Short-term rental industry must do a better job vetting travelers

In July 2011, I got a call from Brian Chesky. HomeAway was six years old, having been formed by acquiring the grand dames of the online vacation rental industry. What, he asked, did HomeAway do when a guest tried to destroy the home?

That had never happened. I asked the founders of GreatRentals, VRBO, CyberRentals, A1Vacations and HolidayRentals how they handled a psychotic renter. Never happened. That destruction of an apartment in San Francisco in 2011 was ground zero for crazy in the short-term rental industry.

Before the advent of online booking, guests in vacation rentals had been vetted by the owner or a professional, communicating directly, often running background or credit checks before signing a legal agreement. The owner wanted to know who he or she was renting to. That didn’t scale. Today, online travel agencies require guests to register and then allow hosts to review renters. That is not vetting: That’s a product.

Close to 80% of today’s travelers have stayed in a vacation home. With millions of people seeking a short-term rental (STR), the owner today is renting to someone who is essentially unknowable, uncontrollable and when undisciplined, almost undetectable.

No one should be surprised that, from time to time, someone’s home will be used for a porn production , or that terrorists will use a rental as their base before an attack, or that there will be parties that lead to violent altercations, such as the Easter Sunday shoot-out at an Airbnb in Pittsburgh that left two people dead.

And then come the calls that Airbnb (or Vrbo or Booking.com) is not doing enough, that they should do more, that the sky is falling, and we must ban STRs or put in stricter rules.

Who is responsible?

OTAs cannot catch the problem guest before check-in. OTAs are rewarded for conversion of bookings, not by keeping people from renting. Sure, online reviews of guests help, but evidence proves they are no substitute for a full vetting of the person about to move into an owner’s home.

Cities rely on regulating roulette. It doesn’t work. They become fixated on regulating STRs out of existence as a solution to “party houses.” Prohibition never works. History is clear there is no rule a city can make that a host won’t ignore. And there is not enough tax money to police every STR in town.

Professional managers can’t catch bad renters, either. Most guests originate via an OTA, and as managers automate the process there are fewer eyes on the guest before check-in, fewer opportunities to pick up dangerous vibes and more incidents of bad behavior going undetected until the problem is so huge that it hits the metaphorical front pages of national publications.

One thing is clear: Hotels are not the model here. Hotels must rent to anyone who can pay them, so they focus on security. Many have security guards and can call the police when needed. Unruly guests are a frequent occurrence. STR hosts are on their own, and most property managers cannot afford to field a security team to work a beat and see every property every day - whether there are 1,000 units along a 40-mile stretch of beach or only 15 units spread across a large city.

The more things change, the more things stay the same: Today, as always, it is the property owner who risks the most from a bad guest and who has the biggest interest in vetting the renter. So why have OTAs taken that ability away from them?

With so much supply chasing demand on OTAs, owners have lost the ability to use the few good tools they had to vet guests. The booking window continually shrinks; time is of the essence if a host wants to maximize bookings. Guests are largely unknown to hosts until after the booking has occurred.

Replicable solutions?

The people at risk need help. Thankfully there are models out there for us to consider.

Banks and financial businesses are subject to “know your customer” regulations. The institution closest to the customer can best discern whether that guy in the business suit is a terrorist, a money-launderer or a dentist looking for a checking account. They take copies of ID, conduct credit checks, limit the amount of cash that can be deposited or withdrawn, etc. If a money launderer slips through, banks have liability.

The long-term rental industry takes reasonable efforts to know the customer: Companies conduct background and credit checks for long-term renters, get references and verify income from employers. They can rescind the lease and evict the tenant if he or she lies. They have time to use the tools.

The Global Entry program to speed people through passport control in the United States holds lessons for the STR industry. After being vetted and paying a five-year fee, a returning traveler walks almost seamlessly through passport control. Those without Global Entry wait in line to be interviewed in person. It’s faster for everyone.

But in 2022, the industry still collectively rolls the dice every time an STR is rented. Where could following these models lead us?

Cities need to know the customer, in this case the property owner. Cities need to re-think who they want operating an STR and stop trying to raise fees when they have demonstrated they cannot adequately police short-term rental abuse. They should focus instead on incentivizing STR owners to register so they can help them, not to construct hurdles to shut them down for any infraction. Stringent regulation drives STRs underground; always has, always will. Underground activity is always less safe.

OTAs should rethink taking listings from people who do not own the property or are their registered property manager. When someone is arbitraging long-term rent vs short-term rental rates, they have less risk; their investment pales in comparison to that of the actual owner of the property.

Finally, the industry needs to model banks, long-term rental companies and Global Entry to create a way for guests to be meaningfully pre-vetted, to wear an “approved” badge, if you will. And because being pre-approved would have privileges in the industry, vetted guests will want to avoid having that privilege revoked and think twice before hosting a party for 200 people they don’t know.

Unvetted guests should be sent on a different path, from booking through check-in, where those responsible for the property take reasonable steps to ensure that guests are who they says they are, have only the number of additional guests they have disclosed, etc. If the guest wants to move faster, then he or she can do what it takes to get vetted and pre-approved.

Who’s going to pay for this? Well, the industry will pay one way or the other. The cost of vetting guests is knowable and can be planned.

On the other hand, if party houses are not shut down, if properties continue to be used by bad people for bad purposes, if people die violently in vacation rentals, then cities will feel more justified in draconian regulations. It makes sense for our industry to construct something that is within our control, before we watch city after city simply decide the human cost of having STRs operate is too great for the public to continue to bear.