Airbnb Is Soaring in Seattle. Is It Causing Rent to Do the Same?

40 percent of Airbnb units are “high-occupancy” rentals. Are they really just hotel rooms?

Alice doesn’t have a job—not in the traditional sense, anyway. She’s self-employed. Instead of working nine to five, Alice is a host for Airbnb.

Alice (who asked to be identified by a pseudonym) operates two apartments as full-time Airbnbs. The popular home-sharing website claims that most of its hosts make their homes available occasionally and for short periods. That was how Alice ran her business at first, starting in 2013. But she was amazed by how much money she started to make—enough to enable her to quit her well-paying job at a well-established Seattle-based tech company.

“I started to realize that there was a huge number of people coming into Seattle, and realized I could pay off my student debts a lot faster if I could host more than just a couple times a month,” Alice explains. “And now I have two [apartments] in the city that I do full-time for Airbnb.”

Alice rents a third apartment for herself, and works as housekeeper, booker, and concierge for the Airbnb units. Occasionally, if she’s out of town, Alice will pay a friend to maintain the business—particularly the housekeeping.

Her business is not like a traditional bed and breakfast; Alice doesn’t provide meals or check in her customers herself. “I rarely meet my guests,” Alice says. “Getting into the building is pretty automated. Everyone just kind of helps themselves.”

This kind of experience is common for Airbnb users. While the site’s crafted an image of a family renting its guest room to a tourist to help pay the mortgage, or a young professional covering the rent with a booking while she’s gone a few days for work, these aren’t the only ones operating on the website.

According to data compiled by Murray Cox, a journalist who operates the website Inside Airbnb, around 40 percent of Seattle’s Airbnb units are high-frequency vacation rentals—meaning they’re occupied an estimated 172 nights a year by Airbnb guests. As of August 16, 1,090 of the 2,711 units in the city limits fit that description.

Want to find out about the Airbnbs in your neighborhood? Explore Cox's data here.

Airbnb, like Uber and other services billed as part of the Internet-based “sharing economy,” is changing the housing and vacation rental markets in ways that couldn’t have been predicted when the service was launched in 2008. Also like Uber, the service is beginning to draw a great deal of scrutiny from regulators and businesses against which it competes.

Activists across the country have begun to criticize the service harshly, arguing that it displaces poor city residents in favor of bourgie tourists. As a result of those sentiments, affordable-housing activists have called for extensive regulation of the service—even for shutting it down or decimating it.

Jon Grant, the affordable-housing advocate and City Council candidate, argues that “Airbnb tends to crowd out folks who are in need of affordable housing in favor of short-term rentals.” In July, Grant released an affordable-housing plan meant to compete against the one compiled by Mayor Ed Murray’s affordable-housing task force (on which Grant sat). Grant’s plan, which earned endorsements from several City Council members and candidates, specifically calls for tighter regulation of services like Airbnb.

Grant argues that when apartments are used strictly for Airbnb, they become units no longer available to residential renters—instead, they’re used as hotel rooms by travelers. Under this line of reasoning, the scarcity of residential units increases, which in turn creates upward pressure on rental price.

It’s hard to say if Grant is right about this, at least at the current moment.

Airbnbs are becoming very common, but it’s not clear that the service has the impact on the market that affordable-housing advocates claim. “I can’t believe when you look at the total housing stock [used as short-term rentals] that those kind of transactions have a material effect on housing supply,” says Peter Orser of the UW’s Runstad Center for Real Estate Studies.

Meanwhile, Airbnb has argued it encourages affordable housing and was founded as a way to help people pay high San Francisco rents. The company’s 33-year-old founder, Brian Chesky, told USA Today last Wednesday that people who criticize Airbnb over affordable housing “fundamentally misunderstand” the business. “They see all these empty homes on Airbnb and think those are homes where a permanent resident could live. But a permanent resident does live in those homes. They just rent it out when they’re not there. . . . We’re fundamentally on the right side of the issue.”

It’s a fairly new debate in Seattle; things have gotten more heated in San Francisco, where Airbnb is based and has seen wide use. A city report estimates that somewhere between 11 and 20 percent of the city’s vacant rental units are being used for full-time short-term rentals run by professional operators like Alice.

Demonstrators there have picketed in front of well-known Airbnb units—from some of which, allegedly, longtime residents have been evicted to allow the landlord to operate the units as full-time short-term rentals. Photos of one demonstration showed one protester setting up Google Maps-style pins reading “Evicted” in front of short-term rental units. Activists in San Francisco have gathered signatures to put initiatives regulating Airbnb rentals on the ballot this fall.

