Over the past three years, issues over the cost of living and inflation have dominated political debates. A consistent contributor to stubbornly high inflation has been the high cost of housing. Due to a wide variety of factors, primarily a lack of housing inventory, rents across the country have skyrocketed, causing more renters than ever before to be considered rent-burdened, meaning that they spend over one-third of their income on housing.
Affordable housing advocates have begun to take aim at companies such as Airbnb and VRBO, arguing that such platforms diminish already strained housing supplies. The city of New York recently passed a law seeking to impose the most stringent regulations to date on Short Term Rentals through platforms such as Airbnb and VRBO. While only a small step towards combating the affordability crisis, other localities should consider implementing similar laws for reasons both related to decreasing the cost of housing, as well as their potential benefits related to economic recovery of industries still recovering from the impact of the pandemic and a reduction in incidences of crime.
On Tuesday, Sept. 5 of this year, New York City Local Law 18 took effect. This legislation sought to implement a new set of regulations designed to solidify the permitting process and implement strict rules and restrictions on short-term rentals. Critics of the law, led by Airbnb opposed the new strict restrictions arguing that it would limit options for visitors looking for accommodations to the city, while proponents hailed the law for seeking to impose controls on an out of control market.
There were numerous components of the law that critics opposed. For example, the new regulations mandates that only two guests are allowed to stay in an Airbnb at a time and that the hosts of the residency must be physically present while their unit is being rented. Additionally, doors to rooms used by both hosts and visitors must be unlocked so that all occupants can access the entire unit. These elements specifically target investors who converted long-term residences that had previously been on rent to individuals utilizing them for permanent residency into more profitable Airbnb units.
Proponents of the law advocated that it would prevent the conversion of buildings that were previously long-term residences into de-facto hotels. Many apartment buildings intended for long term residencies currently exclusively house Airbnb rentals. According to data compiled by Inside Airbnb, an affordable housing group supportive of the new law, there are nearly 22,000 listings on Airbnb that rent the entire unit. Under the law, these units are no longer permitted. This will result in the elimination of these de-facto hotels, returning units to the rental market and increasing supply.
It is important to examine why many rental units have been converted to Airbnb units; increased revenue. A study from researchers at the University of Massachusetts Boston found that the mean lease in Boston equated to $98 per night in comparison to the average Airbnb nightly price of $243, meaning that “The average lessor would have to rent out their unit 12 days/month to earn what they would if they had entered into a long-term contract.”
Additionally, a working paper from the Harvard Business Review found that the number of Airbnb listings within a neighborhood and the asking price for rent are positively correlated. This means that as the number of Airbnb units in a neighborhood increases, the asking prices for rental units would increase as well. The paper went on to say that this is “likely due to non-owner-occupies reallocating their properties from the long- to the short-term rental market.”
By banning entire units from being rented out, the law seeks to return these units to the housing market in hopes of increasing the housing supply. As a result, city officials hope that owners will reconvert their short-term rentals into desperately needed rental units. While a positive contribution to countering the lack of housing units, it is important to note that such a proposal alone would not be able to solve the issues surrounding the housing market.
In addition to addressing the housing crisis, New York City’s new policy may have positive benefits in other areas as well, one of those being crime. A study from two Northeastern researchers highlighted “the proportion of buildings with at least one home-sharing listing … that had the greatest measurable effect on crime in the neighborhood.” The researchers added that replacing a long-term tenant with a revolving door of short-term tenants damages the social fabric of the neighborhood. When neighborhoods are more likely to have residents who do not know each other, such as the case when multiple properties are short-term rentals, they become more susceptible to crime. As a result, the new legislation may potentially bring down crime rates and the safety in New York City.
The Airbnb regulation law will also provide benefits to a struggling sector in New York City: the hospitality industry. Hotels for both travel and leisure have consistently lagged behind other economic sectors in the post-pandemic recovery, something that is especially true in large cities such as Chicago, San Francisco, and New York City. After the law went into effect, hotels expressed optimism about the potential benefits that they may reap as a result of the new law. In an interview with the Wall Street Journal, hotel owner Michael Achenbaum said, “If Airbnb is limited the way it seems like it’s going to be, there should be a consequential increase in revenue.” As a result, the New York City law will inadvertently increase economic activity and aid in the recovery of the city.
Overall, while each law must be measured on its grounds, legislation imposing restrictions on an underregulated Airbnb industry like the New York law provides benefits that should be expanded to other cities and areas struggling with the affordable housing crisis. In a city home to the highest median rents of the country, increasing the supply of units should be an essential priority for city leadership. While New York City is the first municipality to create such stringent restrictions, given the benefits it will provide to the public, it will certainly not be the last.
