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This Has Been A War Waged By These Gig Companies Alone

A weekend topic starting with the Wall Street Journal. “At Manhattan’s Atelier one afternoon last year, its five-star hospitality service was on full display. A one-night stay went for $400. The Atelier isn’t a luxury hotel. It is a Midtown condominium building where the board president and a small travel agency built a lucrative lodging business, according to people with knowledge of the rental arrangements.”

“The Mayor’s Office of Special Enforcement, known as OSE, said it is investigating a network of allegedly illegal short-term rentals at the Atelier, an agency spokeswoman said. She declined to provide further details. The network shut down after a police raid in October, according to former employees of the travel agency.”

“After the raid, Massimo F. D’Angelo, a lawyer representing a group of Atelier condo owners, sent a letter to the condo board demanding it shut down what he called an ‘illegal hotel enterprise.'”

“One unit owner who had turned her apartment over to the Atelier’s condo-board president, Daniel Neiditch to manage said he told her the fines ‘would be taken care of.’ One lawyer, Bradley Green, represented all the owners at hearings, according to city records. A total of $77,875 was paid. The source of the funds couldn’t be determined. Mr. Green declined to comment.”

The Portland Mercury in Oregon. “Portland’s finished waiting for short-term rental companies like Airbnb to follow the rules. Faced with a deficit of affordable housing and a negotiation standstill, Portland City Council is considering an ordinance that will require all Portlanders who rent out their homes through a short-term rental site obtain the mandatory permit to legally do so. Or else.”

“‘We’ve had years of discussion and litigation with short-term rental companies about increasing compliance [with the city’s rules],’ said Mayor Ted Wheeler during a Wednesday hearing on the pending ordinance. ‘But few have shown any interest in aiding the enforcement of city regulations.'”

“This blatant non-compliance is largely because companies like Airbnb don’t require their hosts to apply for a permit before listing a rental, nor do they share any data on their listings with the city—a step that could help city regulators track down non-complaint hosts. Airbnb has argued that the city’s permitting process is too burdensome.”

“That means, at any given moment, the city can’t vouch for 70 percent of the units marketed online,’ said Commissioner Nick Fish. ‘We can’t say for sure to anyone accessing these rentals that they’re safe.’ Fish compared the city’s inability to uphold these standards is akin to the Fire Bureau telling the public it’ll no longer be inspecting public venues to make sure they meet fire safety standards.”

“‘We know beyond a doubt that short-term rental companies are contributing to a global housing crisis, including a housing crisis right here in Portland,’ said Commissioner Chloe Eudaly on Wednesday. ‘And the denial of these platforms—in particular Airbnb—would be laughable if it weren’t so offensive.'”

“‘Looking back over my ten years serving on council, nothing has been more frustrating on the regulatory side than getting our short-term rentals to follow rules we’ve designed to protect consumers and workers,’ Fish said. ‘The gig economy has thumbed its nose at local regulators for a long time… and I think people need to understand that this has been a war waged by these gig companies alone.'”

The Los Angeles Times. “Homeowners around the world have found Airbnb and other short-term rental services a great way to make extra money. Until the guest from hell arrives. Emily Mastren, 30, and her husband have been using Airbnb to rent out their backyard bungalow in Long Beach since December. It goes for $65 to $99 a night, and the couple have hosted dozens of people over the last half-year. ‘It pays our entire mortgage,’ Mastren told me. ‘That’s pretty nice. But now I’m worried about the safety of my family.'”

“The booking was made recently by a woman I’ll call Sylvia. That’s not her real name, but she has sent Mastren threatening messages and I don’t want to make a bad situation worse. Mastren has a 3-week-old daughter at home. Sylvia booked the bungalow on a Thursday morning and arrived that afternoon around 1 p.m.”

“Sylvia checked out the next morning but failed to leave the keys in a lockbox, as is customary with Airbnb rentals. Mastren said she spotted Sylvia’s car parked on the street, where it appeared Sylvia was sleeping. Mastren approached the car, roused Sylvia and informed her that the keys hadn’t been returned. She said Sylvia rummaged in a bag, found the keys and handed them over. Suspicious, Mastren said, she played back video taken overnight by the security camera outside her home. She said four different people could be seen visiting the bungalow at roughly 90-minute intervals.”

“I asked Mastren what she thought Sylvia was doing. ‘I think she was prostituting out of my Airbnb,’ Mastren replied. The cleaning lady arrived Friday afternoon. ‘She texted me,’ Mastren recalled. ‘She said I better come see this.’ Mastren said she found cigarette butts throughout the bungalow. In the bathroom wastebasket was a syringe. There also was a baggie. And an tea can that had been cut in half and used to heat something up. Mastren took pictures, which she submitted to Airbnb and shared with me. ‘I was furious,’ she said. ‘I felt violated.'”

