What has driven NYC, and other cities here and abroad, to take action against this company?
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On September 5, New York City began enforcing its new law cracking down on Airbnb rentals (the law passed in January but a legal challenge by Airbnb paused enforcement). The new rules require that, for short-term rentals, the resident must register with the city and must remain in the unit the entire time. Renting is also limited to two residents, thus excluding larger families.
What has driven NYC, and other cities here and abroad, to take such action?
To begin at the beginning: What is Airbnb? It is an online service that allows ordinary people to convert their house or apartment into a hotel. This could be renting a room in one’s house to vacationers during a high-traffic holiday period. It also could be a full-time operation of someone who never lives at the unit. Or an entrepreneur who decides to lease multiple residential units and turn them into full-time Airbnb hotels.
Turning residentially zoned properties into full-time hotels, which is essentially Airbnb’s business model, puts significant and often intense pressure on the whole urban housing market. City residents who were looking to live in such units can’t afford them; Airbnb-affiliated entrepreneurs make more money renting places out as Airbnb hotels than they could make as landlords renting to local tenants.
Airbnb, like rideshare behemoths Uber and Lyft, has violated local ordinances from its inception. Its business model, like those of Uber and Lyft, was to grow to be so large and popular by the time local governments could act that the companies could successfully push back against any attempts at regulation.
An Airbnb “landlord” might snarf up five or six units, or more than a hundred. When people can’t find affordable housing, sucking tens of thousands of units out of the market means they have to rent somewhere else, generally somewhere worse. This puts upward pressure on the rents of those already barely scraping by in those cheaper units. And some of them are fated to end up homeless.
The impact of Airbnb is, to be sure, not the whole story of the housing crisis: Other, broader demographic forces, including soaring wealth inequality and gentrification, pre-dated Airbnb’s 2008 launch, and continue to operate. But it is a significant piece of the puzzle, and it’s one that is often missed.
The NYC Housing Squeeze
New York City officials cite, in support of that city’s crackdown, the scarcity of available residential housing in NYC. Airbnb had over 38,000 listings before the law passed, which might seem a very small slice of the 3.5 million rental units in the city. However, as per stats from 2017, the very high citywide occupancy rate left the number of available rental units at only 79,190. That puts the Airbnb listings at half the available housing units throughout the entire city.
The city’s comptroller attributed 10 percent of rent hikes from 2009 to 2016 to Airbnb alone. The comptroller’s report further found that “New Yorkers paid a combined total of $616 million extra in rent in 2016 because of Airbnb.”
Defying Regulation
Airbnb, like rideshare behemoths Uber and Lyft, has violated local ordinances from its inception. Its business model, like those of Uber and Lyft, was to grow to be so large and popular by the time local governments could act that the companies could successfully push back against any attempts at regulation.
Uber and Lyft flexed their political muscle a few years ago by putting a ballot initiative on the statewide ballot to undo a New York state law specifically aimed at their industry. They won by a large margin and completely thwarted the state’s ability to regulate them. Airbnb, while it has yet to create a ballot initiative, did outspend its opponents by millions to defeat a referendum against the company in San Francisco in 2015 and outspent the hotel industry in Jersey City (a gateway to NYC) $4 million to approximately $1 million.
A Species of Gentrification?
Concerns have long been raised about Airbnb’s effect on the housing market. It has been found to have effects similar to gentrification, pushing out locals in favor of more prosperous residents. Its entire M.O. is to convert residential housing into a business proposition. And while the picture presented is a happy family renting a room or two for the holidays, most Airbnb rentals are more likely to be full-time for the entire unit.
The competitive economics of that model can be punishing. While any one individual or family is limited in how much they can spend every month for rent, an Airbnb can charge much higher “rent” for a family or individual on vacation looking to spend a week in a city like New York as a special experience. And that price can be met by an entire well-heeled vacationing public, even an international one.
As an illustration, in Orange County, CA, a stay in a nice hotel can run $150 a night, coming to a rent of over $4,000 a month, even though a nice apartment would rent for about half that. So if an individual is paying $2,000 for an apartment, there is now an incentive to make it a full-time hotel and double their money. To be sure, the actual numbers vary, but the idea is that those seeking housing have to not only compete against others seeking housing but now against entrepreneurs as well.
Just as Uber uses a private person’s car to make a business, Airbnb makes private apartments into hotels. They handle the booking and take a fee, but leverage your property and manpower. The difference, of course, is that people don’t live in an Uber.
