Wednesday, October 07, 2015

STR/AirBnB: Pay No Attention to that Corporation Behind the Curtain

I've been reading reports, proposals and talking to people for and against short term rentals all week. I've been paying attention to this phenomenon for longer than that but our city had a hearing recently and I watched every minute: which by the way was about all the time they gave each citizen commenter to make a comment. I think the actual limit was 4 minutes. Definitely not enough for many to make a point pro or con.

I had a long conversation with someone I know and respect who is on the other side of this issue. I understood the issues and arguments which the friend presented clearly and fairly. I empathized, but still respectfully must disagree.

I went from that conversation into reading a report that had been mentioned a couple times during the meeting at City Hall. While this report was written to lay out the issues Los Angeles is having with the AirBnb/STR model, many of the issues they're having are pertinent to us here in New Orleans. I am putting this link in plain view so you don't have to guess which hyperlink takes you to it:

As I read reports and articles, I started putting together a list of questions I'd like answered before any kind of ordinance or compromise is reached. I'll be putting those questions in a post to follow this one so that this one doesn't get unwieldy. This post deals with the way in which AirBnb enters a market and subsequently deals with that market. Frankly it's brilliant strategy, albeit one with which I fundamentally disagree.

Entering a Market

There are a couple of STR companies out there. The quotes and strategy sections are aimed at AirBnB, but it appears that the others like VRBO or Homeaway, kind of come in on the coattails of AirB's entry strategy.

First we need to look at the AirB mythology: One of the founders was renting an apartment in San Francisco, there was a conference coming to town that some people he knew were going to attend, they couldn't find hotel rooms as the hotels were booked up, so he put an air mattress in his room and so the company, the concept and the myth were created. The myth of the airbed in a shared room, or even a spare room, is no longer the reality in most of the AirB listings, nor is it desirable from the company's point of view. It is, however, a nice bootstrap entrepreneurial story and it's the basis of the warm and fuzzy “everyman” corporate persona they cultivate. When they enter a market it isn't with bells and whistles. They enter it with your neighbors' faces.

From the report: “This generally involves packing a room with dozens of hosts. Armed with compelling stories, these hosts detail the ways in which renting out their spare rooms has enriched their lives and saved them from economic ruin. The hosts seem motivated by a combination of financial self interest and a sincere belief that they compose a beleaguered community. This gives AirBnB a group of personal, heartfelt and therefore effective spokespeople that most corporations can only dream of.”

Stage one, our neighbors' faces, which is exactly what we saw at the City Hall meeting the other night. It's effective. That is followed by a second stage, which was also seen the other night when we saw a well organized and funded group, and a couple of attorneys connected with that group, ceding time to each other for comments. Even that group is part of the playbook, again from the report: “(Their) philosophy is evident in much of AirBnB’s marketing, from its founding myth about the air mattress to its use of hosts as spokespeople. To build up this base, AirBnB has hired political field operatives in addition to contracting with traditional PR firms. A simple LinkedIn search shows that AirBnB’s preference has been for hiring staffers with experience managing political campaigns.” (This whole philosophy stems from a book titled The Culting of Brands: How to Turn Customers into True Believers written by Doug Atkin, who is also AirB's “Global Head of Community”--another example of a warm and fuzzy corporate persona—sounds so much better than VP in Charge of Client Base Growth or something.)

So at City Hall we saw the playbook in action: some of our neighbors and friends, and a local STR professional PR campaign making comments at the mic. Our neighbors were impassioned and in some cases emotional. The organized PR group sounded pragmatic, and commented as though they were presenting “suggestions” about something that was already a done deal with mere details to be worked out down the road.

The brilliance of this model is that none of us wants to be seen as unfriendly or unfair. We're all struggling, so our thinking goes, and we don't want to lose friendships that matter to us. Those of us opposed to STR are seen as jealous or petty, unable or unwilling to understand the “real” issues. We're cast as some sort of socialist property taking mob who incessantly meddle, involving ourselves in their private business. It silences some of us.

