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The Rise and Fall of a Multimillion-Dollar Airbnb Scheme (nytimes.com)
87 points by ryan_j_naughton on Feb 23, 2019 | hide | past | web | favorite | 95 comments

Having stayed in AirBnB-type listings when traveling with my family, it’s clear to me that there is a huge market need for short term home rentals, and we should figure out how to do this without stomping on neighbors or pricing out locals in the process.

There are a lot of positive externalities to families and larger groups coming to a city and spending their money.

When I need 3 adjoining bedrooms and a space that will take dogs, a hotel is going to cost an absolute fortune in comparison or be actually impossible to find.

Here’s to hoping there’s a happy medium to be found with the right combination of technology and regulation.

For example, what about a condo bylaws which granted the right to rent a unit but with a 20% per night fee which goes to reducing condo fees for the rest of the building. There’s a reasonable number which covers the externality.

As far as housing stock is concerned, that’s perhaps a trickier problem. I think it’s probably easier to quantify how many units are not available for a local rental and harder to quantify the economic positive value of the rental to locals, and so it’s an easy scapegoat for property prices which were probably overly high to begin with.

How though? What is the proposal to not hit NIMBYism?

I am generally very liberal with what I think homeowners should be allowed to do. But an apartment or condo next to, or above mine with a rotating crew of guests? I shouldn't need to put up with that unless I agree to it in writing before starting my lease.

There IS existing space marked out for hotels. If it were a profitable business, why has no one starting build hotel 'houses' to rent for visitors?

The reason is IMO price, it would be very expensive to rent out a hotel "house". The reason the AirBnB is cheap is that you are making others eat your negative externalities (i.e. the guys under you get to deal with 2am stomping).

Plus I'm sure there are a lot of regulations for hotels in a city like NYC that probably cost a lot of money.

No, the reason is that to-date there had not been a global platform available. AirBNB benefits from a massive global economy of scale. I can use the same platform in America, Germany, Australia, Bulgaria.

First one to scale wins.

Wasn’t VRBO available (globally) long before AirBnB? I thought AirBnB just stole the idea and had the VC capital to scale it

Correct, VRBO has been around a while. They do not aggressively go after getting units in towns that do not allow short term rentals, like AirBnB does.

There are plenty of global apps for hotels. In theory they could also have been used for houses. So that clearly was not the differentiator

> When I need 3 adjoining bedrooms and a space that will take dogs, a hotel is going to cost an absolute fortune in comparison or be actually impossible to find.

Board your dogs at home.

It's impossible to penalize dog owners for not cleaning up after themselves when they're skipping town in a few days.

This is why zoning laws prohibit renting in residential areas - because you can't threaten people who don't live there into good behavior, because they're not around long enough to actually be punished.

But that’s exactly my point. Under the current system it’s impossible to penalize bad behavior of any kind on the part of the short term tenant, except by fining the landlord.

Whether it’s not cleaning up after a dog, or playing music too loud, or being rude in the hallway, or littering in the street.

So what’s the solution — other than pervasive tracking — that allows good people behaving well (e.g. a middle class family) to be able to find a place to stay in a nice city?

The solution is zoning laws, which we already have. It's a solved problem.

Maybe the people who actually live in these cities you want to visit have decided they don't want more tourists, and their zoning laws reflect that.

You don't, like, have a "right" to affordable lodging in a city you don't pay taxes in.

Don't neglect the possibility that there is no solution. Market failures happen.


Always interesting to see when the disruptor becomes the disrupted (AirBnb's One-Host One-Home policy), and then suddenly bending the rules is an issue.

You'd figure AirBnb would remember their days of being a rebellious teenager and provide legal assistance to these enterprising disruptors. Then again, maybe there's an AirBnb shell corp legal defense fund.

I'm not sure there is much legal support that would change much. Unless they can somehow get someone decide that the laws in question don't apply or are not appropriate laws.

“We’re not criminals,” he said at his lawyer’s office, while puffing from a Juul he kept in a black leather pouch fastened to a chain around his neck. He shrugged: “I don’t own a yacht or a big penthouse.”

So you’re only a criminal if the haul is large?

No. What he’s saying is NYC focuses on prosecuting criminals like him who don’t have Wall St. level financial and legal resources to fight back with.

Why doesn't the city just make a law that fines Airbnb if they offer something they don't like? Is that impossible or did I miss it?

No, Paris just fined AirBnB $14M.

... which (unfortunately?) is a rounding error for AirBnB.

It is, but they could continue to do it.

