December 08, 2018 Article

The Dark Side of the VRBO Industry

By Kimberlee Gee

The hotel and lodging experience for the modern-day traveler is different from previous generations. In just about every market, hotels are being pushed to find new and innovative ways to stay competitive because of alternative lodging platforms that offer options for consumers looking for short term rentals ranging from single rooms to whole houses. The crisis faced by traditional hotels is in part fueled by the wants and needs of the new consumer. Millennials comprise a large segment of travelers in the United States, and of those surveyed 70 percent said that travel is “core to their identity” and 65 percent asserted “regular travel is an important part of my life.” These same millennials also stated they are looking for a unique travel experience that will allow them to “live like the locals do.” One must also account for the fact that many travelers, not just millennials, are tech-savvy and therefore looking for methods to secure lodging accommodations in an efficient, user-friendly method, while also getting the biggest bang for their buck. 

The emerging trend of vacation rentals by owners (VBROs) (i.e, Airbnb, Home Away) has been able to meet and serve the needs of this new client type in a way that traditional lodging providers do not. Using peer-to-peer lodging often allows the buyer to purchase from a variety of options through an online platform, and at a much lower price point. The VBRO niche has seen incredible growth over the past twenty years for this very reason. The industry has grown so much that some hotel experts are expecting it to overtake the hotel industry entirely by the year 2020. A CBRE3 study has found, "Airbnb accommodations now account for 9 percent of the total lodging units in the 10 largest U.S. markets and appear to be adding units at a substantially faster clip than the U.S. hotel industry." According to Goldman Sachs Investment Research, those who stay in peer-to-peer lodging are nearly half as likely to return to traditional hotels.

Although vacation rental brands are popular and profitable, they have been plagued with many problems—from concerns about affordable housing to fears that hosts are spying on guests. Many peer-to-peer lodging platforms have also garnered notoriety for alleged discriminatory practices, which the company overseeing the platform either failed to monitor or failed to correct once they were provided notice of these problems. Prospective customers have publicly complained that they have been rejected by owners because of their race or ethnicity with little intervention by the lodging platform or parent company.

Although bias can be more easily regulated in a traditional hotel-customer purchase transaction, which might take place offline or by phone, the new peer-to-peer lodging platforms often make race and ethnicity visible to both providers and users by requiring that they create profiles that include names, photographs, and other identifying information. These profiles may enable discrimination even if the parties never meet in person or speak on the phone.

Take for instance, the case of Gregory Selden, who filed a racial discrimination suit against Airbnb in 2016.SeeCase 1:16-cv-00933 (CRC). Selden tried to book an Airbnb listing for a vacation and, as required, his profile included a photograph of his face, as well as other information like his name, age, and education. After his request was rejected twice by the host, Selden saw that the host had not removed the listing and that the home was still available for the same dates he had previously requested. Selden then created two fictitious Airbnb accounts with nearly identical information to his own, with profile pictures of white individuals. When the host accepted requests from both fake accounts, Selden contacted Airbnb, but received no assistance from the company.

In 2016 #airbnbwhileblack also started trending on Twitter with other people of color coming forward to criticize the business over the fact that they had also faced similar discrimination with no help or intervention from Airbnb. These criticisms are not wholly anecdotal. A January 2016 study by the Harvard Business School found that Airbnb users with “distinctly African-American names were roughly [sixteen] percent less likely to be accepted as guests than those with distinctly white names.” Studies find this discrimination occurs among landlords of all sizes, including small landlords sharing the property and larger landlords with multiple properties.

Following this scandal, Airbnb put in place a number of product and policy changes, which included creating an “Open Doors Initiative” and onboarding former U.S. attorney general Eric Holder and former ACLU official Laura Murphy to work with the company in addressing bias and promoting diversity. Airbnb recently announced in mid-October that it would be implementing further changes to eradicate racism on their platform by prohibiting rental hosts from requesting a guest’s photo before accepting a booking agreement.