Taking Advantage of Momentum in the New Market

That model also casts the “hosts” as a benevolent bunch who are just trying to make ends meet. It may be true for some, though not the majority. That is the fallacy. Behind every host, every short term “tenant”, is the corporation. A very large, very profitable corporation that comes to a market, encourages people to undertake an activity that is illegal in that market, leaves those people to be the face of it, while it rakes in eye popping profits taking a cut from both the host and the “tenant.” AirBnB's IPO in 2014 was analyzed in all major economic/business journals in terms of stock value and projected profits. They boasted 1.5 million listings in some of the reports, but we are fooled into looking at our neighbors, our market, our city coffers and limit our looking to those places, fight it out among ourselves ignoring the giant treasure chest in the corporate sky, profits that help none of the above mentioned groups, only the shareholders and the corporation who hides behind their “hosts” and “tenants.”

When all is said and done, the hosts are on their own. The markets they enter have to figure out how to deal with it as the housing market is affected, as neighborhoods become frayed, as jobs are lost in the legal hospitality sector. AirB and its ilk bear no responsibility for safety, insurance, disputes, thefts, destruction of property (except in very limited and hard to prove instances), or injury. Hosts are subcontractors, any cleaning crew the hosts might employ are subcontractors. The corporation pays no permitting fees, no licensing fees, no taxes, nor do they routinely comply with the laws regarding handicapped access. It's not their problem bro. Caveat emptor you hosts and travelers. Whatever you encounter is not our problem, besides we already got our cut off the top.

In the Los Angeles study it is noted that some of the negative impact of this STR model hasn't really been factored into the discussion: “UCLA Anderson School of Business study found that the high cost of housing has a generated a statistically significant drag on job creation in Los Angeles. Fewer rental units, a drag on job creation, a reduction in tax revenues and a qualitative assessment of AirBnB’s effects in neighborhoods are key elements that must be considered before a accurate judgment of the company’s impact can be rendered.”

Having that Market over a Barrel

That isn't really being done. Instead cities have been overrun and the STR problem becomes a crisis before any kind of in depth study or discussion is had. City Councils and zoning departments find themselves already behind the curve playing catch up or proposing some kind of patchwork “solution” or “compromise” that doesn't work or is unenforceable before the ink is even dry on the ordinance.

For its part, AirB waits for critical mass, then? From the report: “AirBnB often approaches cities with the promise of remitting a monthly fee equal to the TOT in exchange for the passage of regulations that legitimize their business model. The rationale behind this offer is that cities will be adding new revenue to municipal coffers. However, this revenue is mostly reallocated from hotels which would have remitted these taxes anyway.” (TOT is the Transient Occupancy Tax in Los Angeles. I'm sure New Orleans has something akin to it.)

At that point, the corporation sees that market as a done deal and if pushed to provide actual numbers of listings in the market area, or the number of hosts who are homesharing vs turning entire units into de facto hotels, they demure until a city forces the issue with subpoenas. They obfuscate, routinely offer numbers that are often half of the real numbers, and force a municipality to spend their dime to get the real data.

I urge you to read the report in the link above. I can't possibly toss all the numbers out for you, besides, why reinvent the wheel when so much of what's in that report is pertinent to us. It also does a great job explaining the safety issues, job displacement, housing crunches, rising rents, the tax dollars lost (then sort of found then spent on subpoenas and enforcement), and many things I hadn't considered but that need to be.

The AirBnB “business model” is cynical, effective and highly profitable for them. One doesn't see logo emblazoned tshirts and tote bags, nor are the hosts treated like franchise owners and supplied with AirB stationery and pens. The hosts are on their own. The travelers renting from them are on their own. The markets they enter are on their own. The neighborhoods they fracture are on their own. Neighbors and friends, City Councils and zoning commissions, will get no help from them in terms of dealing with their model.

A local tour guide told me he'd been doing an impromptu survey: after asking where the tourist is from he asks them where they're staying. If they are staying in an STR, they look down and almost whisper. Many hosts try hard to do the same. One I know told her guests to tell anyone who asked that they were old friends from college.

Whisper. Pay no attention to the corporation behind the curtain, pulling levers and forcing municipalities to deal with them on their terms only and after the fact. They have nothing to do with all this. It's on you, whether you like it or not. Just look at those faces. They are your neighbors.

(I'm still compiling my list of questions that I think need to be answered or at the very least addressed. I'll have that posted in the next day or two.)

No comments: