Thursday, November 7, 2019

Is Airbnb Evil? Yup.

Today's "tech" companies are based more on breaking laws than in breakthrough technology

More than a decade ago, we bought two condos in Florida and rented them out on VRBO - Vacation Rental By Owner.    These were monthly or weekly rentals to tourists in what was a tourist area.   Since those days, we've rented houses ourselves using VRBO in places like St. Augustine, where we rented a beach house that belonged to a member of the Mellon family, or a lake house in Maine that belonged to a stock broker from New Jersey.

We have similar rentals here on the island, although most are administered by one of the two local real estate agencies.   And most of these are on the beach side.  If you buy a house on the beach side, you have to expect that the house next door may be rented out, often to a family reunion or something, where five cars and a boat will be parked on the lawn for the weekend, with the accompanying noise and smokey barbecues.  On the river side, it is mostly owner-occupiers, and a lot quieter.

Airbnb has a similar business model as VRBO, except that instead of "Vacation" rental, it is more of a substitute for a hotel or a motel. People rent out houses or apartments or condos or even a spare bedroom by the night, competing directly with the hotel business.   And often these are properties in residential neighborhoods, not vacation destinations, and as a result, the neighbors become perplexed by the comings and goings of so many people.

The business model is simple:  Break the Law.  And this is a business model of so many "tech" companies these days, such as Uber and Lyft, which sell illegal taxicab services.  Even these food delivery services skirt the law, by suggesting to their drivers that they "don't tell" their insurance company they are using their vehicle for commercial purposes - often with disastrous results, for the delivery driver, of course (or the poor bastard he runs over).

Hotels and Motels have to pay a bed tax in most jurisdictions, and have to be licensed by the local government.  They can only operate in areas zoned for hotels and motels, so the comings and goings of guests don't disturb local residents.   Airbnb undermines this model, as home owners can rent out their homes for less money, as they don't have to pay for licensing or taxes.

Here on our little island, homeowners can rent out their houses, but have to get a permit from the island authority, pay the bed tax for nights rented out, and be subject to an inspection to insure the lodgings are up to standard.   If you don't comply with these terms, well, they can revoke your lot lease (we are on 80 year leases here) and thus the authority has a cudgel to beat us with.   Few people have tried to skirt these rules.   It is a pretty simple matter for the authority to check Airbnb for any rogue listings.

But in other jurisdictions, authorities don't have the resources to check listings in a city as large as, say, Jacksonville, Florida (the largest city in Florida, in terms of square miles).   So people can "get away" with illegally renting their house as a hotel, not because it is legal, but because law enforcement doesn't have the resources to police this.  And in many jurisdictions, law enforcement means zoning enforcement, which is usually woefully understaffed as it is.

It is not much different than Uber or Lyft, where people become illegal taxi drivers and don't pay for medallions or licensing fees (or obtain a chauffeur's license, as taxi drivers are often required to do).  Without all this overhead, they can sell their services more cheaply than a cab company can, and since the restrictions on numbers of cabs are effectively eliminated, the market is flooded with wanna-be cab drivers.

At first blush, this seems like a win-win for the drivers and the riders.   But the drivers are making less money than licensed medallion drivers.  And the riders?   Well, since the vetting of drivers is more lax, we find more instances of drivers robbing, raping, or even murdering their fares.   Beyond that is the increase in traffic jams as the result of more "taxis" on the road, which in turn causes more traffic congestion.  And as more people vie for fares, the average income per driver drops down.   Turns out there were valid reasons we enacted these taxi regulations, over 100 years ago.

The same is true for Airbnb.   There was a case in Florida where a couple was renting out condos and houses and never paying the rent, but instead renting out the places on Airbnb and then pocketing the cash.   Sounds like a swell deal for them.   Not so swell for landlords who had to "evict" non-existant tenants for non-payment of rent.  This sort of thing doesn't happen when you rent out your place through a reputable Real Estate agent.

By the way, this illustrates what a nightmare Airbnb is, even if you choose not to use it as a landlord - or even if it is made illegal in your jurisdiction.   A tenant can sublet the place on Airbnb and not pay you rent (waiting the six months to a year it takes for you to evict) and not only that, you could be fined by the local government for running an illegal hotel.  And these fines are not cheap, either - on the order of tens of thousands of dollars.   So making Airbnb illegal has its own pitfalls - when people rent out your home on Airbnb regardless, without your permission.  And since you can't search by address, it may be impossible for you to check before it is too late.

