Two years ago, when the monthly rent on his two-bedroom apartment rose to $5,000 from $2,800, a 35-year-old real estate agent in Lower Manhattan had a quick fix. Rather than move, or take on some random Craigslist subletter, he listed the smaller bedroom on Airbnb, the vacation-rental website. Eventually he was charging $175 a night for short-term stays. It earned him enough to cover the astronomical rent increase, said the agent, who insisted on anonymity to avoid professional and legal consequences.
The founders of Airbnb heard lots of stories like this in 2009, during the height of the recession, when they traveled from Silicon Valley to New York to meet the early East Coast adopters of their new website. Paul Graham, the founder of the start-up incubator Y Combinator, which was Airbnb’s first major backer, wrote in an email that the company was struck by ‘’how many of their users actually needed to do these rentals to pay their rents.’’
But the agent’s relationship with Airbnb soon shifted from desperation to opportunism. Realizing the potential to exploit the difference between long- and short-term rental prices, he signed a lease on a second Manhattan apartment this summer. He now uses it solely for Airbnb, generating up to $6,000 a month in profit. Last month, he added a third rental — this one under his wife’s account. He plans to add more, he said, possibly even under phony accounts to avoid legal scrutiny.
According to the office of the New York State attorney general, Eric T. Schneiderman, almost half of Airbnb’s $1.45 million in 2010 revenue in the city came from hosts who had at least three listings on the site. There were only 119 of these users, a small minority, claiming a large share of the business. Schneiderman suspects that many hosts are violating a law that forbids apartment residents from renting out their place for less than 30 days if they are not present.
The so-called sharing economy is supposed to offer a new kind of capitalism, one where regular folks, enabled by efficient online platforms, can turn their fallow assets into cash machines. According to its fans, Airbnb, along with the car-sharing company Uber, and others, is leading us into a less wasteful, more virtuous future. In it, anyone with excess time or space — or a car and a driver’s license — can easily become an entrepreneur with little to no start-up costs. But the reality is that these markets also tend to attract a class of well-heeled professional operators, who outperform the amateurs — just like the rest of the economy.
Long before Airbnb, there was eBay. The auction site, founded by Pierre Omidyar in 1995, had plenty of skeptics at first, who saw it as little more than a glorified garage sale. But the key to eBay’s early success — and what helped it weather the dot-com crash — was its power sellers, those who made their living selling brand-new printer cartridges, mint-condition Beanie Babies and the like on the platform. The company embraced these users and made sure customers knew who they were.
The success of eBay spawned many imitators. Prosper Marketplace, which started in 2006, was described in the media as an ‘’eBay of loans.’’ The site allowed individuals to borrow money directly from other people online, at an interest rate that was lower than borrowers might pay on credit-card debt but high enough to give lenders a decent return. The venture even had backing from Omidyar, who invested through his philanthropic fund.
But Prosper, like eBay, came to rely on large players. Today, according to the company, two-thirds of the lenders on the site are hedge funds and other large financial institutions. These investors helped the platform issue $177 million in loans last month alone, three and a half times more than in October 2013.
‘’There’s a certain amount of liquidity that these large sellers inject into a marketplace that can be very helpful for the marketplace to grow rapidly,’’ Arun Sundararajan, a professor at New York University’s Stern School of Business who studies the sharing economy, told me. The competition should also help drive down costs, which helps consumers. But these marketplaces, he added, must ‘’balance the short-term accelerating their growth while also maintaining the quality, and in some sense staying true to what their consumers are looking for’’ — which might be freedom from big banks, or the stultifying sterility of budget hotels.
Still, commercial operators seem to appear wherever the opportunity arises. Juliet Schor, a sociology professor at Boston College who is studying the sharing economy for the MacArthur Foundation, said she discovered evidence of ad-hoc temp agencies on TaskRabbit, an online market for farming out errands and chores. For gigs like copy-editing or proofreading, she said, people who rate highly on the site and get a large volume of requests sometimes subcontract their work to others, taking a bit off the top for themselves.
Getting ahead on Airbnb is much more simple: just sign multiple leases in desirable locations. Of course, that requires upfront investment and financial savvy. But once it’s up and running, an Airbnb rental network can become seriously lucrative. One operation of 272 listings booked $6.8 million in revenue from 2010 through June of this year, according to the attorney general. The economic forces at play are similar to what the French economist Thomas Piketty discusses in his recent blockbuster book, ‘’Capital in the Twenty-First Century,’’ only in miniature. In a slow-growth economy, Piketty argues, wealth delivers better returns than labor, so those with wealth to invest in things (like, for example, rent-earning apartments) will tend to get wealthier; those without probably won’t. Listing a spare room on Airbnb might keep you current on your always-climbing Manhattan rent, but real entrepreneurship (as always) requires real dough.
As Schneiderman has put pressure on Airbnb, large operations have been disappearing from the site. But it still derives about one-third of its revenue in New York from users with three or more listings. And these Airbnb pros have taken up arms. Another New Yorker, a 49-year-old entrepreneur (who also insisted on anonymity), got his start on the site after shareholders pushed him out of the information technology company he had founded, leaving him without a source of income. ‘’I would have been dead,’’ he said.
But after renting out his apartment on Craigslist and through word of mouth, he signed up for Airbnb in early 2011, with a plan to make short-term rentals his full-time job. He signed leases on former factory spaces in Lower Manhattan, renovating them and listing them on Airbnb. At his peak, he said, he managed 12 listings and hired a team of cleaners, greeters and handymen to keep his scatter-site hotel operating. His relationship with Airbnb, however, turned sour when Schneiderman sought data from the company about operators like him.
Now, he is leading a group of users suing Airbnb to prevent it from handing over the information. The group’s name embodies that vast gulf between Airbnb’s radical promise and its reality: New Yorkers Trying to Make Ends Meet in the Sharing Economy.
And who would want to stop a man with 12 apartments from making ends meet?
William Alden is a reporter for The Times’s DealBook.
This entry passed through the Full-Text RSS service – if this is your content and you’re reading it on someone else’s site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.
Powered by WPeMatico