“Mastren reached out to Sylvia through Airbnb and requested the $250 smoking fee. She noted the syringe and possible drugs in the wastebasket. Sylvia replied with a message accusing Mastren of being ‘ghetto’ for going through the trash. She said she didn’t complain to anyone even though the tires on her car were slashed while she stayed at Mastren’s bungalow. She said she’d be back ‘to get my things.'”

“Sylvia continued messaging Mastren via Airbnb for several days. She said she hadn’t been alone at the bungalow and any drugs weren’t hers. ‘I’ll take drug test,’ she said. ‘I can prove to u and I will sue u for slander. My lawyer will contact u soon.’ Subsequent messages said, ‘Your n trouble lady’ and ‘Thanks 4 free money lady. Ur gonna pay !!$$$$.'”

“Airbnb didn’t have much to say about all this. I found no admonition in the standards about not breaking the law by, say, using someone’s home as a bordello. This seems like a glaring omission considering there are references online to Airbnb rentals being used as ‘pop-up brothels’ by prostitutes. You can also find reports of heroin use in Airbnb rentals.”

From KSBW. “If you haven’t booked your stay on the Monterey Peninsula for the 2019 U.S. Open there are still rooms and vacation rentals available and you might not have to pay as much as you think. Price gauging on the Central Coast is still at play in many hotels, and many AirBNB hosts are asking a lot for their homes, but the U.S. Open has not brought in the big bucks many may have been hoping for this year. ‘It’s not happening,’ said Jan Leasure owner of Monterey Bay Property Managment.”

“Leasure has been in the vacation rental business for decades and she said the legendary prices of the 2000 U.S. Open are still stuck in many people’s minds. In 2019 if you’ve got a mansion on the course you can fetch $10,000 or more a night for your place but Leasure said anywhere off the course and the price goes way, way down.”

“Leasure said 20 percent of the vacation rental stock is still open for booking. The biggest reason for declining demand is increasing supply. ‘AirBNB has certainly changed the landscape because it has increased the supply, and so you know it is econ 101 when supply increases demand decreases,’ said Leasure.”

“Many municipalities and the county have banned or limited short term rentals but you can still find some illegal ones posted on sites including AirBNB and VRBO. The county has created a Short Term Rental Hotlin for people wishing to report their neighbors”

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This Post Has 59 Comments

  1. ‘Emily Mastren, 30, and her husband have been using Airbnb to rent out their backyard bungalow in Long Beach since December. It goes for $65 to $99 a night, and the couple have hosted dozens of people over the last half-year. ‘It pays our entire mortgage,’ Mastren told me. ‘That’s pretty nice. But now I’m worried about the safety of my family’

    Yeah Emily and guess how the people who live next to your shack feel? And they don’t get a penny.

    1. My mind does not understand where all these wealthy people who can afford $100 per night Airbnb’s are coming from. Who has all this excess cash to blow on extra shelter expenses in addition to their own shelter? I really don’t understand where all this money is coming from to support Airbnb “rents.”

      1. In our case, when we used AirBnB, it came from the $120+/night not spent on a hotel bill.

        1. I should expand a bit. When you add all of the Airbnbs to all of the existing hotels in the country, it essentially increased the number of short term rentals exponentially. That alone should have driven down prices, given the glut of supply. However, I have not seen that at all. That’s why I was wondering who all of these new wealthy people are who have propped up the hotel industry.

          1. Same question I’ve been wondering:

            Is there that much under-supply vs travelers in SO MANY different places to support everyone who has jumped into renting out something? If there was, why didn’t the hotel/motel/lodging industry respond with increased capacity?

          2. Exactly. Makes NO SENSE. My thought is that most people who are doing the Airbnb thing are not making money and that it’s mostly hype. That being said, I think the shadow inventory of empty bank-owned houses is seriously massive, which has led to an artificial shortage in supply of houses both for sale and for rent.

          3. It is part of the gig vs fulltime.

            My younger cousin has a condo in a trendier portion of Toronto. When she know she 1) knows she is going to be spending time with her BF (he has his own place), or 2) opportunistically based on the needs, she will AirBnB her 2 bedroom condo.

            She does this about 5-14 nights a month. And she has extra $s to accelerate payments against a mortgage. Kinda smart for people that want to hustle.