There is yet another scam than can entrap people who don't use Airbnb at all.   You go on vacation to Disney or you put your house up for sale.  You return to find the locks have been changed and new tenants "renting" your house.  Turns out, some con artist scraped pictures of your house from the Internet, put them on Airbnb or even on Craigslist, and rented out your place, remotely (hiring a local locksmith to change the locks).   Worse yet, the local Police won't intervene, claiming it is a civil matter and suggesting you start eviction proceedings, instead.  The "tenants" are no better off, having sent thousands of dollars overseas, and now being evicted.  For now, most of these types of scams seem limited to Craigslist.   Cragslist - what's not to like?  It is sort of like Western Union - just don't bother, and assume it is scam-related.

And of course, there are other abuses as well.  You've read about the house party in California, where someone rented out a house, hired a DJ, and then advertised the "Party" on social media.  100 people showed up, and the DJ was shot.  Too late, Airbnb promises to clean up its act, and vet the properties better.  Problem is, most of the people in that mini-mansion development probably weren't too happy before the shooting with the comings and goings of "tenants" in what was an upscale neighborhood.

And some folks have said enough is enough.   Despite a fake "grass roots" campaign from Aibnb that outspent a similar fake "grass roots" effort from New York's hotel industry, residents voted overwhelmingly to limit Airbnb type rentals to 60 days a year per property and ban outright for buildings with more than four units.   This would still allow homeowners to rent out their in-law suite for some extra bucks, but discourage people from buying houses and turning them into illegal hotels.

And like with Uber and Lyft, there is a sort of ancillary damage from these sort of overnight rentals, in that it removes housing stock from the market.  We traveled to Barcelona a few years back and rented an apartment from a local fellow.  We thought we were helping out a guy by renting out his pad (which was the case in Sitges) but in reality, he was running an illegal hotel.  And many activists in Barcelona decry this trend, as it means that more and more downtown housing stock is being converted - illegally - into quasi-hotels, which means even more tourists, and fewer places for Catalonians to live.

We rented a cabin cruiser once, on Airbnb, in Jacksonville.   It was an OK experience, but the owner warned us not to have any "parties" as a previous tenant decided to invite 20 of their friends for an all-night blowout, and the marina was threatening to evict the boat owner. It illustrates how these things can be abused.  And while it was fun, it wasn't that much cheaper than staying in a hotel, and the hassle-factor (having to meet the owner at the dock at a predetermined time) was also present.

I never thought of it that way, but it is true, the tourist destroys the thing he comes to see, by dint of coming to see it.  I am less inclined these days to use Airbnb, but instead check into a hotel. Odds are, the experience is better in a hotel, and the rates are not that much more, if you shop around.  I don't want to be the one destroying a neighborhood, or displacing local residents.

And therein lies the problem for these "tech-that-are-not-tech" companies.   If a few regulations are changed - or existing regulations enforced - a lot of these companies could go bankrupt overnight.  Many, of not most, are over-valued in the stock market (like so much else to day - there is too much cash floating around, some say) and have never earned a profit.  Uber may seem ubiquitous, but it has yet to generate dollar one in profits, despite flouting the laws of all 50 States and dozens of foreign countries.   As I noted before, it is only a matter of time before foreign countries realize that all Uber does is take 25% of their taxi revenue and send it to the United States.   What's not to like?

Or take this "scooter" business - maiming and killing users, causing blight in the cities with abandoned rigs, and ripping off investors who believe this is "the next big thing!" when in fact it is barely a thing at all.

So there is a third level of evil here with these types of companies.  The first level is that the general public placed at risk or inconvenienced (so that others can make a fast buck).  The second level is that the "contractors" of these companies, whether they are an Uber driver, a home owner, or an Amazon warehouse worker, are often exploited and make less money than they thought they would.   The third level is the investors in these cockamamie schemes, who plow their money into these companies, because they've seen their logo around or maybe used the service themselves.    As I noted before, investing in something because you are familiar with the product is totally dumb, as I learned the hard way.   You may like a product or service, but that doesn't mean the company is making a profit or is being properly managed or isn't mired in debt.

It will take a long time, I think, but more and more jurisdictions will pass more restrictive regulations and laws limiting or prohibiting these types of companies from operating. And yes, the hotel businesses and the taxicab companies will sponsor a lot of these "astro-turf" movements to ban this type of "competition".   But on the other hand, as the Jersey City results illustrate, astro-turf or not, people do get fed up with paying for someone else's silicon-valley wet dream.  When 70% of the people vote "NO" even after Airbnb outspent the competition 4:1, something is up. And that something, I am guessing, is people who actually live and vote in Jersey City, who are fed up with transient tenants causing mess and noise and taking away what little affordable housing stock is left.

This referendum in Jersey City could be a bellweather of things to come - perhaps more regulations and laws restricting scooter blight and illegal taxis and whatnot.   Silicon valley won't care, of course, because those folks would have cashed out, long ago.