Airbnb Stands to Lose Business in NYC After Dropping Lawsuit

Airbnb earlier this month dropped its 6-week-old lawsuit against New York state attorney general Eric Schneiderman, New York City and NYC mayor Bill de Blasio, in a move that could serve to constrain business in the largest U.S. market for the peer-to-peer accommodations service.

Airbnb filed the suit in late October over a law that fines hosts as much as $7,500 for posting listings that violate New York's short-term rental laws. The company retracted its lawsuit, saying that it will work with the city to prevent property owners from running de facto hotels with multiple Airbnb listings. The company, which itself wouldn't be subject to such fines, said it has removed more than 3,400 New York listings from its site that appeared to be operated by hosts with multiple listings.

New York City, which enacted a law in 2010 barring landlords from renting apartment units for fewer than 30 days at a time, will outline how it plans to enforce the law in a public hearing on Dec. 19.

"We very much see this as a material step forward for our hosts," Airbnb said in a statement. "We look forward to using this as a basis to finding an approach that protects responsible New Yorkers while cracking down on illegal hotels that remove permanent housing off the market or create unsafe spaces."

Still, the agreement could substantially hurt business in New York, Airbnb's largest U.S. market. According to Airdna, a company that provides information to vacation-rental entrepreneurs and investors, there are almost 49,000 active Airbnb rentals in the city, compared with more than 17,000 in Los Angeles and about 10,000 each in Chicago and San Francisco (Airdna says Paris is Airbnb's largest worldwide market, with almost 69,000 listings).

More relevant, about 12% of New York's 35,000 active hosts have multiple listings, compared with 14% of San Francisco's active hosts and almost a fifth of Los Angeles hosts, according to Airdna.

By focusing on hosts with multiple listings, New York would be staking "a reasonable middle ground for regulation that balances local housing needs and hotel-industry fairness with the interests of travelers and individual owners and hosts," said Douglas Quinby, vice president for research at Phocuswright. "However, if they take a more aggressive stance and go after individual owners or hosts who are simply not present during the rental, then it could become a bigger issue for Airbnb and an unfortunate development for both travelers and homeowners who benefit from the service."

The decision is the latest development in a relationship between Airbnb and New York officials that has long been contentious. Public officials have argued that the proliferation of Airbnb units has worsened the city's housing shortage, while hotel lobbyists said Airbnb hosts operate at an unfair advantage over hotel companies because their hosts aren't required to pay occupancy taxes or abide by safety regulations for the hospitality industry. Airbnb units account for about a third of New York's short-term accommodation units inclusive of hotel rooms, compared with about 15% of Los Angeles' and less than 10% of Chicago's.

Whether the decision will set a precedent for Airbnb's strategy with other contentious cities such as San Francisco, Berlin and Barcelona is unclear. Airbnb earlier this year sued its home city of San Francisco over what the company said are laws that force prospective hosts into a Byzantine and onerous registration process.

Still, Airbnb head of global policy and public affairs Chris Lehane said in a presentation at last month's Airbnb Open conference in Los Angeles that it has agreements with more than 200 cities, including Los Angeles, Philadelphia and Washington, to collect occupancy taxes on behalf of its hosts.

"The vast majority of cities understand where the world is going and are interested and engaged in working with us," said Lehane. "Part of our responsibility is to help cities come up with these solutions."