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In NYC, Airbnb Is Dominated by Rich Power Users Running Illegal Hotels

Three-quarters of all Airbnb rentals are illegal, a new report from New York's Attorney General says.
Cover page of the Attorney General's report. 

Nearly three-quarters of all Airbnb rentals booked in New York City over the last four years were illegal, the office of Attorney General Eric Schneiderman found in a major report released today. The report also claims that according to data provided by the company, a mere six percent of Airbnb hosts raked in $168 million since 2010, accounting for 36 percent of the bookings and 37 percent of the revenue.

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Those numbers run pretty contrary to the company's preferred narrative; that it's mostly helping average renters earn some extra cash. "The vast majority of our hosts are just regular people, renting out their own home to travelers," Airbnb claims. "But some of our hosts have always managed multiple properties, either for others or on their own." Yet the most successful of those hosts are running far more than multiple properties; they are managing hundreds of them, with little to no oversight.

The sharing economy standard bearer and the nation's biggest city—and biggest hotel market—have been engaged in a public standoff for months now. And the new report, 'Airbnb in the City', though couched in cutesy fonts, a punny title, and the type of shareable infographics a sharing economy startup attempting to slather itself in an aura of cheery do-goodery might embrace, is a withering indictment of the company's practices.

In fact, the document seems tailor-made for a Buzzfeed-style blog post. Maybe something like '9 Things That Reveal How Airbnb Lets Rich People Run a Bunch of Illegal Hotels'. Since that's pretty much what the report alleges, we might as well oblige. So here's the case:

First off, Airbnb has exploded over the last four years. Airbnb allowed New York state to access its booking data, and the Attorney General's report examined listings from January 1st, 2010 to June 2nd, 2014.

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Last spring, Airbnb was clocking 30,000 reservations a month. Revenues were way up, too.

This year alone, the state expects revenue from Airbnb's short term rentals to exceed $282 million. Sadly, most of those rentals are illegal.

The Attorney General's office stresses that by assuming that all the rented rooms were properly designated by the rentees who provided the data, "the analysis understates the degree to which rentals on Airbnb may have violated the law." That's close to the number the independent travel service Skift estimated earlier this year.

Those 72 percent of illegal bookings owe the city $33 million in hotel tax liabilities.

According to the report, "Excluding fines and penalties, the total estimated liability for hotel room occupancy taxes associated with the Reviewed Transactions is over $33 million." That's excluding fines and penalties.

And a small handful of Airbnb power users—who rent their properties out more than have the year, and who the state calls Commercial Users—are raking in the vast majority of the benefits. They are using Airbnb to run what amount to illegal hotels, and they are making a lot of money.

How much, you ask? This much.

Yes, a single host rented out 272 different units, booking nearly 30,000 nights and earning almost $7 million. That points to a wealthy, well-organized property owner running a slick operation. That certainly tarnishes the reputation Airbnb is trying to build as your friendly neighborhood host—it's clear evidence that most of the benefits of the service are going to the 1 percent. To that point, this is crazy:

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Those are the ten most-booked private residences on Airbnb last year. According to the report, "For 2013, these units averaged 1,920 booked nights each. One listing in Brooklyn accepted 285 individual reservations for a total of 4,735 booked nights. Thus, on an average night, this listing accommodated 13 reservations."

For a single unit. That reeks of an illegal hostel-type situation—the kind that the city is legitimately worried about posing a safety hazard, especially because the going rate was less than $50 a night.

The trend towards the 1 percent gaming the system is only on the rise, too:

As is the case with everything else in the country, revenues are overwhelmingly going to the major users, not the regular occasional renters; the ones using the service as it is ostensibly intended.

Unsurprisingly, given Airbnb's marketing to hip, millenials and 'unconventional' travelers, the bulk of the rentals were in Brooklyn's Greenpoint and Williamsburg neighborhoods, and lower Manhattan. There were 23,711 listings in Manhattan, and 160 in the Bronx for the same period.

The picture the Attorney General paints isn't a pretty one—a handful of people have professionalized Airbnb and illegal, distributed hostels are popping up around the city, decentralized and difficult to regulate. The problem is, Airbnb has an incentive to keep those users around, because they are also providing the company with a huge portion of its revenues.

Ideally, there is a middle ground to be found—nobody likes paying New York's absurd $150-a-night hotel prices, and there are legitimate cases when Airbnb can provide an extra stream of income. The New York Times points out that many of the worst abusers may have already been kicked out by the city; these numbers total the operators between 2010-2014. Meanwhile, Airbnb says that it has removed thousands of illegal listings since Schneiderman filed an affidavit to weed out illegal renters earlier this year.

Still, Airbnb responds to this latest report will be crucial, not just for its future in the city, but for its prospects in general, and for that of the sharing economy at large.

"Its success or failure, which will portend the future of the sharing economy as a whole," Jessica Pressler wrote in her recent Airbnb profile in New York Magazine, "depends in large part on the company's ability to convince New York City—both its largest market and a petri dish that seems to contain every problem it could conceivably face—that people are, for the most part, decent and more likely in the face of temptation to choose the greater good over personal profit."

The New York Attorney General just convincingly built a different case altogether—that a handful of organized profit-seekers have overridden the public altogether and made that choice for them.