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Economic Policy Institute’s report on Airbnb: a hostel perspective

The Economic Policy Institute published an in-depth report on Airbnb’s costs and benefits to society. It’s full of empirical research and meaningful conclusions on how everyone from residents, to housekeepers, to local governments is affected by the rise of Short Term Rentals (or Airbnbs as they're mostly known). This article covers the report and how its findings specifically relate to hostels. 

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Why should hostels care about Airbnb

First off, why is Airbnb a relevant topic to hostel owners? Out of all sectors of the accommodation market, hostels may have the most to lose from Airbnb’s rise to power. Hostels are a low-cost accommodation option. According to Hostelworld, 50% of backpackers say price is what makes them choose a hostel. Price is also what makes people choose Airbnb. The 2016 Guttentag survey identifies “low cost” as the single most-identified reason people give when asked why they chose Airbnb. Full service hotels attracting guests with room service and spas don’t have as much to worry about with Airbnb, but for hostels that are providing the most affordable accommodation in the city, Airbnb is a very direct threat.

If Airbnb takes over, why should your city care?

The Economic Policy Institute's report paints a clear picture that Airbnb is bad for hostels, but given that in most cities the hostel industry doesn’t wield very much political influence, legislators are unlikely to regulate Airbnb in order to protect the hostel industry. Instead, let’s cover the myriad other reasons that Airbnb accommodation is detrimental to your city, especially in comparison to hostel accommodation.

When Airbnbs come to the neighborhood, residents suffer

One of the biggest struggles for aspiring hostel owners, especially in the United States where hostelling is still a mostly foreign concept, is clearing all the regulatory hurdles imposed by the government. Hostels have to deal with all sorts of zoning, licensing, and permitting issues before their city will give them the green light to open their doors to travelers. 

In most municipalities Airbnbs aren’t put the same tests and there are plenty of consequences. Short term renters impose all sorts of burdens on residents. Travelers renting a house on Airbnb are more likely to be bad neighbors, making noise or being disrespectful. Long term leaseholders have more incentive to be good neighbors because they’re more likely to face consequences for their actions. Short term rentals can place excessive stress on a residential neighborhood’s infrastructure. Whether it’s garbage pickup, street parking, or running water, there are different needs for a building occupied by a single resident family versus one with a revolving door of vacationers.

Airbnbs don’t pay their fair share of taxes

NOLA hearing

Hostels have to pay their taxes just like hotels. There are no two ways about it. They are valuable sources of income for city and state municipalities. Tourism-related taxes are comparatively high because resident voters don’t have to pay them but they do enjoy the benefits of their revenue.

Airbnb's handling of issues related to taxes is very shady:

“Airbnb devises and presents to tax agencies what are typically ten to twelve-page documents covering back-tax forgiveness, prospective payments, information access and multiple other terms that produce serious negative consequences for society. Airbnb labels these documents as “voluntary collection agreements,” which they most assuredly are not. These Airbnb-drafted documents do not guarantee the proper collection of taxes due. They block tax agencies from verifying the accuracy of Airbnb payments. These documents profoundly undermine sound tax administration and the rule of law." (Bucks 2017)

These documents make governments give Airbnb control over the audit process, making it impossible for cities to double-check that the right amount of tax is being paid. Sketchiest of all is that, these agreements are not public information.

A 2016 analysis from AlltheRooms.com suggested that the way Airbnb handles taxes would cost US governments $440 million in lost revenue that year.

Thus, every time a traveler books an Airbnb instead of traditional lodging like a hostel, the city most likely misses out on tax revenue.

Airbnbs are bad for jobs

airbnb cleaning

Traditional accommodation businesses employ local residents in a variety of jobs like receptionists and housekeepers. In the hotel industry these jobs are frequently unionized, protecting workers and ensuring they’re paid fairly. Airbnb operates more like the gig economy, with people getting paid to clean a single apartment after a guest checks out. These cleaners are less likely to earn a decent wage. Airbnb recognizes this is a problem. Airbnb offers hosts the opportunity to advertise that they pay a living wage to cleaners, however there is no mechanism for Airbnb to ensure they’re actually doing so. Besides the low paying nature of Airbnb gig work, most Airbnbs are completely unserviced. Instead of a hostel with paid staff onsite, it’s increasingly common for Airbnbs to offer “self check-in” where they use a keycode to enter the unit and they don’t encounter the host at any point during their stay.

Other non-hostel related reasons Airbnb is bad for your city include:

Airbnb is driving up housing costs.

STR sign

Airbnb takes away housing stock from cities. In New York City, for example, Airbnb has driven up average rents by nearly $400 per year. Affordable housing is a serious concern in many of the metropolitan areas where Airbnb has become most prevalent.

Airbnb increases inequality

Airbnb makes the poor get poorer and the rich get richer. Airbnb is taking away housing stock, driving up rents, hurting poor families the most. At the same time, the people who are profiting the most from Airbnb are higher-wealth, white households. This demographic is much more likely to own residential property besides their own primary homes, which they can rent out on Airbnb.

Airbnb is bad. Now what?

American Hostels NOLA

In short, because Airbnb is a business that clearly substitutes and competes with lodging businesses like hotels and hostels, they should have to play by the same rules. Whether it comes to zoning laws or tax collection, there’s no good reason Airbnb should be treated any differently.

Airbnb is a tech company, and like Uber, its growth has accelerated much faster than the gears of bureaucracy can turn. As municipalities begin to feel the detrimental effects of Airbnb there has been a greater push to regulate. Hostel owners should do everything they can to be a part of the conversation.

Recently in New Orleans, Louisiana there was a proposal to place stricter regulations on Short Term Rentals (Airbnbs). There was a call for the public to submit their comments on the proposed legislation. Through American Hostels, I worked with local hostel owners to submit our comments and share the story of how Airbnb has affected New Orleans’ hostel industry. 

The New Orleans City Council passed the proposed regulations, limiting STRs to owner-occupied properties in residential areas, placing caps on rentals, and banning them outright in New Orleans’ famed French Quarter and Garden District (where most hostels are located). Obviously hostels will not be able to use their limited influence to shape regulation, but just like citizens voting in their elections, it’s important that hostels make themselves heard and participate in the process.

Should your hostel list on Airbnb?

Airbnb as a source of bookings

Municipalities will hopefully gradually regulate the Short Term Rental industry and level the playing field but regardless, Airbnb is not going away. There are some hostels that because of Airbnb’s detrimental effects are taking a stand and choosing not to list on the platform. This sentiment is similar to the overall feeling towards OTAs. Hotel and hostel owners who have been around longer than the internet dislike paying commissions to OTAs like Booking.com or Hostelworld, but regardless, OTAs are an integral part of any hostel’s distribution strategy. With Airbnb being the second leading source of bookings for young travelers, the site is a vital source of business.

Airbnb is here to stay and the platform is a valuable source of hostel bookings, however, the Short Term Rentals that are most prevalent on the site have negative effects on hostels and the community. It's important that hostel operators do everything in their power to push for a level playing field between Short Term Rentals and the traditional lodging sector.

About the Author Byron Bunda

Byron has worked with hostels big and small, city and rural. His first job was as a receptionist in San Francisco and his favorite was leading the events for a 500-bed hostel in Sydney. Today he's a Market Manager at Cloudbeds. Besides all things hostel related, he enjoys motorcycle riding, especially because it's the perfect way to get from hostel to hostel!

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