            But it is not a 1 for 1 against a hotel room by a chain

        1. The number of people who can afford $100 per night for a room is small. 40% of Americans don’t even have $400 for an emergency. But my point wasn’t very well explained.

          When you factor in the sheer number of Airbnb units on top of the hotels, it is a staggering number which are evidently being supported by a large group of “travelers” who have tons of cash because, after all, they would have to to support this many units.

      3. Here’s one answer:

        Too Many People Want to Travel
        The Atlantic
        June 4, 2019

        Massive crowds are causing environmental degradation, dangerous conditions, and the immiseration and pricing-out of locals.

        “Late in May, the Louvre closed. The museum’s workers walked out, arguing that overcrowding at the home of the Mona Lisa and the Venus de Milo had made the place dangerous and unmanageable. “The Louvre suffocates,” the workers’ union said in a statement written in French, citing the “total inadequacy” of the museum’s facilities to manage the high volume of visitors.”

        “Half a world away, a conga line of mountaineers waited to approach the summit of Mount Everest, queued up on a knife’s-edge ridge, looking as if they had chosen to hit the DMV at lunchtime. A photograph of the pileup went viral; nearly a dozen climbers died, with guides and survivors arguing that overcrowding at the world’s highest peak was a primary cause, if not the only one.”

        “The root cause of this surge in tourism is macroeconomic. The middle class is global now, and tens of millions of people have acquired the means to travel over the past few decades. China is responsible for much of this growth, with the number of overseas trips made by its citizens rising from 10.5 million in 2000 to an estimated 156 million last year. But it is not solely responsible. International-tourist arrivals around the world have gone from a little less than 70 million as of 1960 to 1.4 billion today: Mass tourism, again, is a very new thing and a very big thing.”

        1. “The root cause of this surge in tourism is macroeconomic. The middle class is global now, and tens of millions of people have acquired the means to travel over the past few decades.”

          Sorry, I’m not buying it. They’re going into debt to do it, as the middle class has actually been eroding for decades.

          1. Further, in a period of insane rents and house purchase prices, there is less disposable income than there ever has been. It’s 2005 all over again, but on steroids.

          2. A lot of my Airbnb guests are international travelers who are fairly well-off. Some of them are business travelers who are getting a better price than a local hotel. There are many reasons why Airbnb has taken off. I think part of it has been the spare-capacity story (e.g. I’m going to rent out an unused bedroom in my house). But most of the Airbnb rise is driven by the Airbnb professional (like myself) who is purposely renting these out. We’re in the process of winding down our Airbnbs though since they have served their purpose and our complex is virtually full.

          3. In America yes it has been eroding. Globally though small amounts of lots of places, even Mexico, have achieved enough wealth to travel.

        2. Well, this kind of thing is what happens when you have 9 billion people. They aren’t all living in squalor in some African village.
          Meanwhile, *I’m* the once getting flak for not liking to travel. Thank you, I see enough of the world on the nightly news.

        3. If you hike a Colorado 14er on a summer weekend, you will share the trail and summit with dozens, or hundreds of other people.

          If you hike a Colorado mountain elevation 13,999 feet a few miles away, you will probably have the summit to yourself.

          #InstagramSucks

          2. Apt. 401 –
            1) >=14K ft. peaks: People on trail depends on starting time. Need to start early (~5:00 a.m.) in any case. I don’t understand people hiking up when I’m hiking down at >12 noon. Seem to be unconcerned about T-storms. I have a healthy respect for lightning. I hope to do 3-5 this year, God willing.
            2) <14k ft. peaks: Yes, that's the way to avoid crowds.
            Overall, it's becoming more crowded in CO over the last few years. Pretty much everywhere.
            Cheers

  3. “One unit owner who had turned her apartment over to the Atelier’s condo-board president, Daniel Neiditch to manage said he told her the fines ‘would be taken care of.’ One lawyer, Bradley Green, represented all the owners at hearings, according to city records. A total of $77,875 was paid.

    In corrupt Democrat-run municipalities, where city officials are on the make and on the take, any and all illegal rackets will continue to be tolerated and attention from complicit enforcers “taken care of” as long as the requisite payola lines the pockets of the local Democrat Party apparatchiks.

  4. “Airbnb didn’t have much to say about all this. I found no admonition in the standards about not breaking the law by, say, using someone’s home as a bordello. This seems like a glaring omission considering there are references online to Airbnb rentals being used as ‘pop-up brothels’ by prostitutes. You can also find reports of heroin use in Airbnb rentals.”

