Other cities take note as New York City tells Airbnb: Fuhgeddaboudit

This story is republished from Stateline. Read the original article.

NEW YORK — As New York City’s busiest tourist season approaches—with travelers visiting holiday attractions across the city and the famed New Year’s Eve ball drop—the options of where to stay are shrinking.

For years, it has been illegal for homes in New York City to be rented out for fewer than 30 days. However, the ordinance was hardly enforced. And many property owners earned money through the rise of short-term rentals.

But the city in September began enforcing a new ordinance that requires short-term rental hosts to register with the city. The ordinance, which passed in January 2022 but had been held up in court, also ices out market juggernauts Airbnb, Vrbo and similar platforms from processing transactions for any unregistered short-term rentals.

Hosts can get city approval to offer short-term rentals only if they are on the premises during the visitors’ stay, and if the number of guests is limited to two. That’s expected to severely limit the number of available rentals, since few hosts are willing to meet those requirements.

In recent weeks, thousands of New York City short-term rentals have vanished from Airbnb’s webpage, and on Dec. 2, the company will cancel and refund all reservations for unregistered rentals made through the portal. The city and company had agreed to allow all previous reservations with check-ins by Dec. 1.

The aim of the crackdown is to return thousands of possible long-term rental units to the city’s housing market, which is short on available and affordable options.

If New York City’s approach is successful, policy experts think other cities might emulate the city’s restrictions. But the city faces an uphill battle in meeting the sizable demand for short-term stays; tourism promoters predict 63.3 million visitors this year, and hotel occupancy hovers near 90%. And many observers doubt whether such limits would significantly reopen housing units to long-term tenants.

Officials from the Mayor’s Special Office of Enforcement, the agency tasked with registering legal short-term rentals in New York City, told Stateline that there are slightly more than 800 licensed short-term legal rentals entering December. In August, there were nearly 22,000 Airbnb short-term rentals alone.

More than 5,170 applications had been submitted to the office as of Nov. 20, with about 500 denied and more than 1,700 sent back to applicants for added information or to “correct deficiencies” in the application.

Jorge González, a researcher with the Urban Institute, a nonprofit think tank, said the success of New York’s crackdown will depend on whether hotels can pick up the slack.

Rentals and Housing

The nation’s housing crunch has many officials blaming short-term rentals for taking shelter off the market. A 2016 article in the Harvard Law & Policy Review suggested that short-term rentals “[reduce] the affordable housing supply” by removing long-term rentals from the housing market and keeping local residents from moving in.

Dozens of localities throughout the United States have regulated short-term rentals.

But none has gone as far as New York City.

“The law and rules effectively ban short-term rentals in New York City and are a stark contrast to cities around the world that have enacted fair and balanced short-term rental rules,” wrote Theo Yedinsky, Airbnb’s global policy director, in a June letter on the company’s website.

Airbnb says it worked for years to find a compromise.

“These rules are an outlier and stand in contrast to the approach of other cities around the country, going as far as to prohibit New Yorkers from sharing their homes when they are away for work or travel, hosting more than two guests at the same time, and requiring that they must certify they understand numerous lengthy and complicated city codes,” the company wrote in a prepared statement in response to Stateline.

González said policies to regulate the short-term rental market in both domestic and international cities have varied, from capping the length of a rental stay to restricting the number of guests to requiring the host to be on the premises.

“If New York City’s policy is successful, it could embolden other cities to follow suit and use this as a way to not only rein in this industry, but possibly address these long-term rental housing crises,” said González. “I think there will be a lot learned in the next few weeks and months on whether this is an effective policy measure.”

One of the consequences of the city’s crackdown on Airbnb listings is already taking shape. More than 90% of the city’s current Airbnb rental stock of nearly 40,000 units—of which 3,746 are short-term rentals—is unlicensed, according to Inside Airbnb, a housing activist group that tracks the platform’s data.

The fear of rising hotel prices and the dearth of legal rentals are prompting some tourists to turn to short-term rentals listed on Craigslist, part of a burgeoning alternative market of unregistered, unlicensed short-term rentals in the wake of the city’s restrictions.

For travelers such as Dustin Smith and his fiancée, Carly Barnes, it’s worth the risk when they visit New York City for the first time on Dec. 21 for a two-week stay.

“New York is already stretching our budget just to eat and sightsee, so if we can get a good deal on the internet, without paying an arm and a leg for a hotel, we’ll take that chance,” Smith, who lives in Louisiana, told Stateline.

Christian Klossner, executive director of New York City’s Office of Special Enforcement, told Stateline that his office will monitor the short-term rental industry as a whole, including those spaces advertised on Craigslist and other sites. Hosts who violate the ordinance face a possible fine of $5,000, and platforms could face penalties up to $1,500.

City and State Tensions

Bed-and-breakfasts, a forerunner of today’s short-term rentals, always have had a place in the hospitality sector. The market was intended for family-run operators, researchers and industry experts told Stateline.

But the rise of home-sharing platforms has led to a “hotelization” of residential neighborhoods, and with that, concerns and calls from residents for more regulation.

