The money municipalities don’t know they have coming How Airbnb could impact the New Jersey economy

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Suzanne and Jeffrey Cameron bought their three-story townhouse with a garden apartment in Jersey City back in 1998, when they were looking for a place for them and their two young boys that was near New York City.

Sixteen years later, when their young boys were young men — and both away at college — the Camerons realized they had more space than they could use.

A friend suggested they try renting out their garden apartment on Airbnb. It’s been the best financial decision they ever made.

With a list price of $95 dollars a night (less for long-term stays), the Camerons have had no trouble finding takers. They are booked for months out. And, at the end of the month, they average a $500 profit.

That’s a $500 profit after paying off their mortgage, insurance and local property taxes.

“It has become a cash cow for us,” Suzanne Cameron said.

It may soon be for Jersey City, too.

The municipality became the first in the state to set up a system for taxing home-sharing: An Internet-age business model in which owners can rent out rooms or their entire residence for a few days a year or on a full-time basis.

In March, Jersey City will get its first revenue from the 6 percent hotel tax that will be added when anyone pays to share a home in the city.

Ryan Jacobs, the spokesman for Jersey City Mayor Steven Fulop when the deal was announced, said the city expects to receive up $1 million from this tax in 2016 — providing a roughly 15 percent increase to the $6 million in taxes it will receive from traditional hotels.

More money for residents. More money for municipalities. It appears to be a win-win for all involved.

If only it were that simple.

***

Let’s start at the beginning.

The origin of Airbnb goes back to 2008, when Brian Chesky and Joe Gebbia — young industrial and graphic designers in San Francisco who were struggling to pay their rent — decided to rent out their unused loft space with air mattresses when a convention in town had taken up all of the nearby hotel rooms.

They quickly saw a market for the business, brought on a third founder, created their own app and struggled, but eventually raised millions in venture capital funding. The company is now valued at $25 billion, with more than 2 million listings in 34,000 cities in 192 countries.

The company pays taxes on its earnings — as do the owners of the dwellings on the site. The only group losing out are municipalities. Fixing that problem isn’t as easy as it sounds.

Company spokesmen Chris Nulty and Max Pomeranc both insist that Airbnb is eager to pay all applicable taxes — monies they agree need to be collected. There’s no fight, here.

And they insist Airbnb will handle all of the paperwork and collection that comes with it.

How much any of that is remains the question — one with few definitive answers in every municipality in the state except one.

“We’re excited about what’s happening in Jersey City,” Pomeranc, the company’s East Coast head of public policy, said. “We’re excited about the process there. This was about land use and zoning codes. Often, it comes down to zoning codes, which are often older than we are. And often there are updates necessary to allow people who want to rent their homes to do so.”

Nulty, the company’s public affairs lead for Eastern North America, said the company has made educating both renters and local officials a top priority.

“We need to work with the individual towns and cities to make sure they have the tools and information they need to craft the sort of legislation that’s right for them,” he said. “One of the biggest roles we can play while working with local government and our host communities is educating both parties.

“Educating governments about the sort of activity that happens on our platforms: how frequently people are sharing their homes, how much money they are making doing that?” he said.

Airbnb was not able to provide estimates as to how much money changed hands in New Jersey in 2015, but it did say the state had more than 5,000 residences available during the year. It’s a number, Pomeranc says, that often shocks local officials.

“I’ve had my share of meetings with local officials who have downloaded the app and called up their city and just said, ‘Wow,’ ” he said. “Most mayors don’t even know this is happening in their towns. So it’s found money for the cities.”

Not everyone involved needs to be educated.

***

Mark Giangiulio is the general manager of the Grand Summit Hotel in Summit and the chairman of the New Jersey Housing and Lodging Association.

He and his members know all about Airbnb. And they’re not happy.

They feel the company is able to eat away their profits because it has an unfair advantage — one, he said, that makes it unsafe for consumers.

“My main concern is that they’re not following the same rules, same licensing, same regulations, same fire codes, same health inspections — all while not having to pay the fees associated with it,” Giangiulio said.

“From sprinklers throughout the premises to all of the updates needed because of the (Americans with Disabilities Act) — all the things hotels have to follow — they don’t.”

