Why Airbnb can survive a ‘de facto ban’ in NYC

Lifestyle

A new law threatens to demolish a $US85 million market for the home-sharing behemoth—but the Big Apple is just a small piece of its pie.
Airbnb has filed a lawsuit against NYC over a new law the city has dubbed the “de facto ban” | Source: Getty Images

Last week, Airbnb filed a lawsuit against New York City over a new law that the company is calling a “de facto ban” against short-term rentals that threatens $US85 million in annual revenue for the home-sharing platform.

Set to go into effect next month, New York City Local Law 18 requires city residents who want to rent out a room or apartment to register first with the New York City Mayor’s Office of Special Enforcement (OSE) and attest that they will comply with what Airbnb calls “the maze of complex regulations in different legal codes governing short-term rentals.” Those who skirt the law are subject to a civil penalty of up to $5,000 for each violation.

Short-term rentals in New York City drove $85 million in annual net revenue for Airbnb in 2022, according to the lawsuit. While that’s not a small sum by most measures, it’s barely more than 1% of the company’s $8.4 billion annual revenue.

Dan Wasiolek, a senior equity analyst at Morningstar Research Services who covers lodging and online travel, likens the new law in New York to a natural disaster. “Just to put it in perspective,” he explains, “let’s say a hurricane impacts one of your markets and shuts it off for a period of time until the issue gets worked out. I see this as a one-off situation that comes up in a cycle every so often.”

For now, it appears that Airbnb is on the brink of a near-shutdown in New York City, where there are currently 20,000 apartments and homes listed on its site. As of a month ago, the city had approved only nine registrations for short-term rentals, a number that makes up less than 0.04% of active listings that have been booked at least once since the beginning of the year.

“Nine is ridiculous,” says Wasiolek. “A fraction of one percent of Airbnb listings have gotten official verification, which is a sign that the law is extremely restrictive.” And to make matters worse for Airbnb hosts, “it’s my understanding the city isn’t explaining to people why their application is rejected.”

Of course, this isn’t Airbnb’s first civic battle. In the 16 years since the company launched, it has seen major markets—including Tokyo, Miami and Paris—issue ordinances to regulate short-term rentals, resulting in a dizzying global patchwork of laws and city codes of varying degrees of burdensomeness.

Airbnb argues the new rule could destroy the $US85 million home sharing market | Source: Getty Images

It’s a level of complexity that other players in the short-term rental industry would love to simplify. “Our industry is heavily regulated, but nothing much happens at the federal level,” says Nick Scarci, director of state and local government relations at the Vacation Rental Management Association (VRMA), which represents over 1,200 professional rental management companies.

“We would prefer to have one framework across a whole state instead of having 10 different battles across a state with a patchwork of regulations,” says Scarci, whose focus is advocating for his organization’s members and liaising with city and state governments. “We’re all for reasonable regulation. I think we’re very realistic and open-eyed about it,” he says, adding that the industry is eager to work with officials to come up with appropriate rules. “It does make a difference when you have all the voices at the table.”

“Some people buy into the negative narratives about short-term rentals. And some people just want to get rid of them, quite frankly.”


Wasiolek recalls that San Francisco used to ban rentals of less than 30 days in multi-unit buildings, effectively making most Airbnbs illegal. Short-term rentals were only legalized in the Golden City in 2015. Then a strict law introduced in 2018 roughly halved the number of listings from over 10,000 to around 5,500.

“But they got through that,” says Wasiolek. “They built up the listing inventory again.” Today San Francisco requires Airbnb hosts to register with the city’s Office of the Treasurer & Tax Collector and become certified by the Office of Short-Term Rentals. Failure to jump through the necessary hoops can result in a penalty of $484 per day for each dwelling unit in violation.

“[Airbnb has] been dealing with these same issues since the founding of the company, more or less,” says Wasiolek. “And I have the sense that, in general, the concerns about regulation are not as elevated today as a few years before the pandemic outbreak.” Through compromise and negotiation, Airbnb’s policy wonks have managed to work through issues with municipalities across the world, typically on an individual city-by-city basis.

That explains why, in San Diego, a tiered short-term rental system allows hosts to share their primary residence and a second home. Permits are capped at 1% of housing stock, with a higher allowance of 30% for the tourist hotspot of Mission Beach.

Seattle introduced short-term rental rules that grandfathered up to three properties for existing hosts while allowing new hosts to Airbnb two properties. The permit process in the Emerald City is relatively simple; hosts register for a permit with the city for a flat fee of $75.

