The Recent Impact On New York City's Airbnb and Short-Term Rental Market

On September 5, 2023, New York City began enforcing Local Law 18, establishing strict requirements for short-term rentals, and severely reducing the Airbnb market in the City1. Since then, many have wondered how this new law will affect the New York City housing market and, most importantly, how will the city enforce these requirements.

What is Local Law 18?

Local Law 18, which applies to short-term rentals (less than 30 days), requires hosts to obtain a registration number from the Office of Special Enforcement (OSE) to legally rent their dwelling. Hosts must submit a very detailed and personal application, providing information about themselves, other occupants of the unit, the building, and their lease. On top of that, there is a $145 fee that must be paid to the agency for the processing of the application. Even if a host is willing and able to comply with these application requirements, they may still be barred from renting their unit if their building is on the prohibited building list. While public housing and rent stabilized units are automatically on this list, building owners may ask to be added to this list for any reason, at all. Additionally, under the Law, all hosts are required to be in the dwelling at the same time as their guests and guests must have access to all parts of the unit2. This rule is essentially a ban on short-term rentals for entire apartments. While this rule was included in the previous law, there was very little enforcement of it. Now, with the registration requirement, it is expected that the city will be much more active in enforcing this.

Why was local law 18 enacted?

At first glance, it may seem puzzling as to why the city would choose to regulate Airbnb so heavily, especially as they bring in tourists which is good for the overall economy. However, New York is just one of many cities around the world that have been trying to find ways to regulate these short-term rents3. Many have argued that Airbnb’s exponential growth over the years has been a key factor behind the soaring inflation in property prices and rents that is fueling the global housing crisis4.

Historically, the popular perception of Airbnb is of individual hosts renting out a room or their entire apartment while away at reduced prices to gain some additional income. However, research from the Economic Policy Institute (EPI) shows this is not the reality5. In recent years, most listings on sites like Airbnb are through a concentrated number of professional landlords who own and manage multiple properties for short-term rent. Many of these properties have no long-term tenants and are essentially functioning as mini hotels6.

As expected, this scheme of short-term rentals not only affects the hotel industry but has disrupted the housing market in major cities7. Apartments which would otherwise be available for residents to rent are not on the market and instead used only for these short-term rentals. This not only diminishes the quantity of units available for permanent residents, but also has been shown to have a direct impact on the average rents8. The EPI report found that the expansion of Airbnb in New York City may have raised the average rent by as much as $400 annually9.

With growing inflation and a decreasing lack of affordable housing opportunities, it is no surprise that New York lawmakers felt compelled to respond. But has the new regulation actually worked to fix these issues? And with thousands of short-term rentals across the city, how will this regulation be enforced?

Immediate Aftermath of Local Law 18

In the weeks immediately following the Law’s enactment, the number of short-term rentals listed on Airbnb plunged 85% 10. As of November 1, 2023, short-term listings on the site make up just 9.6% of the total in New York City, totaling just 3.746. However, of those, just a fraction, only 730, have the required registration number from the OSE. Of the remaining 3,016, six are unlicensed, in clear violation of the law that requires Airbnb to remove these listings, and 3,010 are listed as “exempt”11.

It is very difficult to know if these “exempt” units are actually in compliance with the law. Airbnb’s website simply states “the listing is exempt from registration for reasons determined by the city”12. Under Local Law 18, only Class B dwellings are statutorily exempt from the registration requirement. Class B dwellings are defined as “a multiple dwelling which is occupied, as a rile, transiently, as the more or less temporary abode of individuals or families who are lodged with or without meals”13. Essentially, this classification includes hotels, lodging houses, and other similar buildings. This does not include a standard apartment building. And it seems unlikely that all 3,010 “exempted” listings are truly located in Class B dwellings.

City’s Enforcement

The enforcement of Local Law 18 is done primarily through the listing platforms, with building owners and city officials pressuring them to remove unregistered listings. However, the OSE, which is responsible for imposing fines has yet to penalize hosts directly, likely due to a backlog of over 4,900 applications and limited staff14. As of late October 2023, only 543 registrations were granted, 290 denied, and the rest pending further information, indicating challenges in timely rule enforcement15.

There has been one enforcement success thus far, however it was a court, not the OSE who acted. On September 21, 2023, a New York Court issued the first Temporary Restraining Order (TRO) against Airbnb and a host for their failure to comply with the new Law16. The building owner alleged that despite knowing that the apartment was not eligible for short-term rentals, the host continued to list the unit and the site did not take it down. Interestingly, the case was really only between the owner and Airbnb as the named host on the apartment was not the named tenant and the tenant did not appear at any of the hearings17. Because of this, it is difficult to know who if anyone, actually resides in the unit. Until the OSE can internally enforce the law with fines, it is likely that building owners will continue to seek this type of remedy to prohibit illegal short-term rentals in their buildings.