    I’ve had this type of a guest, though not this bad. I now know the tell-tell signs of a problematic guest. 99% of my questionable guests are last-minute bookings (usually same day). The lower the price point, the higher the likelihood is that you’re going to get the riff raff (which is sad because I myself am a deal seeker).

    Also, guests who have no reviews, no picture, no verified government ID, are a huge gamble. Anyone who is hosting should take some precaution to screen.

    I did file a police report when my cleaner found some drug paraphernalia in a unit. I spoke to the cop who took the police report and I asked him about the prevalence of such bad actors in short-term rentals. He said that he actually sees far less drug use and prostitution in Airbnbs than he does in hotels. In his words, hotels were more likely to attract. Think of it this way: Airbnb you are rating every guest, so you start to get a better picture of the type of person you are accepting. Hotels have no insight into who is on the other side of the transaction. But the kicker was that the cop said that the biggest source of bad behavior (drugs, prostitution, crime, etc.) was simply inside apartments. He basically said people have no idea what is going on next door to them.

    Having run property management and screened tenants, I can tell you without any hesitation that our Airbnb guests are typically less of a problem than our full-time tenants. There are numerous reasons for this which I won’t go into, but it is true in my experience.

  5. “Airbnb didn’t have much to say about all this. I found no admonition in the standards about not breaking the law by, say, using someone’s home as a bordello. This seems like a glaring omission considering there are references online to Airbnb rentals being used as ‘pop-up brothels’ by prostitutes.

    This “glaring omission” was no omission at all. It’s all about the Benjamins, baby. If “guests” are engaged in illicit activities, Airbnb still gets its cut regardless. And Airbnb ensures corrupt municipal officials who tend to be affiliated with a certain party synonymous with patronage and graft get their cut too, to keep the racket going.

  6. Price gauging on the Central Coast is still at play in many hotels, and many AirBNB hosts are asking a lot for their homes, but the U.S. Open has not brought in the big bucks many may have been hoping for this year.

    I sense a lot of greed-fueled hopes and expectations for shack-related big bucks are going to go unfulfilled in 2019 and beyond. Such a tragedy….

  8. if we close at the present futures market prices we will only be around 3% off the all time high.

    1. Agree, we are poised at the edge of a deflationary spiral. The wildcard is the Fed. As David Rosenberg points out, every one of the ideas in Bernanke’s famous helicopter money speech has been implemented save one – helicopter money.

      The scenarios that could reverse the deflationary spiral are any form of MMT (Fed prints, gov’t spends) or helicopter money (Fed prints, gov’t mails checks to citizens). This puts money directly into the economy (unlike QE, which largely wound up as excess reserves in the banking system).

      No one can say for sure what MMT will do because its never been tried. What is clear is that the relatively tame effects of QE (see Richard Koo’s presentation) are not comparable. My guess is that once Congress gets an unlimited spending bucket, they will do what they always do. Spend it all.

      If that turns out to be true, deflation will be short lived, followed by high inflation. Since raising rates or QT are no longer possible, runaway inflation seems a distinct possibility.

      1. “…helicopter money.”

        Some versions of this were already implemented:

        – Cash for Clunkers
        – Bush II $2K household level stimulus (wife has a nice viola bow to show for that one)
        – GSE lending with fedet al guarantee, low downpayment, and high debt-to-income ratio is pretty close to a helicopter drop.

        1. The cash for clunkers scheme had a pretty noticeable effect of jacking up used car prices by taking supply off the market. It seemed like new car prices too went up almost immediately with the announcement of that scheme. I think the dealers captured all of that government cheese.

          1. Seems like Uncle Sam also had a Cash for Crapshacks program back a few years ago…don’t recall the details.

    2. “…deflationary tsunami to sweep across the world (of course, stocks are once again near all time highs, because, well, the Fed and more QE is just over the horizon).”

      Crazy combination of conditions, for sure!

    1. Interesting post. The author seems to think that Uber/Lyft is destined to be acquired by a big auto maker. It might be the other way around though.

      In any event, I will be curious to see what pricing power Uber/Lyft have as they start to raise prices and cut reimbursement for drivers. If they wanted to run an autonomous vehicle route, they might have to start very slowly and run it basically in a straight line in very controlled conditions at low speeds, kind of like a trolley.

      They are playing the winner-take-all game with the network effect. At some point they will pivot and charge more, but only when they need to. The biggest thread to Uber/Lyft in my opinion is whether their business model of hiring “independent contractors” can hold up in court. If they have to start hiring employees, then they will either 1) Hasten the push to autonomous vehicles 2) hasten the timeline for their failure/restructuring.

