The Sharing Economy, part 1: What Homeowners Should Know about Renting their Home

Entrepreneur Brian Chesky’s concept may have started modestly when he charged overnight guests for an airbed and breakfast, hence his company moniker, Airbnb. But the business model gradually evolved into a billion-dollar operation as thousands of homeowners offered far more on the company platform—a room or their entire home—and comfortable beds.

 

And though some homeowners may turn up their nose at the idea of allowing in strangers, others eagerly embraced this part of the sharing economy. Airbnb, HomeAway (which includes VRBO and VacationRentals), and FlipKey are the best known of the successful rental platforms. Together, they list millions of rooms and entire homes in cities and countries worldwide, all with variations on how they share properties, the way hosts and guests connect, how disagreements are resolved, and what fees are charged.

 

Many homeowners find the income a nice boost to their earnings while some view it as a safety net to get them through rough patches such as a job loss or higher real estate taxes. Guests, too, see advantages: a more personal stay than at many hotels and B&Bs; lower rates, especially when part of a group that requires multiple rooms; or additional living space such as a kitchen, living room, patio and maybe a hot tub.

 

But growth has brought with it numerous challenges. Part of the reason is that the phenomenon now happens much more in cities such as New York where renting out a home or apartment  historically was less common than in vacation destinations such as the Berkshires or Cape Cod, says Adam Annen, with HomeAway. In fact, New York City is among its top 10 U.S. VRBO destinations.

 

The reasons for grousing vary. Many hosts don’t follow traditional hotel rules in running what amounts to a cottage business from their home. Guests may complain about everything from cleanliness to furnishings, noise level, and location. Hotels and B&Bs are upset about all the new, often unregulated competition. Many neighbors dislike the stream of strangers coming and going, which may alter the character of a building or neighborhood, as well as pose a safety risk.

 

And public officials are upset that hosts don’t always observe building and permit rules or pay state and city occupancy taxes. The upshot is that more states, cities and towns are passing more stringent rules. “Every city is facing this problem,” says Dan Rowland, communications director with Denver’s Excise and Licenses Department, which recently passed an ordinance covering rentals.

 

In New York State, Gov. Cuomo signed a bill last October that immediately went into effect and fines hosts on Airbnb and similar sites who violate its short-term rental law. That law prohibits most Class A apartment buildings with three or more units in New York City from being rented out for less than 30 days. The penalty is up to $1,000 for the first violation, $5,000 for the second, and $7,500 for the third and subsequent violations. It’s legal, however, for a host who’s present to rent out a spare room; one- and two-family homes are also exempt.

 

In New Orleans, the city council voted late last year to approve an agreement with Airbnb to collect taxes and create a registration system for short-term rentals based on Airbnb data. An enforcement unit will limit entire house rentals to a maximum of 90 days a year, ban short-term rentals in most of the historic, tourist-magnet of the French Quarter, and allow uncapped short-term rentals in certain commercial districts. Mayor Mitchell J. Landrieu and Airbnb representatives expect the regulations to serve as a model for other cities. Yet, the agreement so far is only with Airbnb. The question remains whether other rental sites will be affected.

 

And even in the small bucolic village of Rhinebeck, in New York State’s Hudson River Valley, the issue has become a hot topic as more residents list their homes, apartments, and auxiliary buildings to rent. A meeting late last year was held in part to allow its leadership to hear comments before considering changes in its village code for short-term rentals.

 

In the meantime, homeowners everywhere are smart to act like a professional hotelier to avoid penalties or litigation. Do your homework, read any suggestions each platform provides on its site, ask other renters for tips and consider five additional guidelines in our Part 2 next week.

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