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UncategorizedWill airbnb have to pay for its past violations?...

Will airbnb have to pay for its past violations? Or does tech just get amnesty for everything?

airbnb2

By Tim Redmond

APRIL 14, 2014 — Airbnb has changed its terms of service (which I suspect nobody reads anyway) to warn people that they need to check with the local authorities on possible code violations. Nice that the “sharing economy” pioneer finally noticed that there’s, um, a problem here.

Let me make the problem perfectly clear:

It’s against the law to rent out your apartment, home, or spare bedroom through airbnb in San Francisco.

Period.

San Francisco, like many big cities, bans short-term rentals except in areas zoned for hotels and rooming houses, which have to have permits and licenses. There are quite a few bed-and-breakfast places in the city (Alamo Square, the Castro, and Noe Valley have some) but in every case, the owner went through the process of getting a permit to operate as a hotel.

You can’t ignore that and become a hotel just because there’s a web app for it.

In fact, for better or for worse, the entire airbnb business model – at least as it applies to San Francisco – is based on people breaking the law. Until recently, it was also based on people not paying their taxes.

That’s the case with a lot of the “sharing economy.” The ride-sharing services are closer to the line, but they still launched without any concern for local rules, which typically require permits to operate a cab.

The entire tech shuttle program was based on breaking the law. For years, the big buses parked at Muni stops, where it’s illegal for anyone except Muni buses to park – and nobody did anything about it. Tour buses that did that would be cited. UPS trucks that do that ARE cited. It’s a $271ticket – for everyone else.

Why is this okay? Why can someone run a business in San Francisco that requires every local participant to violate local codes with impunity? Yes, the city is starting to crack down on the users – the folks who believed the hype or didn’t check the fine print and agreed to rent out their apartments through airbnb – but nothing happens to the folks who created this business and enticed thousands of users to do something that could get them evicted or cited by the city.

Is the fact that this is a “tech” company, with the likes of Ron Conway involved, mean it doesn’t have to follow the same rules as everyone else?

It certainly looks that way. The state and the city are scrambling to retroactively legalize Uber and Lyft, and Sup. David Chiu is looking at ways to make airbnb rentals code-compliant, and the company has (finally) agreed to collect the city’s hotel taxes.

Fine: But when the federal government talks about immigration reform, everyone seems to agree that people who have been living in the country without proper documents will have to pay a fine and possibly back taxes to qualify for legal residency. There’s no talk anywhere, none, about asking airbnb to pay its back taxes or to pay any sort of fine for creating a business model based on breaking the laws of San Francisco.

No: Airbnb is a tech company with friends of the mayor as investors so it’s just fine to break the rules, week after week, month after month, year after year – and never be held to account for it.

A lot of the protests over the Google Bus Program are based on the displacement and evictions that follow the shuttle trail. But there’s a deeper discontent, too, one that defines a lot of the city’s response to the tech industry.

The rules, it seems, don’t apply to tech companies. Like Leona Helmsley says, only the little people have to, you know, follow the law and pay taxes.

How much money has the city lost? Well, by some estimates, if every tech shuttle paid a $271 fine for every bus stop over the past five years, the city would have collected about $1 billion.

How about airbinb? The SF Apartment Association thinks there are about 2,500 units regularly rented out; I’ve heard estimates of as many as 5,000. Some of those are rentals that are essentially taken out of the rental housing stock. Some are private houses and condos.

Let’s assume the average rent is $100. And let’s say the Apartment Association is correct. We’re talking $250,000 a day in taxable hotel bills, every day of the year, or about $91 million a year. At 15 percent, that’s about $13 million a year that airbnb owes the city, times four years since the company was up and running is $52 million. That’s the back debt, the money that airbnb and its hosts have in effect cheated the city out of.

If the number is close to 5,000 a day, you can double that to roughly $100 million. And the company is growing. And San Francisco is a popular tourist destination.

So of course, Chiu and others in the city are looking at how to make this pay; we could be talking about $1 billion over ten years, for, say, affordable housing. All we have to do is change the laws that airbnb and its hosts have been breaking every day since 2009.

