Aribnb's 'party house' problem could spoil its public listing. Here's why its new rules to stop the rowdy blowouts might not even work.

airbnb brian chesky

Add one more “risk factor” to the upcoming prospectus Airbnb
will release when it makes its stock market debut next year: Party

The home-sharing service has built a booming business by making
it easy for anyone to rent their homes to vacationers or business
travelers looking for an alternative to a hotel. But the instant
and easy access to homes has also caught the notice of teens and
others looking for a place to throw wild parties. 

Last month, one of these party house rentals turned tragic when
a shooting at an Orinda, Calif home left five people dead. As many
as 100 people were at the house for a Halloween party, despite an
explicit ban by the homeowner on renting the home for parties,
according to
the Associated Press

The incident set off a furor and Airbnb CEO Brian Chesky has
vowed to crack down on the problem,
unveiling new verification and support policies Wednesday
he said would stop “bad actors” from abusing the trust the business
has established with users.

But the policy changes are largely reactionary, coming after
numerous problems at Airbnb party houses over the years. And many
people that Business Insider spoke to were skeptical that the new
rules would do much to actually stop Airbnb party houses.

“I think it’s great that Airbnb is taking some action to rein in
the most extreme cases of so-called party houses. But it should not
have taken a multiple homicide incident for that to happen,”
University of Texas assistant professor Jake Wegmann told Business
Insider. Wegmann’s research focuses on the impact of short-term
rentals on local real estate, and he
published one of the landmark studies in 2016
that found the
existence of Airbnb in San Francisco increased market rents. 

As Airbnb, which has been valued as high as
$31 billion by private investors
, moves closer to a public
listing, its party problem has become a high-priority.

Verification, refunds, and high-risk reservations

The new rules
laid out by Chesky involve four key changes:

  • Verification of all 7 million Airbnb listings to ensure the
    site listing is an accurate representation of the rental.
  • Rebooking or refunding guests who book locations that are not
    up to the new verification standards.
  • A 24/7 hotline and prominent customer support phone number for
    guests and neighbors near Airbnb listings.
  • Screening of reservations that are deemed “high-risk” to deter
    unauthorized parties.

In addition, Airbnb said it has hired two former law enforcement
officials as advisors to help the company combat the range of
abuses and problems that can occur with short-term home

According to American Family Voices president Mike Lux, the home
rental startup rewards absentee property owners that have limited
interest in screening guests. American Family Voices sponsored the
anti-Airbnb advocacy group Airbnb Watch, which chronicles Airbnb’s
negative impacts on local neighborhoods and real estate. 

“I don’t exactly understand honestly what they are doing with
that rule,” Lux said. “They are making a lot of noise about it, but
I don’t know how they are going to enforce it.”

A homeowner renting a basement out on the weekends is
incentivized to screen potential guests, Lux explained, but a real
estate “speculator” with multiple units is incentivized to get as
many guests in each unit as possible to maximize profits. This is
what leads to so-called party houses, and until hosts feel the
pressure from Airbnb, they will continue to operate in their own
interests, Lux said.

“I do know that ultimately the problem isn’t solved unless you
stop multi-unit operators,” Lux said. “That’s what will stop this
wild party house problem. They need to monitor hosts and guests
better, and they should take more responsibility when something
goes wrong.”

In the case of the Orinda house, it’s unclear whether the new
policies would have stopped the unauthorized party. According to
the Associated
, the unit had been rented by a woman who claimed her
family members were concerned about health effects of the nearby
wildfires in Sonoma County. The owner, Michael Wang, had received
multiple citations from city officials for exceeding the home’s
capacity in the past
according to The San Francisco Chronicle
, but it’s not clear
whether Wang owned multiple rentals in California’s Bay Area. 

According to Lux’s group, there have been more than 30 news
reports about violent incidents at Airbnb parties in recent months,
including shootings at similar “party houses” in St. Paul, Minn.,
and Los Angeles, Calif. and other cities. 

Just weeks before the Orinda incident, a woman was shot in the
arm in Arizona at an Airbnb house party,
according to the Phoenix Fox television station
. In May, an
18-year old was shot at a party in a Seattle home that had been
rented on Airbnb,
according to local media.

The Orinda Police Department couldn’t comment on the specifics
of the case as the search for the shooter is still ongoing. Airbnb
has a contentious relationship with its hometown, inspiring
legislation from San Francisco Supervisors Aaron Peskin and David
Campos to fine the company $1,000 each day for unregistered
listings. The company settled with the city in 2017 after a lengthy
public fight to repeal the regulation.

“Three years ago, we said the law being passed, which was
written by Airbnb, won’t work because there was no skin in the game
in terms of enforcement,” Campos told the
New York Times in 2017. of this city’s relationship to

Going public in the face of local scrutiny

Airbnb has clashed with local governments before, and has
continuously fought local legislation that sought to limit the
company’s influence or
applied short-term rental restrictions
and taxes at city or
county levels. On Tuesday, the company suffered a stinging defeat
in New Jersey as voters overwhelmingly approved stricter
regulations for short-term rentals, legislation that Airbnb
publicly opposed, according to the
New York Times.

The company’s relationship with local governments will be
critical as Airbnb tries to sell itself to public investors. Airbnb
has said it plans to list its shares on the stock market by 2020,
either through a
traditional IPO or direct listing.

At a time when other richly valued startups like Uber and Lyft
have struggled in the public markets, Airbnb will face significant
scrutiny around its business prospects and the various risks it

“Surely this casts light on the need by potential investors to
fully understand what, if any, liability issues this or any other
‘bad behavior’ on the part of renters raises for the company,” IPO
consultant and financial advisor Lise Buyer told Business

For Lux, the Airbnb critic, it comes down to the company taking

“If you put up a mega-platform like this that allows people to
do business in this way, you absolutely have to take responsibility
as a company,” Lux told Business Insider. “You can’t let pure
libertarianism run amok. That can’t be the way society

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Aribnb's 'party house' problem could spoil its public listing. Here's why its new rules to stop the rowdy blowouts might not even work.