theory. Not a curve. There are massive dislocations.Can you explain that – what you mean by dislocations? I studied Economics in high school, just for 1 year, it was only a basic course. I don’t remember much of it now. Remember a few terms like marginal price and elasticity of demand, that may be related to what you wrote. Of course realizing that economics cannot model the real world perfectly or even well, so just asking out of interest.
A great example is from a classmate: http://redeye.firstround.co…Another would be if you constrain supply which increases demand. Think of Swatch Watches or Cabbage Patch kids (shows my age)It is not a straight line up and to the right.
Got it, thanks.>A great example is from a classmate:Read it, interesting.>It is not a straight line up and to the right.Guy Kawasaki has an entertaining talk in which he uses the term “up and to the right” a lot. I think his meaning is that textbook MBA stuff does not always (or maybe not even very often) work in the real world, a.k.a. not everything works by just the numbers or formulae.
If Airbnb decided to stop operating in NYC (a terrible outcome in my view), I do not believe we would see a material change in the affordability issues that plague NYC.This does not take into account that the use of airbnb will increase over time. You are looking at it through today’s lens. I call this ‘michael’s jetski’. And importantly think about Uber. The same argument could have been made about Uber in the early stages ‘not a big deal’. But, like anything else, it’s a slippery slope.Speaking of Uber why doesn’t anyone in progressive NYC seem to care that taxi drivers can’t make a living and that medallions they bought (in good faith at market prices) are devalued to the point where some have committed suicide? All people seem to care about is that they can get a ride when they want (which is fine and make sense) and that there was a constrained amount of cabs on the street. They don’t care at all that someone is losing their job or can’t earn a living. They have no empathy for that at all. All they look at is how great it is for them personally. Who cares if some guy living in an outer borough working 12 hour days can pay his bills and his healthcare.https://www.nytimes.com/201…https://www.nytimes.com/201… So named after my older cousin who bought a piece of real estate on the intercoastal so ‘michael (his son) can ride his jetski and I can watch him’. However Michael (now a big shot dermatologist in Texas) was 14 or 15 at the time. He only was young enough that intercoastal location mattered for 2 years. The house has long since been sold (at a loss it wasn’t in NYC).
Wow, a bit of empathy from LE wrt medallion owners :). Couldn’t agree w/ you more, though. Not sure what legal rights medallion owners have, if any, but Uber has turned medallions into nothing more than trinkets on the hoods of yellow taxis. No protection whatsoever. Of course, on the flip side, many taxis are not well maintained, are dirty and provide a pretty uncomfortable passenger experience relative to Uber. No question Uber is killing subway ridership, but I’m curious what impact Uber has had on parking garages, with an increasingly declining need to actually own in the city. Btw, there are no “clunkers” in nyc parking garages, so perhaps I’ve answered my own Q.
a bit of empathy from LE wrt to medallion ownersAs a very general rule I am almost always on the side of small business and their woes and what it is like to be them. (Unlike most politicians who don’t have any understanding of what it’s like to run a small business). In contrast however I will totally take advantage, legally of course, and in any way shape or form, any government entity or large business or faceless corporation. But I am exceedingly fair and empathetic with small and/or personally run business or where I can interact with a real person and not a fucking programmed idiot. In the case of that ‘idiot’ (and who they work for) in particular there is nothing I will stop at to totally take advantage of them if I can.Small example if I go into Starbucks and buy a pound of coffee and don’t like it I will go back and get a full refund even if I have used 1/2 of it or more. If I were to have purchased same from a small shop unless there is a significant issue (and as long as they have treated me fairly) would not do that. In a restaurant though the rules are a bit different. If the meal isn’t right I send it back and/or order something else. In that case I am doing them a favor by being their quality control department. After all most people are not complaining.Will post again the image of a restaurant that years ago was a customer of mine (coincidence has nothing to do with my thoughts above) that bounced a job using great language to make their point… https://uploads.disquscdn.c…
I don’t have empathy for medallion owners. Technology changed the landscape. It happens all the time in industry after industry. Part of the risk of doing the deal.
