Airbnb.com Redux: Legislative Issues

In my previous article, I highlighted that Airbnb.com’s growth has garnered the attention of local governments and raised many legislative issues. In this second part of the extended series, I will review the various issues surrounding Airbnb.com and vacation rentals.

Airbnb.com decides to fight in New York City…

On 22 May 2013, a judge in New York City fined a man US$2,400 for breaking a New York City law that prohibits renting apartments out for less than 30 days unless the tenant is living there at the same time. This law was passed in 2010. The man, Nigel Warren, rented his room out to a traveller through Airbnb.com. New York City has issues with building owners converting their buildings, zoned for residential use, into illegal hotels (and posting advertisements on Airbnb.com, Expedia.com), which reduces residential supply and drives up rents. Although Airbnb.com was used in this particular case for the booking, other hosts finding renters through other websites are subject to the same law, so the vacation rental industry is watching this development carefully.
Airbnb.com will help Mr Warren appeal the ruling as far as possible. Such fines could deter hosts from advertising their rooms, condos, apartments or homes for rent, undermining the growth of these websites. New York State Assemblyman Karim Camara introduced a bill the day after the fine was issued to Warren which will allow tenants to sub-let their places for less than 30 days, essentially legalising Warren’s action. However, New York State Senator Liz Krueger, who helped establish the 2010 law, believes that more companies are using these websites to earn money as illegal hotels than general people looking to earn extra money. A prime example of this is Smart Apartments LLC, which the city sued and shut down in October 2012 for illegal short-term rentals.

…but wins in Amsterdam

Airbnb.com is encountering resistance globally from governments.  Quebec is cracking down on the most flagrant violators of the law prohibiting short-term rentals, while governments in Barcelona and Berlin are considering new legislation to make it even more difficult for short-term rentals.

However, the city government of Amsterdam, which began cracking down on illegal hotels in June 2012 and has had a contentious relationship with Airbnb.com, took steps to embrace Airbnb.com rentals in June. On 7 June 2013, the city government announced that it would allow people to rent out their places occasionally to no more than four people at a time.  The city found that Airbnb.com rentals involved only 1% of the housing stock and 2% of overnight stays, so it wasn’t causing a huge disruption to the housing stock and hotel industry.  The regulations consist of tourists paying taxes and complying with fire safety regulations.  Complaints by neighbours will be investigated and could result in shutting down hosts.  Hosts must also have permission from landlords and homeowners associations.  There are no time limits that define a short term rental.  The city believes that 20% of Airbnb.com’s listings are illegal hotels and will continue to shut those down.  These regulations could be subject to change as the market evolves.  For example, the city could require hosts to register and Airbnb.com may need to do more to ensure hosts are paying taxes.

Amsterdam is not alone in working with Airbnb.com to craft regulations that allow for short term rentals.  For example, Indio, California, which is near to the Coachella Music Festival, passed legislation in February 2013 which requires people to register with the city, obtain a business licence and pay taxes. It appears that officials in San Francisco are taking a more conciliatory stance with Airbnb.com and are working with the company to create laws that allow for some type of short-term rental along with a tax.

Not just the law to worry about

As awareness about people renting out their spaces grows, homeowners, condo and neighbourhood associations are adopting rules to restrict vacation rentals. Furthermore, residents are wising up and including clauses in leases that prohibit sub-letting unless written approval from the landlord is obtained.

A patchwork of regulations is likely

While these companies and their hosts would like to earn extra money, it may not be in the best interests of society in large urban areas for this practice to continue given the externalities generated.  Some type of regulation will be needed if cities are willing to embrace this type of service.  And even if the practice is legal, hosts still have to contend with landlords, homeowners, neighbourhoods and condo associations that may prohibit the short term rental.  My opinion is that San Francisco and Amsterdam are the exceptions to stances on short term rentals for large urban areas and if these types of rentals become more significant than accounting for 2% of overnight stays, these cities will likely reverse their stances.

It is likely that a patchwork of local regulation will evolve and it will be up to the hosts to operate within the law, which would be further complicated by rules decided upon by property associations. Given the added scrutiny about the practice, I believe that local governments will be more inclined to enforce their regulations. Where leasing out for less than 30 days is illegal, growth for Airbnb.com and vacation rental is likely to be subdued, although there may always be hosts willing to risk a fine (or ignorant to local law), while the illegal hotels may still take the risk that they get caught.