New York’s Petty War on Airbnb

A New York Attorney General subpoena could lead to the ruin of Gotham’s short-term rental market, writes Jim Epstein

In the late 19th and early 20th centuries, newcomers to New York City found an abundance of spare bedrooms, living room couches, and kitchen cots available for rent. "Boarding out," as it was once called, also provided a vital income stream for poor families in possession of spare rooms, couches, and cots. By 1912, according to one survey, nearly half of Gotham's black households had boarders, many of them migrants from the South. An even higher percentage of Russian Jewish households had boarders; my great-grandparents routinely put up men and women fresh off the boat for short-term stays in their Lower East Side tenement.

“Huddled masses yearning to breathe free” isn't the first phrase that comes to mind when describing tourists in 21st century New York City booking stays through Airbnb, the wildly popular website connecting residents wanting to pick up some extra cash with out-of-towners looking for cheap alternatives to a traditional hotel. Although the terms and conditions have changed, the commercial impulse is much the same. Take a twenty-something couple named Lauren and Rob, who asked that I not reveal their last names because of the legal issues surrounding Airbnb. They moved to the Big Apple to make it in showbiz. Struggling to make ends meet, they now cover about half the cost of their $2,250-a-month Manhattan apartment by renting out their living room couch for $65 a night.

But unlike New York of a century ago, when capitalist transactions between consenting adults were generally allowed, the government has been waging war on the short-term rental business. A new front just opened that might ultimately drive many of New York City's roughly 15,000 resident users to quit Airbnb. Last Friday, New York State Attorney General Eric Schneiderman issued a subpoena demanding that the company hand over a spreadsheet listing all its hosts statewide, their addresses, the dates and durations of their bookings, and the revenue these bookings have generated. News of the subpoena was chilling for many of the people whose names will appear on that list because they’ve been using Airbnb in violation of the law (more on the legality of Airbnb in a moment). Seth, a Manhattan lawyer who started hosting short-term rentals of his Upper East Studio during a period when he was out of work, says he'll probably quit as soon as his lease is up. "The subpoena is scary," he says, fearing he’ll have to hire a lawyer and pay a big fine.

On Wednesday, Airbnb filed a motion in New York State Supreme Court challenging the subpoena. Airbnb’s petition contends that Schneiderman's request is a "fishing" expedition because there's no proof of any wrongdoing. It also makes the dubious claim that requiring the company to produce what amounts to a gigantic Microsoft Excel spreadsheet with "millions of cells" is onerous because it would "take a significant amount of dedicated employee time." Oscar Chase, a civil litigation expert and professor at NYU law school, says the request for the spreadsheet seems “reasonable” and that the attorney general is acting well within his subpoena powers. "A fishing expedition is not unlawful where there is good reason to believe that fish will be found," says Chase.

By renting their couch, Lauren and Rob aren't breaking the law, which requires that hosts be home while their paid guests are sleeping there. But Schneiderman’s actions could mean that they will soon have to pay New York hotel taxes every night they have a guest. (The attorney general’s office told Airbnb that the subpoena relates specifically to tax issues.) That would reduce Lauren and Rob's nightly income by about $12 a night—or they'd have to make their guests pay taxes, which would reduce demand for their couch. I wonder if my great-grandparents would have continued to take in newcomers from the old country if it meant they’d be forced to pay taxes on a nightly basis.

Seth has more to fear from the attorney general because when he rents out his studio he sleeps elsewhere, which is against the law. Which raises the question: Why does anyone care where Seth sleeps? The law against turning your apartment into a hotel room is an outgrowth of New York City's ridiculous rent regulations, which have created a multitude of unintended consequences that favor longtime residents at the expense of newcomers. Ever see a listing for a cheap rent stabilized apartments on Craigslist?

When online listing sites like Airbnb were created, landlords discovered they could earn much more money operating their rent-regulated apartments as short-term hotels. Tenants started complaining that their buildings were filling up with tourists who made noise all night and smoked in the hallways. Marti Weithman, a tenant advocacy lawyer with Goddard Riverside Community Center, says landlords encouraged this behavior as a way of harassing their rent-regulated tenants into leaving. No doubt she's right, but wouldn't the best solution be to do away with the market distortion at the root of the problem? Weithman was a member of New York State's "Illegal Hotels Working Group," which worked with State Senator Liz Kruger and State Assembly Member Richard Gottfried to craft a 2011 state law that clarified New York's administrative code, making it illegal to turn a regular apartment into a hotel room.

Left to their own devices, some landlords might convert some of their market-rate apartments into hotel rooms because Airbnb has drastically minimized the hassle of dealing with a constant turnover of guests. "It’s established a culture that insures all my clients are good friendly people," says Seth. "And they really take care of the place." He adds that nobody in his building has ever complained about his operation, including his super, who lives directly upstairs. Seth has been charging $200 a night for his market-rate studio, which is $150 cheaper than the average hotel room. His rent is $2,000 a month, yielding him a tidy $4,000 monthly profit. If Seth’s landlord were aware of his little business, he might be tempted to cut out the middleman.

If market forces were allowed to operate unimpeded, would entire residential neighborhood be transformed into tourism districts? That’s far fetched. Airbnb reported a stunning five-fold increase in its business in just one year, but all of its domestic listings still amount to less than one percent of the total U.S. lodgings industry. Some travelers would rather stay at a Motel 6 overlooking the Cross Bronx Expressway than in a spare bedroom on Central Park South because they like the anonymity.

If there were more mini-hotels and fewer apartments in New York City, one can imagine worse fates. If rents go up, more tenants might take in Airbnb guests, creating new opportunities for people to come to New York on a limited budget. New York City will only continue to thrive if people who aren’t rich have opportunities to visit or move here—and that will only happen if we leave it to tenants, landlords, and tourists to figure out amongst themselves how best to divvy up limited space.