While in its defense, Airbnb says that using Airbnb hosting to make money can help people pay their rent that otherwise they wouldn’t be able to, that ignores the common practice of making a unit nearly a full-time hotel and thereby completely irrelevant for its intended purpose of housing. And, as many cities have a serious homelessness problem and an affordable housing crisis, additional units being taken off the market only exacerbates the crisis.
An Early Warning
I first came across this problem in 2014 when I was doing eviction defense as a significant part of my law practice and a client retained my services against an eviction. This client explained he was facing an eviction lawsuit in additional units, indicating he had six or seven running at any given time and that they eventually attracted negative attention from the landlord.
It became obvious to me that if a small-to-mid-level entrepreneur could run six units at a high profit, there were no doubt many like my client, or working at an even larger scale, taking thousands of units off the scarce rental market in Los Angeles.
I spoke on this to a housing panel at the University of Oregon in 2020 and, though there were many housing lawyers speaking at that panel, none had really considered the impact of Airbnb on the urban housing crisis.
Cities Pushing Back
There has, however, been pushback to Airbnb in a few cities in the US and around the globe. Major cities in the US like Los Angeles, San Francisco, and Chicago, and Paris and Barcelona abroad, have taken varying approaches, sometimes for different reasons.
Los Angeles passed ordinances in 2018 to more strictly regulate the short-term rental industry. However, there has been practically no enforcement. While a lag in enforcement in NYC was related to the lawsuit filed by Airbnb, cited above, which delayed any action by the city from January to September, there is no clear reason for the lack of enforcement in Los Angeles. With over 2,000 violations, there appear to have been fines issued in only 27 instances. An author of the report that tells the city where to find violators calls the lack of action “baffling.”
This is in contrast to Santa Monica, which successfully discouraged Airbnb rentals with strict regulations against short-term rentals that it actually enforces. It bans rentals of less than 30 days and requires hosts to acquire a business license. This is in addition to an innovative program that established a private right to sue against those violating that city’s short-term rental regulations.
The San Francisco Housing Squeeze. Photo credit: Alex Leon / Pixabay
San Francisco has enacted fairly toothy regulations, such as requiring registration with the city in order to provide short-term rentals, as well as limiting rentals to only 90 days out of the year when the owners are not present.
New Orleans addressed the problem in 2016, banning Airbnb rentals in the historic French quarter and, like San Francisco, limiting the rentals to only 90 days of the year.
Airbnb has also been a worldwide problem, and cities overseas have reacted. Amsterdam devoted $1 million/year to finding hosts of rentals that violated the city’s ordinances regarding short-term rentals. One host was fined $300,000 for his violations.
Barcelona found that nearly half of its holiday rentals were unlicensed Airbnb units. At the same time, they were trying to combat an average rental price increase of 23 percent over three years. In addition to going after individual hosts, they fined Airbnb $600,000 and threatened to further fine the company for every unlicensed renter.
In Paris the push to crack down didn’t come about from worry about housing costs but rather from lobbying by the hotel industry. Airbnb came to an agreement with the city to pay the nightly tourist tax, but that didn’t satisfy the hotel lobby, which felt that Airbnb retained a competitive advantage by ignoring most of the local ordinances for hotels.
Mixed Motivations?
This brings us back to New York, where Airbnb claims that it was not a genuine concern for housing but rather the hotel lobby that pushed through what they call a ban on short-term rentals, with the housing situation as pretext. Chris Lehane, head of Airbnb’s Public and Policy Affairs Department, went so far as to accuse the City Council of being effectively stooges for the lobby. “Members of the City Council are nothing more than bellhops for the major hotel corporations,” was how Lehane put it.
This is likely an example of the fallacy of the excluded middle. That’s a principle that warns against either/or questions that do not offer a position that is somewhere between. To take one example, is it better to have absolute free speech or allow for extensive government censorship?
In this instance of New York City grappling with the powerful market disruptor Airbnb, it is quite possible that the City Council is heavily influenced by hotel lobbyists (as most politicians are influenced by lobbyists) and also motivated by very legitimate concerns about available housing and seeking to alleviate the impact of a nationwide rental crisis.
Mixed motivations notwithstanding, New York and these other cities appear to be doing right by the public interest.
Doug Ecks is a lawyer and writer. He holds a JD from the University of California, Hastings and a BA in philosophy from California State University, Long Beach, Phi Beta Kappa. He also writes and performs comedy as Doug X.
