Behind NYC’s Tightening Restrictions on Airbnb and Short-Term Rentals

On September 5th, 2023, New York City implemented a municipal policy mandating that all hosts offering rentals for less than 30 days register with the city. The policy, known as Local Law 18, or the Short-Term Rental Registration Law, reinforces existing laws that prohibit individuals from renting out their residences for less than 30 days unless they are physically present during the guests’ stay and provide full access to their properties. While other cities like Boston and San Francisco have implemented similar regulations, the policy in New York has drawn criticism from various stakeholders, including individual renters and major companies like Airbnb, which has labeled this policy a “de facto ban.”

New York City officials argue that the policy is necessary because Airbnb has not been sufficiently proactive in complying with existing laws or addressing rule violations. One city official, in a July court filing, claimed that more than half of Airbnb’s $85 million in net revenue from short-term rentals in 2022 came from illegal short-term rentals. Consequently, the policy stipulates that hosts found in violation of either not being physically present during guests’ stay or posting unregistered listings could face fines of up to $5,000 for repeat offenses, while platforms like Airbnb would be fined up to $1,500 for facilitating illegal rental transactions. Proponents of the policy argue that it is a necessary step to address the city’s housing shortage, which they say is exacerbated by the saturated housing market for short-term stays. These proponents, composed primarily of city officials, the local hotel industry, and neighbors of the short-term rental guests, also point to the potential for an increased cost of living, safety concerns, noise disturbances, and cleanliness problems arising from transient guests. On the other side of the debate, dissatisfied Airbnb hosts argue the policy is overly stringent and find the registration process burdensome. Hosts must familiarize themselves with  a variety of technical terms such as “Class A/B Multiple Dwelling,” and study detailed regulation standards and posting requirements. Despite there being approximately 40,000 Airbnb listings in the city, fewer than 300 applications for short-term rentals were approved by the end of August. Moreover, hosts express grievances about the inflexibility of the law, as well as a loss in extra income from short-term rentals. 

The question at the heart of this discussion revolves around the effectiveness of stricter supervision and regulation of short-term rentals in addressing the ongoing housing crisis in New York City. Advocates for heightened regulations assert that short-term rentals deplete the housing supply, contributing to the escalation of rents. Homeowners, opting to rent their inactive apartments, are inclined to list them on short-term rental platforms due to the flexibility and quick turnover rate they offer. Consequently, the increasing number of short-term listings in the market exerts pressure on potential renters seeking long-term accommodations. The diminishing supply of long-term rentals further amplifies rent prices. More significantly, unregulated short-term rentals have the potential to displace long-term residents, creating scenarios that could lead to evictions. This displacement risk becomes particularly pronounced during the holiday season when homeowners may find short-term rentals more profitable than long-term arrangements. Such situations result in unwelcome displacement scenarios, raising concerns about their contribution to the existing housing crisis. In this context, proponents argue that tighter regulations could serve as a means to safeguard the interests of permanent residents and ensure that housing remains accessible.

However, the effectiveness of stricter regulation in addressing the housing crisis remains a topic of ongoing debate. One crucial question is whether the surplus income generated from the enforcement of these regulations would translate into the creation of more affordable housing for New Yorkers. In other words, would the revenue generated through fines or taxes on short-term rentals be reinvested in initiatives to develop affordable housing options for the city’s residents? Additionally, concerns about unintended consequences, such as “deadweight loss,” highlight the inefficiency that can result from excessive regulation or taxation, where the costs of compliance and enforcement may outweigh the benefits. On a practical basis, a loss of profits from tightening short-term rentals for homeowners may occur. Critics argue that overly strict regulations could stifle the short-term rental market, impacting both host and the city revenues, while potentially discouraging tourism and impacting local businesses. Despite these concerns, a conclusive assessment of the overall impact of stricter regulations on the housing crisis is yet to be established.

At its core, the debate on Local Law 18 revolves around striking a delicate balance between safeguarding housing opportunities for permanent residents and avoiding stifling economic growth, tourism, and the ability to invest in affordable housing solutions. This multifaceted issue warrants nuanced examination, taking into account both the immediate and enduring consequences of regulatory choices on the ever-evolving housing dynamics in New York City.