Because of it, Giangiulio feels the company is hurting the state’s economy.

“They are eating away at the marketplace that’s overly saturated,” he said. “And this is not a normal business — they have no employees. Are they creating jobs? The answer is ‘No.’ ”

Airbnb has fought — and is currently fighting — issues all over the world.

In San Francisco, there are disputes about limiting short-term rentals. In Los Angeles, there are concerns about how it may be hurting the availability of rent-controlled apartments. In New York City, there’s a movement to ban their listing.

The latest came earlier this month, when the company was criticized for having listings in disputed settlements on the West Bank in the Middle East.

Airbnb officials say they defend the company one case at a time — and feel most of the complaints against the company stem for one basic issue: A lack of understanding of what Airbnb does.

“The hotel industry has made it clear that they are concerned about our growth and they are funding things (in opposition to us),” Nulty said. “But we have made it clear where we stand. We believe that this doesn’t have to be a zero-sum game.

“There has been dramatic growth in the travel industry over the last few years. Business travel has exploded. If you look at hotels in major cities, they are at high-capacity levels they haven’t seen in decades. We think there is room in the market for both of us to grow. And if you look at the market, it’s been demonstrated time and again.”

Pomeranc said misconceptions are the issue — and that’s why he’s working to change the view of how the company operates.

“It’s new and it’s different,” he said. “And if you’ve been in the hotel business, it scares you. But when you dig into it more, it scares you less.”

Company officials feel more and more cities are seeing the company for what it is and what it can bring municipalities: more tax revenue and more economic growth.

Airbnb feels as if it’s making its case.

***

The city of Philadelphia had many seemingly outdated regulations on home sharing, some based more on 18^th century values than the 21^st century economy.

That has all changed.

The papal visit last September coupled with the Democratic National Convention this July meant the city had two major events that were going to bring in far more visitors than the city’s hotels could possible handle.

It worked with Airbnb to create new policies to help with the overflow of people, many of whom stayed or will stay in South Jersey units.

“Philadelphia was a great example of how we can all work together,” Pomeranc said. “The hotel industry actually spoke to in favor of it to the (city) council.”

Nulty said being able to supply supplementary housing for a major event is one of the things the company does best, saying it expects to be a huge part of the process for the 2016 Summer Olympics in Rio de Janeiro — following up on its impact on the 2014 World Cup there, when Nulty said the company estimates that one in five visitors stayed at an Airbnb location.

Both Pomeranc and Nulty said the company did plenty of business around the Super Bowl in New Jersey in 2014 without having a specific plan in place. And they said the company has not talked with any municipalities in regard to preparation for the PGA Championships coming to Baltusrol in Springfield this summer.

But they are eager to.

“We want to work with cities on large events,” Nulty said. “It’s something we’re thinking more and more about. I’m not aware of any conversation we’ve had with the PGA event in Jersey, but this is the sort of thing where we feel we can be a real strategic partner to a city to provide that elasticity that enables them to house a large infusion of people over a short period of time.”

The business model, however, is not built around major events. It’s about offering a different way for people when they are traveling.

And while the accommodations are almost always cheaper than a hotel, Airbnb officials feel the company is putting more money into local economies — and will be even after all taxes have been properly collected and paid.

“We need to start conversations with cities, explaining who is doing this and talking through the economic benefits,” Pomeranc said. “In addition to the benefits that come with sharing your home to pay your rent or your business, there’s a whole swap of benefits that come to light for small businesses, because many of our travelers don’t stay in traditional hotel districts, so small businesses who are not in the traditional hotel districts, from restaurants to coffee shops to the corner store, see a whole lot of benefits.”

Nulty said it’s a matter of percentages.

“With Airbnb, 97 cents on the dollar stays in the community that you are staying in and stays with the host,” he said. “If you stay in a hotel, it drops to 50-something percent. To us, it’s a pretty clear choice. And that’s if it’s a zero-sum game, and we don’t think it is. We think there’s room in the industry for growth for both of us.”

Call it the modern-day economy.

***

Airbnb is not Uber.

