New Report: Airbnb revenue in Los Angeles driven by "illegal hotels"

The American Hotel & Lodging Association (AH&LA) released Phase II of a study conducted by the Pennsylvania State University School of Hospitality Management that provides a detailed analysis of the commercial activity taking place in Los Angeles (LA) on Airbnb, one of the most trafficked short-term rental websites.  

The study builds on the national survey released earlier this year that shows a troubling trend: a growing number of commercial operators are using Airbnb to run unregulated illegal hotels.

Key findings:

• A small percentage of operators – 4.36% – listed properties for rent more than 360 days per year – just like a hotel – and accounted for nearly $80 million, more than 30% of Airbnb’s LA revenue.
• 22% of operators listed properties for rent more than half the year (180 days), accounting for more than $180 million, or almost 70% of Airbnb’s LA revenue.
• The overwhelming majority of Airbnb’s LA revenue comes from hosts renting units 30 days or more:
• 84% of operators listed properties for rent more than 30 days per year, accounting for more than $250 million dollars or 98 percent of Airbnb’s LA revenue.
• The five LA ZIP codes with the most properties listed on Airbnb account for nearly $84 million – or 32% of Airbnb’s LA revenue. The ZIP code with the most hosts and units for rent is 90291, which includes the neighborhoods of Venice, Venice Beach and Oakwood. This ZIP code’s nearly 1,100 operators earned almost $33 million in one year alone.
• If Airbnb operators in the LA region were required to follow the same tax rubric as local lodging businesses in the City of Los Angeles, Airbnb should pay regional municipalities more than $41 million in local taxes last year alone.

“In Los Angeles, a greater percentage of Airbnb’s revenue is tied to hosts who run unregulated – and often illegal – hotel businesses, listing one or more residential units for rent in the same metropolitan area to short-term visitors for a large portion of the year, if not the entire year,” said Dr. John O’Neill, Professor and Director of the Center for Hospitality Real Estate Strategy at Pennsylvania State University, who directed the research. “The growth of these commercial operators in the Los Angeles area is even more acute because they continue to expand into additional neighborhoods, from Venice Beach all the way to Hollywood Hills.”

Safety concerns

“Unregulated hotels operated in residential properties are disruptive to communities and pose safety concerns for guests and for neighborhoods,” said AH&LA President and Chief Executive Officer Katherine Lugar. “Airbnb’s unwillingness to be forthcoming with data about how its site is being used demonstrates that its ‘honor system’ for tax policy and enforcement, as they’ve proposed in LA, won’t work. To date, those in the short-term rental space have only given lip service to curbing commercial operators from using their platforms to run illegal hotels, and to insulate neighborhoods and communities from these operators. State and local governments should act to ensure a fair travel marketplace by addressing illegal hotels and commercial operators in LA.”

“These unregulated businesses are making it harder for residents to live in their own communities and are changing the long-standing residential culture and feel of our neighborhoods. And, what’s more, they’re reducing the supply of homes and driving up rents in LA’s already tight and expensive real estate market,” said Judith Goldman, Co-Founder of Keep Neighborhoods First. “These same commercial operators are undermining the social fabric that makes our neighborhoods stronger and safer.”

"I have witnessed firsthand the damaging effect of commercial landlords on the character of neighborhoods and apartment buildings in LA, including right here in Venice Beach, ground zero for illegal and unregulated hotels," said Carlos Camara, a Venice Beach resident of a nearby apartment building turned into illegal hotel. "Airbnb has long pledged that it will help cities and communities crack down on illegal hotel operators, but the results of today's study illustrate what my neighbors and I live with every day: A large and growing percentage of Airbnb's revenue comes from commercial landlords who exploit the platform to operate illegal hotels in residential buildings. With Airbnb receiving so much in untaxed revenue from these commercial operators, it's no wonder that Airbnb continues to facilitate this illegal and disruptive behavior."

Los Angeles is the second of 12 cities profiled in a series of reports that comprise Phase II of an analysis into the commercial activity being transacted on Airbnb’s platform. Phase I of the analysis (“From Air Mattresses to Unregulated Business: An Analysis of the Other Side of Airbnb”) was released in January 2016. That report revealed a troubling trend: In the nation’s largest cities, multiple-unit operators and full-time operators generate a disproportionate share of the company’s revenue – and their numbers are growing. Phase I showed that, between September 2014 through September 2015, “multi-unit operators” accounted for 19.4% of Airbnb’s LA hosts and drove 46.7% of the company’s revenue in the city – totaling over $129 million. Over 31 percent of Airbnb’s revenue (nearly $86.3 million) was derived from full-time operators who made up just 4% of Airbnb hosts in LA.

Read report here.

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