  13. “Airbnb has argued that the city’s permitting process is too burdensome.”

    Then perhaps Airbnb shouldn’t be engaging in that business.

    1. Apparently they don’t like the public safety laws.

      The article with the AirBnB nutjob hooker was precious. If the report had gone on to describe how the crazy hooker was just trying to meet her Tesla payments, it would have been priceless.

  14. Too funny. Hubby just jokingly wishing for Bluepilled Redhead: sitcoms; Law & Order, even SVU. Hubby cut the cord. No going back.

    1. Nice try, Professor Glaeser.

      The thing is, the post 1996 experience really is different, as it is driven by national governments and is international in scope. The real estate booms before 1996 were much more local, by comparison.

      1. The recurring themes about these past bubbles had some common threads: changes in transportation (e.g. railroad expansion, canals, access to major waterways, etc.); high priced commodities leading to high priced land (e.g. wheat, cotton, etc.); relative comparison in cost on housing/commercial rents (e.g. LA was cheaper than Cleveland at the time or Las Vegas is cheaper than So Cal now, therefore price is justified).

        Another good excerpt:

        The Alabama boom and bust illustrates a phenomenon that
        will reappear throughout these real estate episodes: an under-appreciation of the longrun power of elastic supply to push prices downward.

        1. To argue as a contrarian:

          1) We have lots of NIMBYism and zoning regulations that prevent more supply coming online, or supply in the right place and of the right type (e.g. not McMansions or lux apartments).
          2) Current homeowners act like a cartel in defending new supply coming to market because it will depress the value of their largest asset.
          3) There is no real constituency for the house-burdened population of the US who pay high rents or who become FB buy succumbing to high priced housing.

          Therefore, it is somewhat rational to believe that housing prices can go higher in the short-run as long as supply is artificially constrained by the political economic actors. The only long-term changes I see that threaten this is 1) transportation advances (like self-driving) that make building outside of thriving urban job centers more feasible 2) Normalization of credit/monetary policies (unlikely given Powell’s about-face) 3) Debt exhaustion 4) Demographic shifts that bring more supply to market.

    2. Excellent post Mike. A very good article to read. I really liked the author’s recurring theme of Alfred Marshall throughout the paper: “the value of things tend in the long run toward its cost of production.”

      Very interesting to hear the perspective of these professors in that the the valuations during bubble times and during bust times were defensible when viewed through the lens of the valuation models:

      “The third lesson is that the high prices paid during the boom and the low prices paid during the bust are typically compatible with reasonable models of housing valuation and defensible beliefs about future price growth.”

      I guess that this would imply that the models and assumptions need to be checked.

  17. “said Commissioner Chloe Eudaly.”

    Knew that knuckledragger would be quoted. She also promotes rent control and the usual form of “affordable housing.” It unfortunately is what got her elected. No thanks.

    1. True, but what causes politicians such as this to end up getting elected?

      Your two choices are crony “free market capitalism” that benefits a few and screws most, or her.

  18. Buy stocks now, or get priced out forever:

    “Structural bears who have predicted that central bankers would never be able to normalize the construct they created and has produced the world’s greatest debt explosion ever were 100% correct.
    …
    One is virtually enticed to chase assets again for that big grand finale perhaps.

    Not because of earnings, not because of revenues or growth. Because they have to, as yields are once again collapsing and central bankers are again promising free money.

    As I’ve outlined for quite some time: Stock markets can’t sustain gains or record prices without intervention, without a helping hand, without dovish and intervening central banks. This has been true for 10 years, and it continues to be true in 2019 because that’s where all the big gains are…”

    2. Note that early 2012 was during the heyday of quantitative easing. Are bond traders trying to price in the resumption of quantitative easing?

      The Wall Street Journal
      Credit Markets
      Some Investors Had Hunch Yields Were About to Fall
      Drop in 10-year Treasury yield has been rapid and for many investors completely unexpected
      By Avantika Chilkoti and
      Daniel Kruger
      June 9, 2019 5:30 a.m. ET

      Almost nobody saw the nosedive in bond yields coming, but a few players were positioned well enough to profit. Some think there is more room for yields to fall further.

      The drop in 10-year Treasury yields in recent months has been rapid and in many quarters completely unexpected. The 10-year Treasury yield settled Friday at 2.085%, down from 3.23% in early November, the biggest decline over a similar stretch since early 2012.
      …

    1. DNC is actively trying to do for Biden what is did for Hillary.

      It came -><- that close to working for Hillary. I expect poorer results for Joe.

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