Few companies have had such a rapid expansion into the global market, as the Silicon Valley start-up Airbnb Inc. The innovative housing accommodation platform was founded in 2008 by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk in California, and immediately made the difference in connecting private property owners to their potential guests without bureaucratic paperwork. In the beginning, Airbnb looked like something similar to Couchsurfing.org – a community of people willing to provide their spare room other community members for little or no fee. This is probably why Airbnb has been, for quite a long time, exempt from local taxes and business registration requirements – it started as a network of volunteer hosts and backpacker travelers.
Things began to change however, with the swift success of Airbnb. In just seven years, it has landed in more than 190 countries, and has been translated into 29 languages. The community has grown so much that it now successfully competes with traditional hotels. This presents a challenge on whether to protect local hotel industry players or find a compromise that would suit both parties. This decision would logically be made by local government authorities, as the laws differ from city to city. For example, Amsterdam is much more accommodating for Airbnb than Berlin and many cities in Germany, where it is now prohibited.
The most interesting debates have recently arisen around Airbnb in Paris. The city is currently one of the largest markets for Airbnb, with more than more than 50 000 properties listed, and roughly 300-400 properties offered for more than 500 Euro per night. In 2012, the number of Airbnb guests in Paris was 5452, growing to 514 821 in only four years. The Wall Street Journal has developed a map of Airbnb expansion in Paris, and it is truly impressive.
Legislative response to the “sharing economy”
On March 26, French government passed a new national housing legislation, or a so-called bill ALUR (Accès au logement et à un urbanisme rénové (Housing and Urban Planning Act). The new legislation allows short-term rentals such as Airbnb, if it is rented by the owner or by a tenant upon written consent of the owner.
In Paris, it is permitted to rent your private property for the period of 4 months per year. If you want to rent it for a longer time, you have to purchase another property and register is as a vacation rental. The head of housing committee for Paris Council, Ian Brossat, said that “despite this regulation, many owners rent their flats all year round”.
In May, French inspectors investigated 2000 properties listed on Airbnb and other rental websites in the district of Marais. They have detected 100 illegal short term rentals, which is more than last year, when Paris imposed fines on 56 properties in total amount of $644 000 USD. The legal situation around Airbnb in Paris is nevertheless quite relaxed. This year, the city even held the annual Airbnb host meeting, at which the city’s first deputy mayor expressed the Parisian authorities’ desire to continue to collaborate with the P2P house-sharing site. How long this collaboration lasts is still an open question, especially in light of a Reuters report about the threat Airbnb poses to Paris’ luxury hotels.
Rage of the hoteliers
In April, Economist published a report, that if Airbnb continues to grow, by 2016 it could take away 10% of hotel’s market share. For many hotel businesses it would mean immediate bankruptcy. For French hotels, flat sharing scheme has long been a thorn in the side.
In May 2014, the president of the French Union of Professions and Industries (UMIH) Roland Heguy, explained the position of hotel business regarding Airbnb and similar flat sharing projects: “We do not oppose the new rental system, as it has been developed in a response to a market demand. We also have nothing against people who rent their apartments, when they are on holidays. However, we do oppose the commercialization of flat sharing. The problem is that some people do their business by flat sharing, renting three, four, five apartments simultaneously, so that now it has become a whole industry, with all the usual services you can get in a hotel, such as dry cleaning and room service.”
Luxury hotels claim that they have been most impacted by the competition from Airbnb. Offerings listed on the website include private apartments of French stars, luxurious penthouses with 360° views of the city, and other extremely expensive properties that are much more attractive than the hotels because of their uniqueness.
To impose restrictions to Airbnb
The frustration of luxury hotels grows even more as it suffers market fall this year, for reasons more global than the Airbnb competition. For example, The Bristol Hotel occupancy rate fell from 69.2% to 61.2% in the first half of the year. The Four Seasons George V saw a five percentage point drop in occupancy to 66% in the same period.
This year, the Union came up with an open letter to the French Prime minister Manual Valls. The hoteliers demanded to impose restrictions on flat sharing websites, in order to make flat sharing less attractive for potential guests. For example, the Union proposed to prohibit renting a property for less than 7 days, as is the case in Barcelona, New York, Berlin and London. For short-term stays, people would then have no choice but to stay in a hotel.
UMIH also demanded a VAT charge on all the private rentals and to register all private rentals with local authorities upon consent from homeowners associations.
Airbnb defense strategy
While creating annoying competition to luxury hotels, Airbnb claims to having had some positive social impact, and even contributed to tourism development in Paris.
In 2013, French economic analysis company Asteres conducted a study about the impact of Airbnb on Paris economy, and found out that from May 2012 to April 2013, Airbnb contributed in total 185 million Euros to the economy of the city. Moreover, the study revealed that renting through Airbnb helped people to stay afloat during the times of economic crisis.
According to the study, Airbnb also contributed to the overall tourism development in Paris by encouraging people to stay longer and spend more. By comparison, in 2013, Airbnb guests would stay an average of 5.2 nights and spend €865 over the course of their trip, compared to hotel guests who stay an average of 2.3 nights and spend €439. 27% of respondents said they would not have come to Paris or stayed as long without Airbnb.
Moreover, almost 70% of Airbnb rentals in Paris are located outside the central luxury hotel corridor, thus opening up “local” places for tourists, and creating additional opportunities for business owners in non-traditional tourism districts.
$1USD per person per night will be collected
Airbnb claimed that their guests were a new category of travelers, who were looking for authentic, local experiences and preferred staying in a private house rather than in a hotel. According to the study, 93% of guests book on Airbnb because they want to “live like a local” and 80% use Airbnb to explore “off-the-beaten-paths”. Hotels would not be able to satisfy their demands.
At the same time, Airbnb successfully cooperates with local governments. The rental website has developed the system to collect tourism tax from all the bookings that is automatically transferred to the city’s account. In Paris, the extra fee of $1USD per person per night will be collected starting October 1st.