Regulating Short-term Rentals

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New York begins crackdown on the short-term home-sharing market.

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Twenty years after the debut of the award-winning musical Rent, New Yorkers are still struggling with rising rent costs and finding “a way to pay.” It is no surprise that New Yorkers and tourists alike have turned to Airbnb, the popular online community that helps connect hosts and travelers around the world, to find affordable housing in the city.

Airbnb allows users to advertise their personal apartment spaces for rent and connect with potential customers looking for a temporary place to stay. By connecting users directly, Airbnb allows city residents to capitalize on their unused space—in fact, Airbnb co-founders Brian Chesky and Joe Gebbia came up with the idea for the platform when they could not afford payment for their San Francisco apartment and offered to rent out some of their extra space.

Like the traditional lodging and tourism industries, Airbnb generates economic activity in the cities with which it works. In New York City alone, Airbnb generated $632 million in economic activity in one year, including $105 million from direct spending in neighborhoods that do not typically benefit from tourism.

However, in October 2016, the New York legislature signed into law a bill that prohibits apartment advertisements for purposes other than permanent residence. The bill carries with it a civil penalty of up to $7,500. Although it was always illegal in New York City to occupy a class A multiple dwelling unit—for example, an apartment building for permanent residents—for less than 30 days, the new multiple dwelling legislation clarified that rule and made it illegal to advertise these units on online home-sharing platforms. The justification for the law, according to the New York City legislature, was a concern for safety and compliance with fire and building codes.

In a public hearing on December 19, 2016, the Mayor’s Office of Special Enforcement made clear that a key aim of the new law was to target large-scale illegal hoteliers who contribute to increased rent, narrowed housing markets, and neighborhood gentrification.

Shortly after the hearing, the city executed its first “crackdown” on illegal Airbnb hosts. Keeping its promise to not go “after the little guy,” the city fined property owner Hank Freid, the founder of a self-proclaimed “real estate powerhouse” and manager of the Marrakech Hotel, and Tatiana Cames, a real estate broker. The two allegedly maintained several listings on Airbnb. Freid was fined for 12 violations for illegal listings, and Cames was fined for five.

University of Houston Law Center Professor Kellen Zale argues that the scale of the sharing economy makes it hard for companies to fit into existing regulatory systems. Zale explains that the mismatch between the current regulatory system and the products of the sharing economy create negative cumulative impacts and undermine important public policies, including achieving affordable housing.

Negative impacts arise, Zale continues, because of the “de minimis” character of many sharing economy activities. Individual, small-scale relationships—like those between an Airbnb host and renter—may not appear to contribute much to the overall amount of that activity, thus making the strict regulation of these activities appear excessive. According to Zale, this minor appearance creates an atmosphere of regulatory leniency.

However, Zale notes that de minimis activities can produce significant consequences, such as increased economic activity, decreased long-term rental availability, and demographic changes to neighborhoods. This may be especially true for cities like New York, where Airbnb generates a large amount of economic activity. Zale argues that small-scale home-sharing platforms might, for example, encourage landlords to seek out the higher rents for shorter rental periods that are made possible through companies like Airbnb.

While legislators and regulators grapple with how best to ensure a stable housing market, Airbnb recently proposed and implemented its own company regulations to help prevent its home-sharing platform from eliminating housing options currently available on the New York market. Airbnb’s new regulations establish five pillars of housing reform aimed at supporting the goals of the New York legislature: single-home shares, registration, clearly established rules, insurance platforms, and tax collection.

Chris Lehane, a former political advisor to President Bill Clinton and the current global head of public policy at Airbnb, explains that current dwelling laws have no way of “distinguishing between everyday New Yorkers who occasionally rent out their homes and illegal hotel operators who remove permanent housing from the market.”

At the heart of Airbnb’s new regulations, Lehane states, is a provision that limits home renters to advertising a single home within the five boroughs—addressing directly the “illegal hoteliers” concern raised by the city. To increase accountability, Airbnb also recommended an online host registration system to easily track hosts and improve enforcement of local regulations in the future.

It remains unclear what the future holds for short-term rentals. Although there is no guarantee that regulators will be able to solve all of the city’s rental market challenges, one thing is certain—both private companies and government regulators will continue working toward a solution for the cities that benefit the most from home-sharing companies like Airbnb.