Has Airbnb Hit a Wall?

City governments keep cracking down on the popular rental service

An interesting thing happened once individuals discovered they could monetize their underutilized assets: The government started telling them they couldn’t.

Uber Technologies and Airbnb, with their rapid growth, have run into government blockades — possibly with assistance from taxi and hotel lobbies worldwide.

It isn’t entirely clear that ride-booking makes much sense for certain drivers. Depending on a myriad of factors, some drivers may make less on a net-hourly wage basis than their local cab driver.

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Renting out one’s apartment, on the other hand, represents real cash gains to the occupant. The general public, of course, loves Airbnb. It offers more choice — often at reasonable prices, regardless of city.

The hotel lobby and other interests, on the other hand, absolutely hate it. Hotels obviously don’t want more supply on the market in the form of Airbnb options, since it means less demand for their rooms. It forces them to lower prices.

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New York Gov. Andrew Cuomo recently signed a bill fining tenants and landlords for renting out unoccupied apartments for less than 30 days. London tenants can’t rent properties for more than 90 days a year without bureaucratic permission — and Berlin tenants can’t rent more than 50 percent of the space in their apartments. More and more cities are starting to pass restrictions.

More and more cities are starting to pass restrictions against the rental service.

Case in point: Chicago. In June, the city passed an ordinance that includes a $60 fee to help the city “enforce wild partying and illegal rentals,” according to the Illinois Policy newsletter. “This fee is on top of the 4 percent surcharge on short-term rentals and in addition to Chicago’s 17.4 percent hotel tax.” Mayor Rahm Emanuel even “included a feature where Chicagoans would have the ability to vote to ban Airbnb from their communities,” the site noted.

“Just as is the case with ride sharing, the hotel industry shelled out thousands of dollars to aldermen to secure their support. According to the Illinois State Board of Elections, in the past year, aldermen and their ward organizations took in nearly $30,000 from the Illinois Hotel & Motel Pac.”

To a certain extent, some hotel industry objections are justified. Hotels must operate within tight regulatory restrictions, meeting all manner of codes regarding construction, accessibility, fire and emergency protocols, and cleanliness. Airbnb providers have no such restrictions, creating an uneven playing field.

Housing authorities also have certain legitimate concerns. In areas where housing supply is tight, entrepreneurs who purchase apartments for the sole purpose of subleasing for Airbnb create even tighter supply. This drives up rental prices, which landlords love — but that pushes housing for lower- and middle-income individuals out of reach.

Related: 10 Airbnb Red Flags

This isn’t a proven fact in all circumstances, though. A study by ECONorthwest on the Airbnb situation in Portland, Oregon, revealed some interesting data.

“If all of Airbnb’s entire home unit hosts were to suddenly decide to stop renting on Airbnb, it would do little, if anything, to affect the trends driving rising rents … These 2,976 entire home listings make up 1.1 percent of housing units in the city [of Portland]. The vast majority are rented infrequently,” the study noted, adding that “87 percent of entire home listings are rented for fewer than 180 nights and 42 percent are rented between 1 and 30 nights a year. Only a small subset of entire-home listings, 83-377 listings or 0.03 percent of the city’s housing units, are booked full-time.”

In addition, the study found that short-term rental income “can incent long-term housing creation. Many units created for initial short-term rental use will convert to long-term use, adding to total housing stock.”

Part of the problem in determining the best course of action for local governments and entrepreneurs is that very little data actually exists thus far. In addition, there are crosscurrents that make it difficult to examine the effects of Airbnb rentals in isolation.

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It would seem that, in cities where tourism is big, hotels would not stand for a 5-7 percent revenue impact. The likely outcome will vary based on how powerful the hotel lobby is in a given locality and the mindset of politicians in that locality.  Cities with rent control will also see numerous battles.

The most likely scenario is that regulations will differ by city — and compromises will be reached over the long term. Airbnb isn’t going anywhere right now, but depending on where one wants to vacation, supply may be limited.

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