There are still some lingering challenges to fighting discrimination in vacation rental platforms, however. There are certainly “public accommodation” laws that protect consumers from discrimination in housing, such as Title II and Title VIII (the Fair Housing Act) of the Civil Rights Act of 1964 and the Civil Rights Act of 1968, respectively—both prohibit discrimination in any public accommodation based on race, color, religion, sex, or national origin. But in this modern day, the traditional concept of a “public accommodation” has vastly changed, and Section (e) of Title II specifically carves out “private” clubs and other establishments from its coverage. 42 U.S.C.A. § 2000a(e). There is also a boardinghouse exception that states as long as an owner is renting out no more than five rooms, and the establishment is also his residence (i.e. he or she lives in the same home where he or she is renting rooms) that establishment is not considered a “public accommodation.” The Fair Housing Act (Title VIII) has a similar exception—the “Mrs. Murphy Exemption”—which provides that if a dwelling has four or fewer rental units and the owner lives in one of those units, that home is exempt from the FHA. The Mrs. Murphy exemption was based on a freedom of association, or dissociation rather, and having the right to choose who you wanted in your home in intimate encounters. Many peer-to-peer lodging platforms have used these exemptions and challenged the assertion that a person who rents out their home through a larger platform is offering a “public accommodation,” stating that both the host is exempt from the discriminatory prohibitions under the act, and so too is the lodging platform entity through which the host facilitates the renting of his or her home.

While public accommodation laws were traditionally geared to cover a broad swath of accommodation venues—like hotels, restaurants, bars, retail businesses, or movie theaters—the laws were essentially established to prohibit discrimination by establishments open to the public. When developing the public accommodation discrimination laws, neither legislators nor the public could have possibly contemplated an Airbnb type of accommodation coming under its umbrella. Airbnb represents a new housing category; a hybrid of accommodation—both public and private in function. While Airbnb hybrid are accommodations that are publicized and open to the public, they are facilitated and function through one-on-one private transactions between the renter and owner.

In the context of a “shared economy,” many who wish to bring claims of discrimination against VRBOs pursuant to the public accommodation statutes have had to find creative ways to apply the law. Many have argued that large peer-to-peer renting platforms, such as Airbnb, should not be able to make use of the boardinghouse exception in the public accommodation laws because they are more akin in nature and function to a hotel or a real estate broker. The argument goes that Airbnb, the company, is actually the host and the actual owners of the properties are just agents of Airbnb. Because Airbnb is a global entity with nearly $2.7 billion valuation that rents outs thousands of rooms every day, they cannot possibly liken themselves to a small boardinghouse for which the FHA and Title II exceptions were originally developed. Furthermore, because of the nature of these types of commercial transactions, it undermines the freedom of association argument that seemed to be the intent and driving force behind the Mrs. Murphy exemption when it was created. That is, if you make a global advertisement that you are renting out a room in your house, you cannot concomitantly make an argument about traditional intimacy and right to associate, as you are assuming you could be associated with anyone from anywhere in the world.

Finally, because the peer-to-peer platforms often serve as transactional intermediaries—by facilitating host and guest introductions and information exchange, managing payments for rooms, ensuring that guests pay appropriate local hotel taxes, and contracting for insurance against damages to these properties—the online platforms have also been considered a functional equivalent to a “broker.” As a broker, these online platforms would be subject to the provisions of the Fair Housing Act and would not be allowed to discriminate in marketing or advertising a short-term rental property on its site.

Is the owner’s home now a business? Considering that the owners have willingly made their homes available for public use, many will continue to argue that these homeowners should be held to all the laws that govern hotels and other public entities as they relate to discriminatory practices. Since VRBOs do not fit squarely in the realm of public regulation, there will continue to be a forceful push for legislators to develop a new legal scheme to deal with discrimination in housing, specifically as it applies to peer-to-peer accommodations. This is a burgeoning area of law that will continue to evolve, and only time will tell if VRBOs will replace traditional hotel lodging options and are considered to fully fall under the “public accommodation” laws that govern them.

Kimberlee Gee is a founding member of Kimberlee Gee Legal in National Harbor, Maryland.

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