San Francisco’s attempt to create a legal framework for Airbnb has its first court challenge, and not from either Airbnb or critics of the new law. No, a lawsuit from another short-term rental company, HomeAway, argues that the city’s new ordinance illegally discriminates against its users, who rent out their vacant pied-à-terres.
San Francisco’s new law set out to deprofessionalize the activity that takes place on Airbnb while still allowing people to make some extra cash by renting out their own homes. City lawmakers sought to achieve this goal by allowing only short-term rentals if the person renting out a space actually lives there as a primary residence. Even though the new law means that a sizable minority of Airbnb’s rentals would become illegal, the company praised it anyway.
HomeAway (AWAY) faces far bigger problems if the law goes into effect as it is written. While the two startups offer similar services, they target different demographics. Airbnb’s brand is mostly focused on rental properties for the young and hip—a crunchy alternative to hotel stays. HomeAway is unabashedly luxurious and wants nothing to do with the “sharing economy” label. It’s a place for people who own more than one fancy home to make money by opening their vacation homes to other people.
Airbnb has a much larger reach in San Francisco, with about 5,000 listings, as opposed to 1,200 for HomeAway. It has also ridden the wave of Silicon Valley notoriety to a $13 billion valuation, more than four times HomeAway’s market value, even though HomeAway’s 2013 revenue of $347 million was significantly higher than the $250 million that Airbnb brought in.
HomeAway has been feeling like the underappreciated sibling for quite some time. The company complained about San Francisco’s fixation on Airbnb while the law was being written, and the logic in the lawsuit follows arguments laid out in letters the company sent to public officials over the past several months. HomeAway claims that the residency requirement is illegal protectionism and a violation of the Commerce Clause, which prohibits states from passing laws favoring local businesses over competitors in other states. “In it’s apparently single-minded goal to ‘legalize Airbnb’,” San Francisco lawmakers “ignored the benefits of responsibly regulating a well-established industry, and embraced an unconstitutional and unenforceable regulation,” Carl Shepherd, one of HomeAway’s co-founders, said in a statement.
The courts have struck down city and state laws they deem protectionist, and HomeAway might have a point, according to Dan Coenen, a law professor at the University of Georgia who studies constitutional issues. But laws have been found discriminatory and allowed to stay on the books anyway, so long as there’s another compelling reason they exist. “If I can argue that this type of law is the best way to prevent end-arounds around zoning law, or the commercialization of residential areas, that could be upheld,” says Coenen. “That’s where with battle will be fought.”
HomeAway’s business model is also a problem under the law. Airbnb’s rentals all happen through the website: Hosts list properties, and Airbnb draws in renters, handles the payments, hosts the communications, and takes a commission. HomeAway, on the other hand, is a straightforward site for classifieds. People pay to list their homes, and anything that happens after that is up to the property owner. This means HomeAway can’t match Airbnb’s offer to collect taxes without making fundamental changes to its business model.
While HomeAway is concerned about San Francisco, it really wants to prevent a future in which one local law becomes a model for legislators in other cities. In fact, HomeAway claims its beef isn’t with Airbnb at all. Ironically, the lawsuit could end up benefiting Airbnb if it wipes the residency requirements from the books.
Airbnb is eager to discuss the proportion of its hosts who rent out the house they live in, which is 87 percent in both San Francisco and New York. But an analysis by the San Francisco Chronicle found that about a third of the listings on the site come from people who offer more than one property. Come February, if the law stands, multiple listings will be illegal. Airbnb will be watching to see whether a competitor can change that.
