If you love Airbnb and live in New York, get ready for some major changes that could spread across the rest of the country.
Since 2010, it has been illegal to rent out an entire apartment for a period of fewer than 30 days in New York. But to a large extent, home sharers and customers have worked around or ignored this law, and continued enjoying the benefits of short-term rentals. However, a new law awaiting Governor Andrew Cuomo’s signature would strengthen the existing regulations by making it illegal to advertise such dwellings—ending a major share of Airbnb’s operations in the city.
Hotel unions, led by the AFL-CIO-affiliated New York Hotel and Motel Trade Council, are backing the bill. They argue that Airbnb is a threat to “good-paying union hotel jobs in New York City and around the country.” Perhaps they’re right—but this does not justify the government providing preferential treatment to protect an older industry.
Despite the union’s fearmongering, the data clearly indicate the overall hotel industry is managing just fine. According to STR, a leading company in hotel market research, 2015 was the best year on record for the hotel industry—setting records for both supply and demand. The average daily rate for rooms also grew at a rate 2.5 times higher than its long-run average.
It is true that in the second quarter of 2016, New York City’s hotel industry saw its leading performance indicator, revenue per available room (RevPAR), drop by 3.1 percent. But home sharing is not a major reason for this decrease.
Between 2010 and 2015, the supply of hotel rooms grew 21 percent in New York City, which has shifted the supply and demand equilibrium of the market. Despite the drop in RevPAR, hotels are still being built in New York City—13,583 rooms are under construction in 2016. Lackluster international tourism, led by the weak global economy, has also negatively affected New York hotels. A slight decrease in the hotel industry’s revenue is by no means adequate justification to place burdensome regulations on home sharing.
Even leaders of major hotel chains seem to have accepted the permanent market shifts caused by Airbnb. Christopher Nassetta, president and CEO of Hilton Worldwide, the third largest international hotel chain, states he “does not believe that they (Airbnb) are a major threat to the core value proposition we have.” Nassetta views home sharing as a “segment unto itself” and believes Airbnb cannot compete with the amenities and services medium- and high-end hotels provide.
Nassetta is not alone in his feelings toward home sharing. Arne Sorenson, CEO of Marriott International, admits Airbnb can “do things we can’t do,” such as providing a more local and immersive experience for guests. Sorenson also argues that traditional hotels can compete with Airbnb “with a greater sense of design, greater emotional connection with our customers, and really get them to go back and say, you know, I love that new hotel.” This is how the market should work—rather than fighting for preferential treatment, companies compete by trying to provide superior value.
Hotel companies are also trying to cash in on the growing vacation rental market that home sharing has dominated. In early 2016, Choice Hotels, the fourth largest U.S hotel company, with brands such as Comfort Inn, Cambria Hotel and Suites, and Sleep Inn, expanded their operations to vacation rentals—moving the chain into more direct competition with Airbnb. CEO Stephen Joyce explained the decision by saying, “We think we can provide something Airbnb doesn’t have and that is assurances you will be dealt with professionally by a professional company that does that for a living.”
With more choices, there is greater chance consumers can find a location that is optimal to their preference. These companies embrace the new economy and changing consumer preferences instead of calling upon their legislators to outlaw competition.
The hotel union bases its opposition to Airbnb on the “fixed pie” fallacy. It believes every guest using a home-sharing platform is one fewer guest for hotels. In reality, Airbnb expands the “pie” by offering options across a wide spectrum of prices, which allows people to visit cities they previously could not afford. Hotel unions look to the government for protection. On the other hand, hotel presidents are adapting and working to capture this new market to ensure the long-term health of their businesses.
While protecting jobs is a valid concern held by unions, legislation against home sharing would adversely affect the income of Airbnb’s thousands of New York City hosts. Before the emergence of these online platforms, renting your home was difficult since there was not an efficient way to connect potential guests and those willing to rent out their houses. Now property owners can easily earn extra income simply for hosting guests in unused property. The typical hosts in New York City earn approximately $5,500 per year by sharing their home. Laws against home sharing would deprive these people of this additional income.
With 51,000 guests stating they would not have visited the city without Airbnb, according to a study commissioned by Airbnb, hosts are not the only beneficiaries of home sharing. Furthermore, Airbnb states that its New York City guests stay longer and as a result spend, on average, spend $290 more on local businesses when compared to hotel guests. Even without the Airbnb study, we know that since many Airbnb properties are located outside traditional hotel districts, guests boost the economy of historically less-visited neighborhoods.
New York’s anti-Airbnb bill could cause New Yorkers to lose out on $500 million of revenue. Governor Cuomo and New York legislators should realize the negative effects from limiting competition and choose to embrace an open market for home sharing. With the nationwide hotel industry setting record numbers in 2015 and continuing to grow, the union’s stubborn opposition should be ignored. Innovation that presents more choices to consumers should be championed, not banned.
Shane Otten is an E21 contributor.
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