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Will Regulations Slow Airbnb's Growth with Business Travelers?

Airbnb is in the news this week, as it seems to be virtually every week. Ubiquitous press coverage comes with the territory for the world’s second most valuable startup. In fact, not long ago one of the Airbnb-related headlines of the week was specifically about Airbnb's latest valuation of $30 billion. The company that started out as “Airbed & Breakfast” is still less than a decade old, but has already grown to be one of the most prominent companies in the world.

This week’s main Airbnb story has to do with the company’s announcement of Trips, a new offering of peer-to-peer tours and activities.Time will tell if Trips will be a hit and Airbnb can become, in the words of Chip Conley, Airbnb’s head of global hospitality and strategy, “the super brand of travel,” one that people go to for not just accommodations, but dining, entertainment, and other trip “experiences” as well. Airbnb has an exceptionally strong brand, especially among leisure travelers who feel home-sharing offers a more authentic way to explore their destination.

That same appeal applies to business travelers, who have increasingly embraced Airbnb. This month, data released by Concur showed that the number of business trips booked through Airbnb grew by 44% in Q2 of 2016 compared to a year earlier. Rocketrip’s own data indicates that business travelers who do stay at an Airbnb are saving over $100 a night on hotel costs. Affordability, combined with a different feel from standard corporate hotels, makes Airbnb an attractive and popular option for business travel: Airbnb estimates that 10% of its bookings are work-related.

However, Airbnb’s market penetration for corporate travelers could be slowed by several new regulatory challenges. Two of the top cities for Airbnb’s business travel bookings, San Francisco and New York, have each passed laws restricting rentals of whole apartments. The laws are not meant to prevent full time residents from renting out their extra rooms. Rather, they’re an attempt to stop professional hosts from using residential properties as illegal hotels.

Whole apartment listings are the ones most relevant for business travelers; in many cases the only ones relevant for business travelers, since corporate travel policies might prohibit employees from sharing a stranger’s extra room. In the words of The Economist, “backpackers and weekend tourists might not mind camping out in a family’s back bedroom, but those preparing for client meetings and conferences will."

City officials around the world have officials have reacted to Airbnb’s growth with some ambivalence. The infusion of tourist dollars is welcome; less so are the complaints about rowdy vacationers, and fear that short-term rentals are reducing the housing stock and driving up rent.

Short-term apartment rentals of 30 days or fewer have been officially outlawed in New York since 2010, but enforcement has been weak. Airbnb’s own data reveals that 55% of listings in New York City are for entire apartments, the type that are being targeted by state law. The issue has recently come to a head because of a new bill Governor Andrew Cuomo signed into law on October 21, which explicitly makes it illegal to advertise short-term apartment rentals on sites like Airbnb.

Airbnb has filed a lawsuit in federal court, challenging the law on First Amendment grounds and saying that another law, the Communications Decency Act, protects websites from being held accountable for content published by its users. (The two sides are in negotiations to settle the suit). “In order to be assured of avoiding liability, including potential criminal prosecution, Airbnb would be required to screen and review every listing a host seeks to publish,” the company said in its complaint.

Airbnb says such a screening process would be prohibitively difficult. It certainly has proved to be difficult for law enforcement officials, who have largely failed to prevent illegal listings from being rented through Airbnb. In New York and elsewhere, despite a growing list of regulations on the books, Airbnb has become an established part of accommodation market.

It seems likely that Airbnb will continue to exist - and grow - in a sort of gray-area. For instance, in Airbnb’s hometown of San Francisco, short-term rentals were officially legalized in 2014. Hosts are required to register with the city to ensure that they comply with safety regulations, pay hotel taxes, and don't rent out their properties for more than 90 nights a year. However, many hosts have failed to register, which has led the city to approve a new, tighter cap on permitted rentals. Airbnb, meanwhile, is challenging an ordinance by which San Francisco would fine platforms that list unregistered properties. All the while, Airbnb has continued to be one of the biggest players in city’s lodging industry.

So where does this leave business travelers? Importantly, none of the new restrictions are directed at people who stay in an Airbnb, and so employees are in no danger of breaking the law. No matter how you feel about the legal status of the sharing economy, experience suggests regulations won’t do away with short-term rentals, and might not even put a dent in their prevalence. The industry is still maturing. Ride-sharing provides a useful point of comparison: Uber has conflicted with regulators as much (or more than) Airbnb, but eventually managed to establish its legality - and ubiquity.

All Tags: Airbnb, Industry News

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