And across the country in Boston, Airbnb hosts who fail to register a listing with the city’s Inspectional Services Department can receive a fine of $100 per violation per day. In every place, there’s a different set of rules.

Meanwhile, the New York City Mayor’s office has painted Local Law 18 as a mechanism to stamp out illegal short-term rentals, which officials say worsens the housing crisis and favors tourists over residents. The so-called “Airbnb effect” occurs when too many long-term rentals in a city are converted to short-term rental listings, which decreases an already short supply of housing and drives rents up. The Mayor’s Office of Special Enforcement did not respond to Forbes’ request for comment.

“Some people buy into the really negative narratives about short-term rentals,” says Scarci. “And some people just want to get rid of them, quite frankly.” He adds that the VRMA is about to release a national study showing that short-term rentals typically do not drive up rent costs.

For years, New York City has been ratcheting up short-term rental restrictions. In 2018, Airbnb sued the city after it attempted to force short-term-rental platforms to share more data about hosts. That lawsuit ultimately resulted in a June 2020 settlement, with both city and Airbnb officials touting a more transparent way forward.

But that was then and this is now. With New York City Mayor Eric Adams, “there’s a new sheriff in town,” says Wasiolek. “Airbnb probably thought they had the issue settled in New York. I guess there is a risk that in cities or countries where Airbnb has worked out situations, new people can come to power.”

Airbnb’s filing last week in the New York State Supreme Court calls New York City’s Local Law 18 “its most extreme and oppressive regulatory scheme yet.” The company takes issue with the requirement that applicants provide “a bevy of personal information and documentation, including, most outrageously, private information regarding the number of individuals living in the unit who are not related to the host applicant.” Applicants must notify OSE whenever the number of unrelated residents in their home changes, which means notifying the government if, for example, a romantic partner moves in or out.

Airbnb’s lawsuit also claims “it is a near impossibility” for lay New Yorkers to be able to certify that they fully understand and will comply with the city’s laws and codes regarding zoning, multiple dwellings, housing maintenance and construction. The company claims the OSE has not even identified the “applicable provisions” for New Yorkers.

Critics have blasted the city’s restrictions as over-the-top, pointing to the ban on locks on bedroom doors—a feature Airbnb customers have told the company they want for privacy and security reasons. And because hosts must now be present during a guest’s stay, they would not be allowed to rent out a home while on vacation.

In an email to Forbes, Airbnb argues that an overwhelming majority of cities, including San Francisco and Los Angeles, allow hosts to rent out an Airbnb while they are away from home. The company says that cities around the world have enacted “fair and balanced” rules for short-term rentals and characterizes New York City as “an outlier.”

Wasiolek agrees. “These particular requirements are more restrictive than what the average jurisdiction is implementing across the world,” he says.

“To me, this is part of a trend, where a government just makes it really difficult for somebody to get started in the industry and have an Airbnb or a vacation rental,” says Scarci. “It’s going to be difficult for them, and in some cases I think that is the intent.”

Last summer, when Mayor Adams announced the creation of the Office of Special Enforcement, he said illegal short-term rentals “undermine our hospitality sector,” a sentiment echoed in the press release by prominent figures in the city’s hotel industry.

But Wasiolek dismisses the notion that Airbnb is cannibalizing hotel business. Instead, he says, “Airbnb is expanding the overall travel market.” His evidence: Revenue per available room (RevPAR)—a key hotel industry metric obtained by multiplying the occupancy rate by the average daily rate—now exceeds pre-pandemic levels. In fact, “New York City made a phenomenal comeback to grab the nation’s top spot” in RevPAR last year, according to STR, a firm that tracks market data for the hotel industry.

“The hotel industry is doing fine,” Wasiolek says, while acknowledging that “there’s probably some truth” to the idea that fewer Airbnbs might ease the city’s housing shortage. “But you don’t need to be this onerous and strict with regulations to achieve that.”

Airbnb declined to disclose to Forbes how much tax revenue the company generates in New York City, but said “Airbnb has long advocated for equal tax collection in NYC.”

Wasiolek believes Airbnb may suffer a temporary setback in New York but will eventually find a way forward with city leaders. “I think governments and Airbnb have to continue to work together to figure out solutions on a market-by-market basis, like they always have,” he says. “But it’s not going to seriously damage the company, which has a history of working through these situations.”


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