Losing 14M a year on a market could be a problem eventually. Especially if the fines increase with recurring issues.

financial illiteracy is a real problem in journalism. You can't really judge how egregious/successful these guys were without knowing the annualized NET revenue of this business.

I'm sure that will be a hot topic during the trial

And we don't even know if those numbers have been released to the public yet. (they probably haven't since expenses take a while to compile, whereas deposits into a bank account are easy to count)

Eevenue is a useful measurement of how large the operation was.

There is some information about profit in the article:

>The rent for one apartment was $3,225, but it was on Airbnb for $250 a night. Hypothetically, Mr. Beckman could cover a month’s rent by filling it with tourists for about two weeks. In just a few months, Mr. Beckman had booked more than 500 guests and generated about $84,000 from the building at 78 East 119th Street, according to the city’s lawsuit.

More bad behavior that is encouraged by the AirBnb leadership. Disgusting. They could solve this problem overnight with their software but choose not to because it makes ~70% of their revenue, while at the same time claiming they are a "home-sharing" site.

AirBnb needs to go into the trash. They consume resources and push costs onto the community and neighbors, while making millions.

> They could solve this problem overnight with their software

Can you expand on what the software solution would look like here? I'm curious why the hotel lobby doesn't scrape Airbnb and report all the properties that are breaking regulation.

Eliminating all listings without a host present would solve 99% of these problems. That's what the site sells itself as, anyway. Problem is there isn't much money to be made there.

Or just do a tiny bit of host/property verification. Again, too much money to be made from illegal/unzoned hotels.

I see. So, the legality of short-term rentals in NYC hinge on the presence of the host during the rental. And, that's not easily detectable by just scraping Airbnb.

I still think it'd be straight forward to scrape reviews off Airbnb that have telltale signs of the host not being present e.g. lockbox mentions. Filing complaints/lawsuits against even a small minority should create a chilling effect for everyone else who's running illegal hotels.

Or, in a high density environment like NYC, prediction from scraped listings plus an actual person who verifies the host's absence and records it. Work on contract for... "The hotel industry consortium", idk how that works. It sounds fun if the market is big enough

All or very very nearly all host not present rentals in NYC are illegal. That the software allows such listings is evidence that Airbnb doesn’t care. I suspect rather the opposite that they value the revenue they get from these illegal transactions.

People using it would beg to differ. Just don’t use their service.


It harms communities by allowing housing inventory to flow to where the demand is most intense?

No, it harms communities by turning apartments into hotels. Hotels have externalities, which is why they're zoned.

Dense, multi-use blocks are part of the magic of New York. And there are hotels comingled with residential buildings all over the city. I'm not saying tenants should be free to violate their agreements with landlords, but these uses of Airbnb are solving a problem that city laws have created (an extreme lack of housing and hotel supply). I blame those city laws as a root cause. Putting supply on Airbnb is just water moving around obstacles the laws have created.

These people didn't just "commingle" hotels alongside other buildings; they implanted hotels into apartment buildings. That is definitely not a norm in NYC.

I'm with you that if they were doing that in violation of their lease, then it's wrong.

It had to be in violation of their lease; it's unlawful to do that in NYC.

There are externalities, though, to running a hotel, which is why we have taxes and rules to mitigate those things. These people are trying to bypass these mitigations, and push the externalities back on the populace. That is not ok.

One distinction I should have drawn is between running an Airbnb with a landlord's permission (or as a landlord yourself) versus doing it in violation of other agreements you have (like with your landlord or co-op board or whatever). If you're violating contracts, then yeah, you shouldn't be doing that and other people in the building have a right to be upset.

But if you own the building and are running it as an Airbnb hotel, I don't know that it's a self-evident fact that you're putting significant negative externalities onto your neighboring buildings. I can imagine negative externalities, but I can also imagine plenty of positive ones. These are exactly the kind of calculations that regulators are empirically horrible at making, even when they have the best intentions (and often they don't have even that going for them).

The ban on short-term rentals is a ban on a use of property which is provably very valuable to the people on both sides of those transactions. Banning that use destroys value for both those sides. The objection is that short-term rentals divert housing stock away from long-term renters, but that's not a problem with short-term rentals (which are, as we can see from the fact that they're so popular, an even more in-demand use of the property than long-term rentals), it's a problem with the low supply of housing. Which is a problem caused by the very regulators who are riding in to "save" renters from Airbnb.

Taxes on hotel stays are popular with politicians because the people who pay the tax aren’t typically residents. It’s more likely that these taxes were an easy sell rather than something that offsets a negative externality of having a hotel nearby.