While the law has had the measured effect of reducing the listings on Airbnb, that does not mean these properties are no longer being rented at all. Increasingly, renters have posted their units on social media and other sites such as Craigslist, which are not required to monitor listings for registration under the law18. Until the city has an effective way to enforce the law, it is likely that these black-market listings will become the norm.

Effects on the housing market

Proponents of the law have long argued that reducing short-term rentals in the city will have a positive impact on the inventory of housing and average rental prices. While it has only been three months since the Law’s enactment, the impact it’s had on the housing market has been slight. In October 2023, one month into the Law’s effect, the average rent in Manhattan decreased by 1.65% 19. While this figure seems promising, year over year, the average rent has remained relatively unchanged.

While it is unknown whether this slight decrease was the result of the Law, or, more likely, due to seasonal trends, people remain optimistic that over time, more inventory will become available, leading to reduced rents.

Conclusion

The overall impact that this Law will have on New York City remains uncertain and we likely will not know the actual effect for years to come. However, there is some hope for residents looking for apartments that the market will be friendlier than it has in years past. Perhaps in part due to the new Law.

But as is to be expected, the Law comes with serious drawbacks. While the majority of rentals are owned by single entities operating as “mini hotels” and the regulation of these properties is welcomed by most, the law does have a detrimental impact on the other category of renters; those who rent out a room or a unit to supplement their income. For those individuals, who have relied on this added income to get by in this expensive city, their only options are to comply with the law and hope they are approved, list on off-market websites and risk penalties if discovered or cease all renting and lose this valuable additional income.

1 Registration Law: Short-Term Rental Registration and Verification by Booking Services, NYC Office of Special Enforcement, https://www.nyc.gov/site/specialenforcement/registration-law/registration.page#:~:text=Starting%20September%205%2C%202023%2C%20OSE%27s,platforms%20stop%20processing%20unverified%20transactions.

2 Mayor’s Office of Special Enforcement, Notice of Adoption of Final Rules Governing Registration and Requirement for Short-Term Rentals, NYC Government, https://www.nyc.gov/assets/specialenforcement/downloads/pdfs/FINAL-RULES-GOVERNING-REGISTRATION-AND-REQUIREMENTS-FOR-SHORT-TERM-RENTALS.pdf

3 Anna Milton, New York is breaking free of Airbnb’s clutches. This is how the rest of the world can follow suit, The Guardian, (Sept. 27, 2023, 7:21 AM), https://www.theguardian.com/commentisfree/2023/sep/27/new-york-airbnb-renters-cities-law-ban-properties

4 Ibid.

5 Josh Bivens, The economic costs and benefits of Airbnb, Economic Policy Institute, (March 26, 2019), https://www.epi.org/publication/the-economic-costs-and-benefits-of-airbnb-no-reason-for-local-policymakers-to-let-airbnb-bypass-tax-or-regulatory-obligations/

6 Ibid.

7 Ibid at 3.

8 Ibid at 4.

9 Ibid.

10 Inside Airbnb, 10. http://insideairbnb.com/new-york-city

11 Ibid.

12 Airbnb Help Center: “Pending” or “exempt” license or registration numbers on listings, Airbnb, .https://www.airbnb.com/help/article/1634#:~:text=City%20registration%20pending%3A%20The%20Host,also%20perfectly%20fine%20to%20book

13 Class B Multiple Dwelling List, NYC Office of Special Enforcement, https://www.nyc.gov/site/specialenforcement/reporting-law/class-b-mdl.page

14 Wilfred Chan, ‘We’re in a housing desert’: a month in, is New York’s Airbnb crackdown working?, The Guardian, (Oct. 23, 2023, 8:00 AM), https://www.theguardian.com/us-news/2023/oct/23/new-york-airbnb-crackdown-rules-housing

15 Wilfred Chan, ‘We’re in a housing desert’: a month in, is New York’s Airbnb crackdown working?, The Guardian, (Oct. 23, 2023, 8:00 AM), https://www.theguardian.com/us-news/2023/oct/23/new-york-airbnb-crackdown-rules-housing

16 Isaac Monterose, Unpacking First Airbnb Restraining Order Under New NY Law, Lexis Law360, (Oct. 18, 2023, 7:19 PM), . https://plus.lexis.com/newsstand/law360-real-estate-authority/article/1733872?crid=fea92012-e426-4ddb-8933-574057ed081d&cbc=0

17 Ibid.

18 Dan Latu, Why NYC’s Airbnb ban is ‘a slap in the face to people like me’, Business Insider, (Nov. 14, 2023, 10:42 AM), https://www.businessinsider.com/nyc-airbnb-ban-short-term-rentals-craigslist-scams-2023-11

19 Manhattan Rental Market Report, M.N.S. Real Estate NYC, (Oct. 2023), https://www.mns.com/manhattan_rental_market_report