It’s easy to make the comparison. Both are disrupters of longstanding business models. And both are businesses that essentially run off an app on a smart phone.

The differences are striking.

Uber needs to decide which communities it wants to participate in because it needs a fleet of potential drivers to have impact. Airbnb just needs one residence to be available one night of the year to be in an area.

And then there’s this: Driving in an Uber car does not impact other citizens; sharing your home can.

Dave Brogan, the executive director of the New Jersey Apartment Association, says that aspect cannot be overlooked.

“Apartment living is community living, so actions taken by one resident can and do affect other residents,” he said. “Restrictions on subletting benefit the residents in a community by ensuring that everyone has undergone the same screening process and that the building does not start to feel like a hotel with new people coming and going with their baggage.

“Our members professionally manage their properties and there are screening procedures in place that protect the residents, the owners and the property itself.  Our members’ biggest concern is to ensure that any lease provisions that prohibit subletting of apartments remain in effect, regardless of any local ordinance authorizing, regulating and taxing Airbnb or any similar service.”

Airbnb officials understand the concern and point to the company’s vetting and review service — which can and has blocked both renters and rentees from participating — and the company’s $1 million liability insurance that comes with all transactions.

And while there have been some instances of homes being rented turning into wild parties, the company says the percentages are on its side.

“We had 17 million guests from Memorial Day to Labor Day last year and we received 350 high-urgency calls,” Nulty said. “This demonstrates the scale of how infrequently we hear about serious concerns.  The conversation here shouldn’t be any different than if a neighbor hosts a party.”

Suzanne Cameron’s guests have not been a problem in the 18 months she has been participating.

In fact, she said, she and her neighbors usually don’t realize they are there.

“The people that come in are a lot of Europeans or professionals,” she said. “They usually get up early in the morning and they have their days so scheduled they are not around much. They take the private separate apartment because they are on a business trip or a vacation and they don’t want to be bothered.

“Out of a year and a half, we’ve entertained maybe three of our 50 or so guests. They may show up with a bottle of wine and say, ‘Do you want to have dinner?’ Often it’s because they don’t know anyone in the area and just want some company. But for the most part, they want their privacy.”

The question is: Can this model be repeated throughout New Jersey?

***

Airbnb officials say the company has had discussions with leaders of many municipalities across the state.

They were not willing to share details on most, but did say they expect to have an agreement with Newark in 2016.

And while doing so would give them agreements in the state’s two largest municipalities, it doesn’t mean others will easily follow. Each area, they say, has different issues and concerns.

“There’s no better example than in New Jersey, where the regulations you would need on the Jersey Shore would be different than urban areas such as Jersey City or Newark, where the housing market and housing needs are dramatically different,” Nulty said.

And the potential financial benefits, Airbnb officials repeatedly point out, do not just go to the cities.

“The vast majority of our hosts are sharing their primary residence, whether it’s a room in their home or their entire residence when they are gone,” Nulty said. “They are taking what is traditionally their largest monthly expense and turning it into an economic opportunity. They are monetizing something that they wouldn’t otherwise be able to monetize.

“Our community is overwhelmingly middle class, so we are talking about creating an economic pipeline for people who previously didn’t have the opportunity. When you think about real estate investment, it has long been preserved for the wealthy. We have created opportunities for anyone to take what is their greatest monthly expense and turn it into a way to pay bills.”

Of course, paying bills is a big incentive for cities, too.

Jersey City officials said they have received calls of inquiry from other municipalities to get a better understanding of what the city is doing and how it will benefit.

It will not, it appears, be getting calls of complaint.

At least it won’t from the state’s hotel and lodging association. Battles with Airbnb may not be fought in New Jersey, Giangiulio said.

“There’s no campaign to stop them,” he said. “We just have to deal with them as competition.”

Nulty said Airbnb is ready for the competition — and willing and eager to wage it on equal terms.

“The current laws and regulations that sometimes challenge people’s ability to share their homes were not written with home-sharing on an Internet platform in mind,” he said. “We’re working to change that, to update that.

“But you have to remember — this is not a new idea. People have been sharing their homes since the dawn of time.”

Or about as long as local governments have been collecting taxes.