And I am in favor of requiring Airbnb to collect taxes on short-term rentals in NYC and NY State, which is estimated to produce $100mm of incremental revenues for the City and State.This is similar to trying to sell legalizing pot by tantalizing government with more money they can spend. Similar almost to when they legalized lotteries and attached it to ‘money for senior citizens’ (Pennsylvania) or in NJ with casino gambling.And $100m? That’s nothing. So what. The budget of the NYC DOE alone is $24 Billion.Separately that tax money will also increase rental costs as well as purchase costs because it will be factored into any decision to buy real estate…. https://uploads.disquscdn.c…
I am all for legal pot too. It should never have been illegal. Drinking is way worse
Been interesting to watch it get integrated into the culture in LA.Retail experience still very primitive but CBD based product quality and availability for a variety of health solutions is astounding.
You’re in LA now?
back in ny now.
I’m in France but catch up in LA sometime )
email me as i’m back next month and be fun to catch up if [email protected]
Still in Europe (prolonged sailing) but our time will come )
It is time to accept that Airbnb is here to stay in NYC and NY State. It is time to legitimize the practice of short-term rentals.Why does it have to be accepted that it is ‘here to stay’? Is that the way it works? Something comes along and once it gets enough critical mass it’s ‘here to stay’. This sounds like something that Morty would totally have barfed out ie ‘what do you mean ‘it’s standard’? And what about all of the issues that progressives have overturned that ‘were here to stay’? What if people (who wanted those changes) just accepted that the status quo (in this case airbnb being established) was ‘here to stay’?Separately ‘complaint’ mechanisms sound like good theory but I (if I was in the decision tree for this) would want to know exactly the practical aspects of what happens with a complaint and how the system would not end up being gamed. Not just [x] check a box there will be a way to make complaints. https://avc.com/2009/06/a-l…
If AirBnB provides additional burdens and costs to those around the landlord who is the only one benefiting (along with AirBnB) then there should be a direct mechanism to compensate those who bear those costs; not an indirect tax that then goes into the blackhole of government.
Same sentiments on housing supply expressed today on the cover of one of the UKs best selling Sunday papers . https://uploads.disquscdn.c…
Obviously, the are multiple factors to consider; my concern, is when legal bodies decide to regulate the property rights of owners. If the same policies (reporting, taxes, etc) apply to everyone, that seems fair but I’m against legislating market forces (supply and demand) that directionally manipulate supply and/or set price.The Taxi, Hotel, Cable and many other industries impacted by technology have all learned one vital lesson – a deeply embedded control structure can be broken by a better system.
Nyc is in much better shape than SF. Check out this map of SF and how much space is zoned for single family use https://twitter.com/erikbry…
FRED:Do you personally or AVC have an equity position in Airbnb?Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT
Well you could knock me over with a feather!Fred, the internet cowboy, does not like the government coming out to fence in “his” open rangeland. See…Oklahoma! – The Farmer And The Cowman (with lyrics)https://youtu.be/Vg5cwSBnyQ…Elon Musk plans a utopia on Mars; Peter Thiel had proposed one in the ocean.”Airbnb is here to stay in its current form.” Unless Fred has, say, become dictator of NYC, that is a foolish statement. Better to say, “Airbnb is here to stay in its current form as long as a government says so.”If a government decides to outlaw Airbnb then it will only exist in the informal or underground economy. Ditto crypto. Ditto ride hailing. Ditto electric scooters strewn pell mell across city sidewalks governments make the rules. governmentsSure, where there is a demand there is typically supply. That is well-known. But if a government wants to outlaw something it can. Then that supply will be met by the informal or underground economy… like heroin, child pornography, and illegal arms trade. Merely because there is a demand for something, does not mean the government should legalize it.I expect more and more potential LPs who read Fred’s flawed analysis and thinly vieled absurd rants are choosing to park their cash with VCs other than Union Square Ventures.
Simple Question, Fred: Rent Control – For or Against?
i prefer stabilization to control, but both are problematic
When rent controlled apts are vacated or terminated in nyc (by death, for example), the unit immediately becomes rent stabilized. For quite some time the goal is to do away w/ rent control by attrition.
Both are examples of failed universal service; much like with telecom networks (and health care). The answer lies in something most won’t like to hear or admit; equilibrism. It applies equally to digital networks as to socio-political and economic networks. http://bit.ly/2iLAHlG
“It is hard to know what is good policy and what is good politics.”Good policy is to leave folks to make their own choices with their property. Freedom.Good politics is to pretend government is co-owner of all property, milk it to signal virtue and buy votes, bask in the glory of the imaginary heroism of that barbaric behavior, then escape into a public-funded retirement before folks awaken to the game. FreeDumb.