I guess it is "housing" but I think you'd find a lot less housing as in traditional places you can rent or buy long term, I belive we're already seeing that with Airbnb.

Then you've got even more housing problems.


The community generally wants extremely restrictive building regulations. We're currently going through this in Edinburgh, which is a world heritage site as well.

An extra complication here is that the communal stair wells of apartments are comunally owned, so landlords attaching keyboxes outside the door are usually violating the property rights of their neighbours.

And, not or.

NYC seems to have quite a bit of new development.

Actually not, compared to cities like Chicago.

The same could be said for all foreign realestate investment where homes sit empty. (Granted that could be solved by a vacancy tax.)

But people already buy places and rent them out as income property. This puts a burden on renters and increases the incentives for builders to only construct larger apartments and homes. It raises the price for everyone and poor single people suffer the most.

Im not following how airbnb is worse than individuals who have profited off the community and neighbors since forever?

Because renting != hotel. There is a huge different between how a tourist treats a building/apartment/neighborhood and a resident does. There are many good reasons why hotels have regulations. Mini-hotel platforms are not subject to the same things.

All of the laws regarding noise, littering, loitering, smoking, etc. don't magically vanish. You have the same recourse against a renter as you would a tourist.

> All of the laws regarding noise, littering, loitering, smoking, etc. don't magically vanish.

The guests do, though, which means when you call the cops again next week, it's a new person getting their first noise warning.

So these apartments and condos don't have rules where you just complain to management and they kick you (the leaseholder) out?

Plenty of landlords won't want to do battle with the lucrative tenants who've rented out half the building and always pay on time.

Nor do they really want to do all that work - evictions cost money, and are hard! - just to have another AirBnBer sign the replacement lease.

Simply not true, at all.

If only there were some way, a technology, even, of increasing the total number of units on a given plot of land, such that those who want to live in a city or visit a city wouldn't have to compete so vigorously for livable housing units.

Alas, we can only dream that such a technology. https://en.wikipedia.org/wiki/Steel_frame

The interesting thing about AirBnb is not in the raw space consumption, but that it's driven down the cost of hotel rooms by changing what "hotel" means.

Is your argument that tall buildings are not built in NYC?

They obviously are, but there are still not nearly enough. If you walk through lower manhattan you see innumerable 3 and 4 story buildings.

No paywall, no JavaScript, reduces page load ten fold: https://beta.trimread.com/articles/127

I can't help but feel bad for this guy. The city will try to make an example out of him while all the other rule-breakers will get off scott free.

There are hundreds if not thousands of other business schemes just like this one going on right now on Airbnb.

I don't really thing what this guy did was a bad thing: He had positive reviews, multiple maids to cleanup after guests, and willingly broke leases and lost money when there were complaints.

Sure, the people renting from him loved it; the neighbors, however, had to suffer. The reason we have hotel regulations is to help mitigate the externalities that hotel operations put on the nearby community. This guy was bypassing all of those.

There are more people involved in the transaction than just the renter and the rentee.

Same thing with uber and taxi operations right?

"The reason we have hotel regulations is to help mitigate the externalities that hotel operations put on the nearby community"

Hotels have hundreds of people coming in and out of the building on a daily basis. At most of these apartments you would have at most 3 or 4 people. The difference is scale.

The only reason NYC even cares at all is because the hotel lobby is powerful and the city wants their tax money.

They should just tax it and leave it up to the landlords/property owners.

It was no doubt a good thing for Airbnb users. It is much less likely a good thing for the building and other people who live there. I actually live a block away from the building in the article that was described as the #1 moneymaker and opted not to move to that building partially because it was obvious many apartments were being rented on Airbnb.

In other words not only was the neighborhood losing access to housing inventory, but other landlords were losing access to qualified tenants who didn’t want to live in a building with a bunch of Airbnb rentals in it.

You'd probably feel differently if you were these folks:

> “It’s been 3 a.m. and I’ve had people ringing my buzzer to get in,” said Ziograin Correa, 40, who lives in the building with his wife and six children. “They don’t have a key, so they ring my buzzer.”

The other residents in the buildings can't leave an AirBnB review.

This has happened at my apartment complex when my neighbors invited some friends over.

The residents have something even better: they can complain to the landlord.

It's simple, he broke the law/city regulations that are there for a reason. I'll quote the relevant bit from the article:

> New York regulations are supposed to keep apartments from being pulled out of an already-tight rental market to cater to the tourist trade. They specify that it is illegal to rent an entire apartment in most buildings for fewer than 30 days unless the permanent tenant is present while the renter is there.