Similar scenes could become the norm here. After all, as Orser says, “[Airbnb] is growing [in Seattle], there’s no doubt about it.” Plus, Seattle has a penchant for copycatting San Francisco’s tech backlash.

Housing advocates hope that strong regulation and taxation could be a tool to prevent growth of Airbnb to Bay Area levels here, while also raising more money for the city’s own affordable-housing efforts. “One hope is that [short-term rental regulation] raises revenue [for affordable housing], and the other is that it discourages the use of our affordable-housing stock for tourism,” Grant said.

Chris Rugh, who operates a vacation-rental business, is leery of increased tax collection. While his business pays all the taxes it’s supposed to, he claims that if further taxes were levied, “I would probably stop doing vacation rentals. At some point it becomes not profitable, and I can make more money doing regular rentals in the hot area of the city.” That’s exactly the outcome activists like Grant hope for.

However, it’s unclear whether regulation of Airbnb would be effective overall. San Francisco passed a law in February that requires hosts to register their apartments with the city. It produced laughably low numbers. The same goes for Portland, which expanded regulation of short-term rentals in January 2015.

Housing prices are not the only issue surrounding Airbnb rentals.

Airbnbs run in apartments often violate rental agreements, which typically bar subletting or the operation of a business on the premises.

Alice found that out the hard way. She was more or less evicted from one unit because of her Airbnb business. She was operating the unit full-time as a vacation rental without the knowledge of the building’s manager, who wasn’t happy to find that out. “They gave me [a choice]: either comply and stop using Airbnb or get out,” Alice says. She opted to move her Airbnb operation to another apartment—one of the two she operates now.

The other legal problem is that Alice and many other Airbnb operators often don’t pay the taxes they owe under existing short-term rental regulations. According to Seattle officials, Washington state requires vacation renters to pay B&O and sales tax to the state and city if they rent at least three times a year for periods of fewer than 30 days.

That means that small-time operators who are unlikely to get audited or who hire professional accountants don’t pay taxes on their Airbnb income. Alice certainly doesn’t. In fact, she wasn’t aware that she was supposed to pay local taxes until I asked her about it, though she does write off supplies like toilet paper on the 1099 Miscellaneous Income form Airbnb provides for her federal income taxes. (The company says it asks hosts to follow local regulations, but can’t police every rental in every market.)

Those unpaid local taxes are a problem for more legitimate vacation-rental operators like Rugh and Darik Eaton, who operate insured and taxed vacation rentals in properties that explicitly allow short-term rentals.

Eaton is frustrated that users like Alice can operate thanks to Airbnb. He claims that Airbnb makes his business, which predates the website, harder to operate. Eaton advertises on Airbnb (he estimates he gets around 20 percent of his business there), but complies with existing laws. “A lot of Airbnbs are illegal sublets,” he says. “We want to differentiate ourselves there. We often pay a premium for that—we pay higher than market rents to do that in certain apartments.”

Eaton’s issues with the service are similar to the complaints taxi operators have against Uber: The old businesses (taxis, vacation rentals) are forced to comply with expensive city regulations while the new businesses (Uber, Airbnb) aren’t; as a result, the argument goes, the latter have an unfair advantage in pricing.

Airbnb is just beginning to draw scrutiny on a national level—and it’s not clear what its impact is, whatever the rhetoric. What is clear is that the business will draw more and more attention from regulators and the public over time. Seattle, as a significant tourism, business, and medical travel destination, is likely to see the company continue to expand its operations in the city.

And there’s no telling how big Airbnb might get. No local government has shown it can even regulate the service, let alone cap its operations. The company has no reason to slow its expansion: The more bookings run through the website, the more commissions the company makes.

According to Forbes, the company is valued at $25.5 billion and is rumored to be organizing an IPO. It’s likely to be an appealing investment: unlike most tech startups, the site gets cash every day from those commissions. Plus, Airbnb’s overhead is minimal because the company doesn’t incur any expenses from running the units it advertises. Hosts pay the costs of operations (apart from web hosting and the glossy photos, which Airbnb takes, that accompany each listing) and, if they’re clever like Alice, write them off as business expenses. Hell, operators even write the copy for the places they rent out.

Seattle is already fired up about the tech boom and surging rents. Airbnb could combine those two fears to stoke an almighty backlash.

But in the meantime, you might consider renting out your apartment a couple of days a month for some spare cash, seeing as rent is getting so damn high.

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