But if we do that, can we please not let these folks off the hook for the past? Can we please say that you can’t just come up with a new idea that violates city law, get some venture capital money, go ahead and do it because your tech people so you don’t have to play by the same rules … then come out ahead when the laws change and you get total amnesty?

Or are we going to say that if you’re an undocumented worker who came here to escape poverty and violence and give your family a better life, you have to pay a fine for breaking the law just to get a chance at becoming legal – but if you’re a white male tech genius you can just get away with anything you want and come out rich?

I guess maybe we are.

UPDATE: I’ve just learned that my estimates my be very low; there were 14,000 airbnb listings in SF last October. So maybe we’re talking as much as $250 million. Big numbers.

 

Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.
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17 COMMENTS

  1. Can we ditch the ‘disruptive ideas/company/technologies’ euphemisms? This is ordinary capitalism at its best or worst, depending upon how you view it.

    If hotels that pay stable salaries are at risk of going out of business because a competitor isn’t obeying the laws, it isn’t ok, it isn’t ‘disruptive’ and it isn’t legal.

    In my situation, my neighbor who needs the money has been renting out on AirBnB. Some kids from France rented the place and had loud parties non-stop for 4 days, littering the common areas, vomiting in the stairwells, etc, with more than 70 people being ejected by the police on the last day. In this city (Barcelona), if the police are called two more times with credible complaints, the owner will lose all access and rights to his condo for 3 years. Two more calls and he is out. And no, I didn’t call the police.

    I purchased a home in a residential building, not a hotel. The security of the building is compromised if strangers are given the keys to the front door, the first line of security.

    Our homeowner’s association will be voting to ban holiday rentals in our building. The city of Barcelona has already fined AirBnB about $50,000 for illegal rentals. Entire neighborhoods are being disrupted and no, it isn’t ok.

    “”Investors have been snapping up whole apartment blocks and kicking out the locals, many of whom are elderly,” he told The Local.”

    http://www.thelocal.es/20140826/is-tourism-ruining-barcelona-spain-new-venice-airbnb

  2. Jack, I see a problem with your argument. Your example assumes that no lasting harm has occurred.

    In the case of AirBnb, precious below market rate rental housing has been lost and families have been forced to leave the Bay Area. This is not a no harm, no foul situation.

    To elaborate on your example, what if this new flying machine resulted in a number of deaths, major injuries, and property damage, which is entirely possible. I would hope that the company that implemented the invention would be held financially accountable for the damages, along with some penalties for pain and suffering.

    My analogy is a bit extreme, but lives and community in San Francisco have been disrupted by AirBnb’s business model, which counts on the law being violated as a routine matter.

    I agree with you that’s it’s desirable to give some leeway to new business models that could be disruptive, in the form of a time period in which the laws are not enforced, as long as it isn’t obvious that major harm would be done. (Neither AirBnb, as currently configured, or your example of a personal flying machine would past that test.)

    These new business models could add value to an economy and a culture. To some degree and in some cases, that appears to be the case with AirBnb. (See Chris’ example above of a harmless and positive use of AirBnb.) But the company also appears to have caused (and is continuing to cause) major negative impacts to below market rate housing stock. AirBnb should be held accountable for that and for the families that have been forced to leave San Francisco.

    If AirBnb (or any other disruptive company) wasn’t willing to take that risk and responsibility, they shouldn’t have started the company.

  3. I completely understand where you’re coming from, Chris. Renting an AirBnb apartment is a delightful experience and infinitely preferable to the usual overpriced, underwhelming hotel room.

    However, in San Francisco (and other places, no doubt), we’re in the situation where long time residents are being thrown out of their apartments in droves and there is little or no attempt on the part of city government to preserve or replace this below market rate housing. Unfortunately, AirBnb is part of the problem because people are being Ellis’d and bought out to make room for these AirBnb apartments.

    In your situation, you are not depleting precious low income rental stock. I fully agree that folks like yourself should be exempt from any restrictions on AirBnb.