For one guy to make millions there are many city inhabitants that have to face ever increasing rents. And this harms the city because it increases unrest and puts off people from moving in.

And the issue is also on a more "micro" scale. Imagine living in a building where several apartments are dedicated to Airbnb style renting full time. You would probably not enjoy renting or owning the other apartments there.

"For one guy to make millions there are many city inhabitants that have to face ever increasing rents. And this harms the city because it increases unrest and puts off people from moving in."

The article also states that these apartments were in upscale areas, so it isn't really preventing anyone from moving in.

"You would probably not enjoy renting or owning the other apartments there"

If the inhabitants of those apartments are causing problems, the landlord should have the final say.

This all really should be up to the landlord and not the government.

> these apartments were in upscale areas, so it isn't really preventing anyone from moving in

Of course it's preventing them. It's one less apartment in an already airtight market. For every apartment not available for renting, all the other rents go up another bit. Or a big bit since you can easily charge double via Airbnb. This means without any regulation the rents could surge to at least 80% of what you can get via Airbnb. And since this would seriously hurt the city the government gets involved.

> should be up to the landlord and not the government

It's the government's duty to protect its citizens from abuse. "The government" is behind every law and regulation. So every time I hear this I wonder if the people who say it realize what it implies. How easily it turns into "it's up to the [person who shafted you] not the government". I'm sure you are protected by so many of them you don't even realize. Just because renting in NY is not an issue for you doesn't mean it's not an issue.

On the description it appears that he and his partners (a) broke the law (b) broke his contracts with AirBnB and (c) took extraordinary measures to conceal (a) and (b) from legal scrutiny.

Those are all, by and large, "bad things".

He violated new york regulations and an end user agreement. Nobody was hurt and from the sounds of it, he worked very hard to please his customers.

There will be fines involved, because NYC wants their cut of the profits.

I still don't consider what they did as 'bad things'.

> Nobody was hurt

First: You don't know that. In fact the neighbours would disagree.

Second: laws are intended to be preventative. Some of them are to prevent the bad outcome (manslaughter is illegal), some of them to prevent things that commonly lead to a bad outcome (campfires in my bedroom are illegal). If I build a campfire in my room and this time it doesn't destroy my building, that doesn't excuse me in law or ethics. I still did a dangerous thing, knowingly and recklessly.

> There will be fines involved, because NYC wants their cut of the profits.

There are fines involved because NYC operates, even its own gloriously half-arsed way, under the rule of law.

"First: You don't know that. In fact the neighbours would disagree."

You don't know either. So I guess we are both speculating.

"Second: laws are intended to be preventative. "

Do you agree with all laws on the books? I sure don't.

"I build a campfire in my room and this time it doesn't destroy my building, that doesn't excuse me in law or ethics. I still did a dangerous thing, knowingly and recklessly."

Can you explain to me how having a legitimate business where nobody was scammed and the outcome was a happy customer is reckless? In addition to this, there were multiple jobs added to the economy as a result of their business venture.

"There are fines involved because NYC operates, even its own gloriously half-arsed way, under the rule of law."

The hotel lobby has lots of influence in NYC. It's a very similar situation to the taxicab unions. Some laws should be bent and broken..because they need to be changed.

> Airbnb condemned the exploitation of its platform

Actions -- or inactions -- speak louder than words.

I don't like how the article implicitly takes the city's side. Breaking monopolies is usually a good, just like uber and taxis.

Is there a monopoly to break? Are all hotels in NY owned by the same group?

There are other issues as well of course, that Airbnb guests (and the owners) who are running a hotel don't care at all if their guests bother the neighbors, leave trash outside, etc.

It might be New York City, but it's also a community deciding how things are laid out and work, how they gather taxes, and etc in their city.

If all the hotel, taxi, etc. owners group up to create a cartel to keep the status quo and not to disrupt the market, then that is also not exactly good.

The choice of a community does not necessarily mean that it is the right choice.

I'm not convinced the people with resources to make $20m in hotel revenues from 18 shell corporations are the little guy being stamped on and the neighbours being buzzed by people wanting hotel service are the Big Bad Corporation here...

I am not saying that they should go on breaking the laws. The laws are clear. But at certain times, the laws have been deliberately lobbied to create a hindrance for any new players in the market. Like in this case, applying for a permit to rent out apartments should have been much easier than the current cumbersome process is.