A 2019 Economic Policy Institute study concluded that the economic harm Airbnb caused to long-term renters by reducing the housing supply and raising prices outweighed the benefits to travelers and property owners.

State lawmakers elsewhere continue to wrestle with the issue. Colorado Gov. Jared Polis, a Democrat, has endorsed efforts to tax short-term rentals the same as hotels. A bill is up for consideration in 2024. A measure in Arkansas to prohibit cities from enacting regulations on short-term rentals failed; a bill in Hawaii that would have allowed any county to phase out legal short-term rentals died in committee.

In past years, though, some state legislatures have protected Airbnb and property owners by forbidding certain city or county regulations. Arizona, Florida, Idaho, Indiana, Nebraska and Tennessee prohibit local governments from banning short-term rentals altogether.

The impact of Arizona’s 2016 law, according to Tom Savage, legislative director for the League of Arizona Cities and Towns, is an influx of short-term rentals in the state’s tourism communities. Some are run by investment companies rather than mom-and-pops.

“This issue strains available housing stock and forces residents to nearby communities to find affordable housing,” Savage said.

In three California cities with a large share of short-term rentals—Los Angeles, San Francisco and San Diego—home-sharing ordinances have prohibited any listing of a short-term rental without a valid home-sharing registration number and have reduced the duration of an allowable “short-term” stay. Unlike NYC’s ordinance, the California home-sharing ordinances don’t impose guest restrictions or require hosts to be onsite during stays.

Nationally, there’s a shortage of 7.3 million rental homes deemed affordable and available to renters with extremely low incomes, according to the National Low Income Housing Coalition.

“In the context of the housing crisis, especially in these big cities like New York, San Francisco or Austin [Texas], there’s a demand to regulate these short-term rental platforms and possibly find a way to make these units available,” said González, of the Urban Institute.

“So, there will be cities looking at how New York City’s ban is successful in not only controlling this market but reaching those goals in terms of affordability and availability.”

Legal Challenges

If cities are to follow New York City’s crackdown, they’ll need to clear their first hurdle: legal challenges. When Local Law 18 passed in January 2022, Airbnb sued to block the ordinance. Its lawsuit was dismissed in August, with a court arguing that Airbnb’s disagreement with city policy wasn’t a reason to block the law. That paved the way for registration and enforcement to take effect in September.

In her ruling, New York state Supreme Court Justice Arlene P. Bluth argued that the city’s regulations give Airbnb “a very simple way” to ensure it’s not profiting off of unlawful activity.

Data from Airbnb watchdog group Inside Airbnb shows that there were 21,785 short-term rentals in New York City as of August. That number dwindled to 6,841 by the start of September, as unregistered and illegal rentals began to vanish.

Dallas and New Orleans have tried to use zoning restrictions to curb short-term rentals, such as by prohibiting them in residential areas, but the policies have been challenged in court, delaying their effect.

In some cases, courts have agreed with property owners and pro-short-term rental groups.

A federal judge this summer ruled a 2016 Austin ordinance that would have prohibited people from operating rentals if they don’t live on the property to be unconstitutional. Earlier this year, a Clark County, Nevada, district judge declared a county ordinance that, in part, mandated owner occupancy and distance among short-term rental properties to be unconstitutionally vague.

‘Short-Term Rentals Are Here To Stay’

Policy experts say short-term rentals are here to stay, as travelers’ habits have shifted toward those accommodations.

A report by AirDNA group, a company that provides analytics for the short-term rental industry, shows that short-term rental supply and demand is outpacing hotels, a trend that could continue in 2024 in spite of regulations.

Advocates for short-term rentals say that even the most restrictive bans won’t guarantee that former Airbnb or Vrbo hosts will offer the spaces for long-term leasing.

In Dallas, Dave Krauss has been hosting a bed-and-breakfast lodging since 2013 and thinks that compliant hosts and short-term rentals add value to the city.

Krauss and his organization, Rent Responsibly, work to keep short-term rentals in compliance with local regulations. For Krauss, ordinances that incentivize and provide legal pathways for short-term rentals are a good policy. But the line between management and banishment of short-term rentals will create unintended consequences for the market and the city, he said.

“Regulations need to be living documents that are thoughtful, iterative, revisited and ultimately adapted to how this market progresses and the new technologies and new,” said Krauss. “A ban creates a tricky situation that causes activity to go underground. Short-term rentals are here to stay, and I think cities can do more to work with good actors rather than impose bans that hurt everyone.”

In New York City, Long Island native Joseph Bruno has hosted more than 200 people in his Upper West Side apartment since August 2020 after he listed it on Airbnb as a way to bring in more income. Despite the city’s ban, he said, he’s not going to stop finding ways to promote his apartment as a short-term rental. He won’t turn it over for a long-term tenant.

“I feel like the city is scapegoating us as a reason for their poor handling of this housing crisis,” said Bruno. “People can’t afford to live here because of the city and their inability to rein in the real estate bozos. Not because of my short-term rental.”