The eyes of the travel world will be on New York during the first week of September, but it won’t be for the city’s Broadway shows or U.S. Open Tennis Championships.
The focus instead will be on enforcement of new short-term rental rules that have already prompted thousands of Airbnb hosts to drop their listings. In a lawsuit challenging the rules, Airbnb called them “extreme and oppressive” and a de facto ban against short-term rentals. But after a judge dismissed that lawsuit and another filed by three hosts earlier this month, the city announced it would move forward with enforcement Sept. 5.
While New York is far from the first city to crack down on short-term rentals, its high profile and the extent of its regulations could make it a model for others to follow, industry observers said.
Airbnb declined to comment. Previously, the company has emphasized its cooperation with local governments, noting that regulations are in place in 80% of its top 200 markets around the world. It has also cited its efforts to engage with New York to advocate for clear and effective rules that target illegal hotel operators while allowing city residents to continue sharing their homes.
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The now-dismissed lawsuit made clear that Airbnb believes New York City has gone too far. Besides registering with the city, short-term rental hosts will be barred from renting out an entire apartment or home and must be present during their guests’ stays. Fines for hosts who violate the rules range up to $5,000, depending on the violation.
The law holds booking platforms accountable too. They could face penalties of up to $1,500 for processing payments from unregistered hosts.
Murray Cox, founder of InsideAirbnb, an activist group that uses data to highlight what it calls illegal rentals and the dangers of gentrification in neighborhoods where absentee owners buy up properties to rent online, said he was pleased by the ruling and the city’s plan for action.
“We know that short-term rentals, and Airbnb in particular, have numerous negative impacts on residential communities, in particular, making less rental housing available and increasing the cost of housing in neighborhoods with high concentrations, and other quality of life issues like constant parties next door, parking issues and strangers with keys to your apartment building coming and going day and night,” Cox told PhocusWire. “Restrictions on short-term rentals, and smart regulations like NYC's all help to reduce these negative impacts.”
Will new rules hurt Airbnb’s NYC listings?
New York City is the latest in a long line of local governments in the United States and around the world to institute regulations on short-term rentals. Other high-profile examples include New Orleans, which adopted new regulations in March requiring that licensees live on the property they list. In June, Dallas banned short-term rentals in neighborhoods with single-family homes.
In Malaysia, the island of Penang announced this month a ban on unlicensed Airbnb and Booking.com homestays. The new regulations mean only a few categories of commercial properties, such as serviced apartments, will be allowed to continue hosting people, the West Australian reported.
And in Europe, so many communities have adopted varying restrictions that the European Union announced plans late last year to develop uniform procedures for regulation and data collection of short-term rentals, a move Airbnb said it welcomed.
The effects of New York City’s regulations will be closely watched by other cities, said Pam Knudsen, senior director of compliance services at Avalara, a tax specialist company that often works with businesses in the travel sector. She anticipates a drop in short-term rental hosts within the city.
“Requiring that homeowners be in the house while hosting short term rental guests will drive down the availability and usage as individuals, both homeowners and guests, don’t want to live with strangers,” she told PhocusWire. “These types of unfamiliar, close quarter contacts could create additional problems for multiple city service organizations and also have a negative impact on the city’s reputation.”
Yet the immediate impact on Airbnb’s rentals may be mitigated in part because the city had already shed thousands of listings because of the pandemic and the regulatory environment, said Bram Gallagher, an economist with AirDNA, a data and analytics company that tracks short-term vacation rental data.
AirDNA tracked no more than 24,000 available listings in the city during July, Gallagher told PhocusWire, which is many thousands fewer than the city cited in legal filings.
“It's not going to be a dramatic shift in the New York short-term rental landscape as they enforce this,” Gallagher said. “But what it will do is it will prevent growth from occurring in the future. And I think that's probably the biggest effect.”
Visitors to New York may miss out on finding unique places to stay, he added, while the hotel industry could benefit from reduced competition and limited growth in the stock of short-term rentals.
“I know hotels are very interested in this,” Gallagher said. “There's been enormous investment in hotel inventory in New York City for the last 10, 15 years, and we've gone over 100,000 rooms within the last few years. So they're concerned; that competition is already very, very fierce.”
Will rules on Airbnb lower residents’ rents?
Gallagher was less confident the new regulations would relieve housing shortages for the city’s permanent residents, as community advocates hope.
While the need for more affordable housing provides “plausible cover” for enacting regulations against short-term rentals, the rules don’t do much to control housing prices, Gallagher said, because the percentage of total housing that's in the short-term rental stock is usually pretty small in urban areas.
“It's not a great tool for addressing the housing crisis,” he said. “The power that it has to lower housing prices is very, very limited and limited to very specific areas, which are generally not where we would find affordable housing.”
Avalara’s Knudsen agreed, noting that hosts in New York City rely on short-term rental income to afford their existing residence. “Without this income, they now are part of the population that needs affordable housing,” she said. “Similarly, the question arises about what percentage of short-term rentals would actually rent for a small enough amount that would be within reach of the average worker.”
Many in the short-term rental market feel they are singled out for action so that local governments can appear proactive on affordable housing, said Phocuswright senior research analyst Madeline List.
It tends to be easier to crack down on regulations of existing properties like STRs than to build more affordable housing, so there’s a sentiment in the STR sector that they’re targeted for regulation out of convenience.
Madeline List - Phocuswright
“It tends to be easier to crack down on regulations of existing properties like STRs than to build more affordable housing, so there’s a sentiment in the STR sector that they’re targeted for regulation out of convenience,” she said. “I would expect city officials would counter that the issue needs to be addressed from multiple angles including regulation of both existing and future supply – but the legal crackdowns on STRs do elicit a lot of tension on the industry side.”
List was also intrigued by New York’s decision to hold platforms accountable for unregistered listings. Though it would mean extra work for the likes of Airbnb and Vrbo, she said it could make the policies more effective.
“In many areas, upholding STR regulations is a game of whack-a-mole, where neighbors or government must report illegal listings to Airbnb for them to be deactivated,” List said. “Penalizing the platform for showing illegal listings is a harsh addition but also a layer of efficiency in enforcement; it incentivizes platforms to block rule breakers before they can post their listing instead of waiting for bad actors to be flagged.”
To go after the online platforms, the city needed to knock back Airbnb’s assertion that it was protected under Section 230 of the Communications Decency Act, part of a 1996 federal law that allows websites to set rules for what users can post on their sites without holding them liable for the content of the posts.
The judge’s dismissal of Airbnb’s lawsuit opens a door for more cities to follow New York’s example, said Inside Airbnb’s Cox.
“It's logical that other U.S. cities will follow suit by regulating short-term rentals in a similar manner to NYC,” he said, “especially as Airbnb's failed lawsuit cited federal laws like section 230 of the Communications Decency Act, which the judge dismissed, providing a clear pathway to regulation throughout the U.S.”
And yet a tougher regulatory environment for short-term rentals could in the long run prove beneficial to the industry, argued AirDNA’s Gallagher. It would give hotels the even playing field in terms of standards and taxes that they’ve been seeking for years. And more consistency would give short-term rental owners and managers a firmer footing.
“The thing that you don't want from an investor standpoint is laws in place that are aren't really enforced or enforced sporadically. That introduces so much uncertainty,” he said. “I think this could be a sign of the maturing of the market and the industry that they're trying to come up with some more centralized rules.”
*PhocusWire senior reporters Linda Fox and Morgan Hines contributed to this report.