Like NY Taxi Medallions. Before Uber, Lyft or other ride-sharing apps, there was only 13,587 yellow cabs in the city of 8.5 million people. Currently, there are an estimated 100,000 cabs in the city which resulted in a drop of medallion prices from $1.4 million in 2014 to just $140,000 now. It was an artificial bubble created by the taxi drivers community (and government) to keep the medallion price inflated. It is easy to see why they were against ride-sharing apps.

Or California housing zones. We all know that California has a housing crisis and one of the potential solution is to have multi-story buildings. For that, we need easy rezoning of residential zones to allow multi-story building redevelopment. However, most of the community members refuse to allow for that since it would bring down the rent and property prices. So the community is not interested in allowing easy development of multi-story buildings.

> Like NY Taxi Medallions. Before Uber, Lyft or other ride-sharing apps, there was only 13,587 yellow cabs in the city of 8.5 million people.

Before Uber, yellow medallion cabs were certainly not the only taxis available in NYC - they're just the only ones that can be legally hailed from the street. There have always been lots of car service companies in NYC that you can call to request a taxi. Some of these even offer online booking.

Breaking the law because you find it morally repugnant is one thing.

Breaking the law for a buck is a very different thing.

Haha. I mean yes I kinda agree with what you said.

If not the community itself, who do you propose gets to determine what the right choice is?

You have to look at the overall benefit, not just the benefit of the local community. I gave certain examples why the community choice might be due to their own selfish reasons in the reply to comment above yours.

I am still confused what exactly you propose. Who gets to determine overall benefit? Don't we have communities for this exact reason to begin with?

Is what you're proposing, actually the case as far as hotels goes?

I mean declaring a property to be short term rentable is much harder than it ought to be. This is what the hotel association NYC has spent years lobbying for. So something new like AirBnB cannot harm their market.

AirBnb definitely solves a problem and generally at a much cheaper price. We need to update our laws to let it do that in a sustainable manner.

Edit: Corrected rentable to short-term rentable

I mean declaring a property to be rentable is much harder than it ought to be. This is what the hotel association NYC has spent years lobbying for. So something new like AirBnB cannot harm their market.

Simply false. These are the steps involved in "declaring" your property to be rentable:

Step 1a: If you rent your place, ask your landlord for permission. Step 1b: If you live in a condo building, ask your condo association for permission. Step 1c: If you own your own house, ask your spouse for permission.

Step 2: Put an ad on Craigslist advertising your rental.

Step 3: There is no step 3.

Declaring a property to be rentable is literally a trivial exercise unless you're going for short-term (aka "transient" or "hotel") rentals.

Totally my bad. I used the wrong word rentable, whereas I meant to write short-term rentals.

For example, if I own a single-family home, my ability to rent it out is restricted by zoning rules. I would have to look up the Certificate of Occupancy and potentially make changes if I intended to rent my place out. It could even mean involving an architect because the building would have to meet the structural requirements for a rooming house. There are lots of redtapes.

Well renting, and a hotel type "renting" are way way different.

I'm not really sure there is a "problem" here. It's the locals who get to decide if their laws need updating or not. I'm willing to be a ton of Airbnb guests is not what the locals want.


You mean elected officials?

It's certainly not the neighbors who want this.

The part that I wish someone would break is hotel/tourism tax. It's a tax that locals rarely pay, but visitors pay all the time, and since visitors don't vote where they visit, it's a form or taxation without representation.

I get what you're saying, but any travel would then be " taxation without representation". Ultimately the locals have to be the ones to make the call on local taxes.

I get what you're getting at but I'm not sure I see a good way around that. Folks who can't vote on local taxes, tax free? Everyone would just shop the next town or state over....

I think that's just too expansive of a view on taxation and representation to make sense.

I don't think "taxation without representation" means what you think it means. This city is run by and for the benefit of New Yorkers; if you don't like it, don't visit. Presumably of they try to charge more than visitors are willing to pay they would lose tourist dollars.

> it's a form or taxation without representation.

Immigrants, even permanent residents, pay all the taxes and have none of the representation. Felons too (while in prison and up to 2 years after).

I have a feeling “taxation without representation” stopped being an applicable argument as soon as USA won the independence war.

Immigrants and permanent residents have representation, as do felons.

Congresspeople represent all the residents of their district, not just the citizens. While non-citizens are not allowed to vote on their choice of representative, they are allowed to call their local congressperson and express their opinions on upcoming legislation, and can volunteer in political campaigns. Permanent residents are also allowed to donate money to political campaigns.

At least in CA and NY, non-citizens do regularly take advantage of their rights within the US political system.

By that logic, going to a movie is taxation without representation. Should movie theaters be outlawed?

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