    Frankly, the situation sucks. As consumers, if we don’t want to aid and abet awful situations, we have to constantly be aware of our choices. (Shopping at Walmart would be an example of supporting a destructive company.) It’s a bit overwhelming. But from now on, when I visit a city, I’ll be doing research to see if long time residents are being thrown out of a city by gentrification before I rent an AirBnb room there. If that is the case, I will either go to a hotel (yecch) or simply not visit the city in question.

    To do otherwise is to help speculators throw people out of their homes.

    That’s not being strident. That’s just the unvarnished, unpleasant truth.

  4. “It’s against the law to rent out your apartment, home, or spare bedroom through airbnb in San Francisco. Period.”

    There’s a moral distinction to be made between good and bad laws.

    As in the case of medical marijuana, if something good is against the law, you should be fighting to change the law, not to enforce it!

    Just as guaranteed health insurance frees you from having to stay in a job that’s not right for you, airbnb frees you from having to constantly live in a place that’s not right for you. In my case, I have a new granddaughter in another state, and the only way I’ve been able to spend any time with her has been by putting my home up on airbnb.

    When someone wants to come for a week or more, what they pay to rent my home covers my costs of transportation and a small airbnb room for myself near my granddaughter… which, in turn, creates opportunities for the people who own the places where I stay.

    Without exception, all of the dozen or so airbnb places I’ve stayed in over the last 3 years have provided me an experience utterly superior to a hotel room: a homey feel, full furnishings, a kitchen with dishes and silverware and pots and blenders, friendly hosts to show me around, and lovely neighborhoods to stay in and explore. It’s a win-win-win for everyone. I’m happy to pay any applicable taxes. I’m not happy to blindly obey an antiquated law that prevents these valuable exchanges without having anticipated their possibility.

    In general, I applaud your efforts to preserve low-income housing, including rent-controlled apartments. In the case of airbnb, however, it’s at least not obvious that the value created for a large number of people and families by a single unit’s listing on airbnb couldn’t outweigh the value lost by one person or family who could otherwise have rented that unit.

    So although I support making airbnb renters pay the hotel tax, and I can at least see the argument for preventing full-time year-round rentals of a unit on airbnb (though I’m not convinced that’s something terrible enough to outlaw), I find your strident moralizing that airbnb users are “breaking the law” quite repugnant.

    Tim, please tone it down.

  5. I think taxes and regulations make sense now that the model has proven successful; however, I think a grace period for new innovations until they prove themselves or become a problem also make sense.

    Let’s assume you designed something outside the usual model of things, for example, an inexpensive way for a person to hover and fly silently a feet yards off the ground. You start sharing it, maybe letting a few friends flit around, then start selling hand-built devices to well-off first adopters. A few flitting 40 feet overhead are a curiosity and not a problem, even if it’s technically illegal to fly at low altitude and without a license. You could kill it outright if the cities enforced the laws as if your invention were an airplane or helicopter, but it makes more sense to see when and if it starts to become a problem (1,000 vying for space overhead, for example) and then make / apply laws. Should they be applied retroactively, fining the inventor, you, the cost of a flying license? I’d say, no.

    Airbnb is beyond its grace period now and should be regulated. Old laws about evictions should be enforced and toughened to penalize the unscrupulous now we know what can go wrong. But back penalties and taxes to airbnb? I don’t think so.

  6. Tim, little typo: ‘go ahead and do it because your tech people so you don’t have to play by the same rules’ should be ‘you’re’ feel free to delete my comment

  7. I understand the libertarian position here, Greg, but wouldn’t you agree that if one group of people have to follow a law and pay taxes, than everyone else in the same business should, too? If there were no city hotel taxes, I wouldn’t care than airbnb wasn’t paying them. But there are taxes, and as long as they exist, it’s not fair to give one group a pass while everyone else has to pay. That’s not disruptive, that’s cheating.