First problem are: Landlords. Why? Landlords are the culprits of capitalism. This is actually how the foundations of capitalism got laid out: Take people’s land and you make them depend on you. Then you give them work, to rent back the land you took. Circle closes beautifully. You can do all kinds of tricks in between such a closed circle. Play with loans (welcome commercial banking and the FED), introduce tax (hello IRS) and so on. All a big mash up of criminal activities under state law (president T.W.Wilson did banks a great favour, especially the Rothschilds, Rockefellers and Morgans). AirBnB is a ‘small’ problem. The big issue is that 1% controls/owns most of our land.
All examples of network effects and regulatory capture to perpetuate those network effects and distort pareto and standard distributions even more. All socio-economic and political institutions are dominated by network effects, something the greek philosophers observed but couldn’t completely comprehend. And they exist everywhere around us. Observing the settlement-free internet and backlash of distributed (crypto) processing, we see that people still do not fully comprehend network effects in their entirety; at least in their inability to develop sustainable AND generative digital networked ecosystems. For more on how we can use equilibrism to achieve such ends: http://bit.ly/2iLAHlG
a while back i met a youngish (and bookish) middle class NYC couple on holiday in Bavaria for a couple of weeks. back in NYC they were renting out their apartment while away. they suggested it was a normal thing to do. i was surprised.is it normal? is it worth the risk?
Here’s the problem with real estate development. There are no good linkages across ecosystems. Two simple examples: I see 10 cranes from my home on the Palisades as I look at the west side of Manhattan. But where are the expanded transit systems for the 10,000s of new units from 2005-2020 up and down 10th avenue? Decades away. The same holds for Brooklyn. I remember always getting through Manhattan via the BQE and Williamsburg or Brooklyn bridges. Now I never go simply because the exits are all backed up from cars trying to get off to go to all those trendy neighborhoods. It’s not just simple problems with AirBnB or rent control/stabilization, etc… It’s eco-systemic. The same holds for all man-made socio-political and economic institutions as indicated in my other comments here. To the landlords accrue all the benefits and few of the network effect costs.
The four main issues of 1) affordable housing, 2) neighbor complaints, 3)hotel/safety regulations and 4) city zoning/taxes can solved by creating two categories of hosts. Host A (for Authentic Airbnb) is the host who lives in the property and shares a room (or couch) or has a rental unit in the same building where host lives. Host B (for Business) is the host with more than one investment property (from two to multi-unit buildings) who rents the properties on a nightly/weekly basis to capture the market demand for pop-up hotels rooms. Both Host A and Host B fill a market need, but it’s Host B that causes the majority of concerns with Affordable housing, neighbor complains, hotels and city zoning/taxes. I go into greater detail on why and how this approach can be implemented to make (almost) everyone happy until regulations are in place convert Host B into Host C (complete compliance). https://www.linkedin.com/pu…
Hey have any of you actually had airbnbs in your building in NYC? I have. I live in Manhattan, Greenwich Village. People leave trash everywhere and think your building is some kind of hotel. I live in a co-op building and airbnb’ing is forbidden. I hope it stays that way for a long time. It’s like these scooters VCs are pushing. No one likes to have someone else’s trash in your space. You can get all the marketing you want, all the VC dollars in the world. The bottom line is, it is a hassle for everyone else. They get 30% cut off of the rent. Good for them. We get trash. The end.
What are those multiple studies on this issue you have lookedat? I ask because the following are not arguments:“While I am not an expert in the economics of housing…”“It is my view that…”“I am optimistic that…”“I believe that Airbnb is…”“I suspect…”“I do not believe…”I wish you had truly supported your views. Many experts inone field believe they know about others. Most times, this is not the case andthis is very dangerous to society because those experts have a significant followingwhose views get influenced. But who cares? Those experts have a different agendato society’s.Airbnb is a huge contributor to the housing affordabilitycrisis: Investment funds owning more and more housing – REITS – Short (notlong)-term rentals… Do you see where I’m going with this?Cities and public spaces are for those who inhabit it, notfor investors. Otherwise, the real economy and social fabric get crashed…What do you think will happen when those investment fundsfind other markets with higher margins?Airbnb takes a huge chunk of rental housing and no publichousing is being built. And please do not mention “affordable” housing becauseit is unaffordable to most.What’s needed is social housing, for everyone, which is theonly housing initiative that prevents segregation. What you suggest does cause segregation.How would Airbnb stopping operating in NYC be a terribleoutcome?