Airbnb Is a Risky Neighbor

Airbnb has a good business model with a bad legal problem in cities such as New York.
Renters renting out their apartments -- what could possibly go wrong?

What's not to like about the sharing economy? You take assets lying fallow (cars, homes, spare moments) and rent them out on a short-term basis to people in need. Essentially, we're ramping up the productivity of a whole lot of capital.

One group of critics is obvious: the folks who already make a living driving cars and renting rooms. Sharing cuts into their revenue, and over the last few years, they've been moving aggressively to stop it -- first by getting their thoroughly captured regulators to go after the sharing upstarts, and now with a public-relations campaign; right now they're making somewhat hysterical claims about the lack of insurance for Uber and Lyft rides.

It's hard to be sympathetic to this sort of rent-seeking by incumbents. No, that's not quite right: It's easy to be sympathetic to incumbents who have built a life around a certain business and are now seeing that business disrupted. It's just that my sympathy does not extend as far as killing off a useful business model so that they can continue to enjoy a cozy, regulatorily protected business model.

On the other hand, one group does have a right to complain: apartment dwellers who suddenly find themselves living in a hotel, or landlords who suddenly find themselves running one, because someone living in the building has joined Airbnb. As Felix Gillette and Sheelah Kolhatkar report in Bloomberg Businessweek, this is becoming an issue in New York, and in my view, it's a legitimate one.

Living in an apartment building is necessarily a more intimate experience than living in a single-family home. Common spaces, often common heat and water, common security. Letting strangers into that environment who haven't even gone through the cursory background check of a rental application is nervous making -- particularly if you bought your apartment expecting to live in a building where the neighbors, y'know, lived.

For a landlord who doesn't live in the building, there's a different problem: Those strangers may damage your property. Running a lot of different people through your apartment every year is going to increase wear and tear, because renters are less careful than owners, and hotel guests are less careful than either. It also dramatically increases your liability: If someone has some sort of accident on your property, you are the one who will be sued, even if you didn't know about the rental. Which is why landlords usually have clauses in leases saying you can't sublet the apartment without the owner's permission -- clauses that virtually every renter posting their apartment on Airbnb is violating.

With the landlords, the case is pretty cut-and-dried: Tenants don't have the right to do this without their landlord's permission, and they shouldn't have the right to do this without their landlord's permission. Ditto co-op or condo associations that explicitly forbid owners from this sort of thing.

But what should Airbnb do about it? Require proof of ownership, or a permission note from your landlord? Or is this a problem to be resolved between you and him?

It's even harder to know what to do about the neighbors. Surely Airbnb cannot be expected to get permission from dozens of other people in your building. But what are the neighbors supposed to do if the vacationers next door start having a wild party?

It's rare that I side against the startups in cases like this, but it seems to me that Airbnb should, at minimum, take down listings when the landlord or condo association provides documents showing that the lister doesn't have the legal right to rent the apartment in question. And I think you can make a decent case that listers should have the obligation to provide that documentation up front before the apartment is rented.

The problem for Airbnb is that this would severely hurt its business model in places such as New York City, where I'd venture to guess that most of the listings violate either leases or condo/co-op rules. Ironically, the more in demand the place is, the more likely it is to be filled with multi-family housing that can't legally be listed.

But if Airbnb doesn't find a solution on its own, lawmakers and courts are likely to find one for it. And Airbnb is very likely to find the outside solution much less congenial than what it might devise on its own.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.