  8. Not feeling you here, Timothy.

    Its ok with me and the market if Hotels go out of business, the city can’t (should not) collect hotel taxes, and the city government has to make adjustments… that’s what disruptive ideas and technologies are all about.

    Yes, it is against (an unethical and immoral) the law… and laws that CANNOT be enforced WILL not be enforced and all concerned will be forced to make that adjustment, too.

  9. Not a lawyer, but why doesn’t someone who operates a fully licensed bed and breakfast/hotel go after AirBnB for unfair competition? Would it be AirBnB and countless operators listed as Does 1-infinity? Would AirBnB make the business decision that facilitating lawbreaking is a bigger hit than mandating compliance?

  10. If folks are getting evicted to make room for short-term vacation rentals, that’s clearly unacceptable. And it sounds like that’s what’s happening. *sigh*

  11. I can agree that some tenants and homeowners should be able to offer up a room for couch surfing, but a lot of what’s going on is landlords taking rental units off the market to use entirely as short-term vacation rentals. They’re even advertising them; there’s on one Washington street where a building is for sale and the real estate agent brags that one of the units is a permanent VRBO (vacation rental by owner) unit that brings in $120K a year for a “fully scheduled year.” That’s a rental unit removed from the housing stock. There are reasons why the city doesn’t allow this, mostly to protect the critical and fragile rent-controlled housing stock.

  12. Agree this is a huge problem. Not sure if this issue is primarily about getting taxes paid (retroactively or not). The ‘shared economy’ is a myth when some folks have an unequal amount of cash to buy (not ‘share’). Without controls (not taxes) every part of our city will be colonized (or commoditized) by corporations.

    That said, with controls that limit use to real people who are actually sharing their own homes, I agree with some the previous comments that tenants should be able to offer up a room or a couch for short term sharing — no harm in that. But obviously, that is not where Airbnb makes its millions and the controls that prevent this from being a tool for gentrification by landlords need to be very very strong AND the city attorney needs to be willing to go after the corporations and enforce those controls.

  13. Mark: Ahem — Tim Redmond IS a white male. He gets to make comments like that, just like black people get to use the word “nigger” if they want to.

    I too agree with what Tim has to say. AirBnb should be held accountable for breaking the city’s laws, and they should look at back taxes and fines as part of the cost of doing business.

    I also appreciate Tim’s concern about this business model poaching rental stock. These are all valid concerns and absolutely should be addressed and solved. It would be lovely if these taxes and fines were used to create and/or preserve city owned low rent housing stock.

    But one thing is starting to irritate me about the coverage of AirBnb on 48Hills. While it is true that AirBnb has been awfully cavalier about their legal responsibilities (and about informing their clients about same), nowhere have I seen it mentioned that AirBnb’s business model might have some value to ordinary people (those without trust funds and six figure+ salaries). Yes, I’m aware that these benefits have been touted elsewhere, but maybe Tim should acknowledge that:

    1) The rentals put money directly into the hands of people who need it instead of siphoning it to the usual suspects as would be the case with most hotels, where it probably ends up in tax shelters overseas instead of in the local economy. (Granted, people are willing to rent rooms and apartments because of the ongoing austerity problem, which is just a way of siphoning wealth from the poor, working class and middle class to the rich, but that is a topic for another day.)

    2) For too long, hotels have been able to charge absurd prices for a shoddy product. AirBnb has shaken up things. This is analogous in some ways to the telecom industry, which gets away with providing shitty internet service at absurd prices, as compared with Europe and Asia.

    3) Travelers without deep pockets get to experience actual neighborhoods and the way people in a city actually live instead of being stuck in tourist ghettos. And because they have saved money on pricey hotels, they instead spend it on local businesses.

    Just a thought.

  14. I whole heartedly agree with everything in your article. However, the quote, “but if you’re a white male” is completely uncalled for. Comments about race are not appropriate and only makes you look like a cry baby.

  15. These are excellent points to raise and it makes me question how so many at the city government level can turn a blind eye. Is Sup. Chiu encouraging the back-taxes and penalties or is he just looking ahead now?

Comments are closed.

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