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Airbnb Faces a Host of Challenges Amid Rapid Growth

Airbnb, the internet platform built to facilitate the listing and renting of lodgings, is expanding dramatically. Valued at $25.5 billion and now the “third most valuable venture capital-backed company in the world,” the website is expected to see a 100% increase in nightly bookings this year alone.1 Yet with the company’s exponential growth has come an array of political and regulatory challenges from groups such as landlords and hotel operators.2

One such issue Airbnb currently faces is that of taxation. New York City “charges a 5.875 percent hotel room occupancy tax, which accounts for approximately one percent of its tax revenue.”3 Because it is simply a platform for others to use, Airbnb has been relieved of responsibility for paying the tax by the city’s Department of Finance.4 However, whether Airbnb hosts must pay this tax still remains to be seen.5 Some municipalities have found ways to hit Airbnb hosts with other taxes, though; in Tucson, Arizona, the county assessor recently reclassified 235 residential properties as commercial parcels because of the short-term rentals occurring on site.6 The reclassification includes a significant property tax hike.7

A host of regulatory issues also continues to plague Airbnb. Perhaps the most inhibitive of these is New York’s state law barring landlords and tenants from renting their property for less than 30 days.8) According to the New York Attorney General, roughly 72% of the New York City’s Airbnb rentals are illegal due to this restriction alone, and this number likely understates the total percentage of Airbnb transactions in violation of New York law.9 The law was created to prohibit landlords from operating unlicensed hotels, a practice which many argue Airbnb is currently aiding.10

Other municipalities are more accommodating for the company’s business model but continue to impose new regulations nonetheless. In San Francisco, new laws will require hosts to obtain a business license and a $50 permit from the city before they’re allowed to rent out their properties.11 Once in operation, hosts will then need to keep at least two years’ worth of records to show that they haven’t been renting too frequently.12

As municipalities crack down on short-term rentals, it will be interesting to see how Airbnb responds, particularly since much of the illegal activity is on the part of the hosts, not the company. Airbnb has unequivocally changed the hospitality industry in just a few short years, and the company’s fate will have a widespread effect on traveling and the overall tourism industry.

  1. Heather Somerville, Exclusive: Airbnb to double bookings to 80 million this year – investors, Reuters (Sep. 28 2015), 

  2. Robert A. Kaplan & Michael L. Nadler, Airbnb: A Case Study in Occupancy Regulation and Taxation, 82 U Chi L Rev Dialogue 103 (2015). 

  3. Id., at 109. 

  4. Id. 

  5. Id. 

  6. Robert McClendon, Elsewhere, anti-Airbnb arsenal includes lawsuits and property tax hikes, The Times-Picayune (Sep. 1, 2015), 

  7. Id. 

  8. Eric T. Schneiderman, Airbnb in the City (Office of New York State Attorney General, 2014. 

  9. Id., at 9. 

  10. Polly Mosendz, Face-Off: NYC Lawmakers Grill Airbnb on Illegal Hotels, Newsweek (Jan. 21, 2015), 

  11. Joshua Brustein, Airbnb Gets Off Easy in San Francisco. Hosts? Not so much, BloombergBusiness (Oct. 8, 2014), 

  12. Id.