The Journal. - New York City’s 'De Facto Ban' on Airbnb

Episode Date: September 5, 2023

Airbnb listings in New York City are disappearing as the city cracks down on short-term rentals as a way to address its housing shortage. As of today, it will now enforce some of the toughest laws in the nation around short-term rentals. WSJ's Allison Pohle unpacks what's happening and why other big cities are taking note. Further Reading: -Airbnb Hosts and Guests Scramble as New York Begins Crackdown  -Airbnb Fights New NYC Short-Term Rental Requirements  Further Listening: -Why Airbnb is Letting Employees Work Anywhere  -How Airbnb Deals With Crime  Learn more about your ad choices. Visit megaphone.fm/adchoices

Back in 2020, Tom DeRose was in college in New York City when he got into a jam. He says he couldn't afford his rent anymore, but he also couldn't get out of his lease. And then he heard of a possible solution. One of my friends told me about Airbnb, which at the time I was extremely skeptical. I figured, OK, I'll put it up on Airbnb and then maybe someone wants it for the weekend. And my expectation was I was not going to be making the baseline rent, the kind of normal rent that I was paying. I would still be losing money. But I thought, well, OK, this can supplement it. So Tom moved in with friends,

and he put his place up on Airbnb, a ground-level, street-facing studio apartment in midtown Manhattan. And this was like full of my own ugly furniture, half I found on the street, not designed to be providing a nice experience for people, just as a way to say, here's my apartment. If you want to stay there for the weekend, here's the price. And I was completely booked up. It was extremely surprising how well it worked out. So well that he decided to do more and more. And soon, Tom built a bona fide business where he rented out apartments and listed them on Airbnb. And what did that look like for your wallet? It was really good for me.

I mean, I went from basically being a broke college student, like a lot of college students, to someone who had a lot of excess income all of a sudden. How much did you make? During the peak, probably close to $150,000 a year. In my mind, I said, if I can do another and I have the money in my bank account, let's rent another apartment, let's furnish it, and let's go. But Tom's little Airbnb empire would face a big obstacle. Amid a housing shortage and skyrocketing rents, New York City tightened its laws

to crack down on short-term rentals. And today, those new regulations go into effect, imposing some of the toughest rules in the country and threatening to essentially shut down short-term rentals in New York City. Airbnb calls it a de facto ban on short-term rentals in New York City. Airbnb calls it a de facto ban on short-term rentals. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Tuesday, September 5th.

Coming up on the show, New York cider offers a crisp, clean finish. Perfect for sunny days and warm nights. Enjoy it well-chilled or over ice. That's refreshing. That's Summersbee. Must be legal drinking age. Please drink responsibly. Carlsberg Canada, Inc.

Waterloo, Ontario. Our colleague, Alison Pohlele covers the travel industry, including short-term rental companies like Airbnb, Vrbo, and Booking.com. How would you describe the relationship between the nation's largest cities and Airbnb? Tumultuous, tense. The relationship is litigious as well. Airbnb is taking legal action against cities in order to fight back against some of the restrictions that city councils have passed.

More than 4,000 Airbnbs and short-term rentals consumed disappeared from Atlanta because of a new ordinance. San Francisco isn't done trying to regulate Airbnb. Airbnb officials say that they've sent hundreds of comments and emails to the New Orleans City Council saying they're not happy with the... Airbnb is suing the city of San Francisco in an effort to stop the city from enforcing new rules on rentals. Dallas City staff told council members today that defining short-term rentals, like those listed on Airbnb and Vrbo, as lodging, would eliminate about 95% of the rentals operating in the city.

New York City says short-term rentals deplete the housing supply and contribute to rising rents. And the city council has been trying to go after them for a few years. So back in 2018, the New York City Council voted to restrict Airbnb and other short-term rental services. rental services. So the bill at that time was trying to prevent landlords and tenants from renting out their apartment for these short-term rentals. Did this law slow down or stop Airbnb rentals in the city? No, it did not because it was very tough to enforce because the short-term rentals were not registered with the city. So the city really had no way of knowing just how many of them were out there. That first attempt to rein in Airbnb didn't work.

The company filed a lawsuit, and the ruling made it hard for the city to enforce its rules. This was just before Tom DeRose started building his Airbnb business. He realized that if he kept signing apartment leases and posting them on Airbnb, he could make a big profit. He says he told the landlords what he was doing. Soon enough, he was managing several properties.

And he had a particular vibe that he was going for. Kind of the millennial modern type of vibe. As simplistic as possible, a lot of grays, that kind of look. No primary colors really. Dark blues, grays, white walls, that kind of thing. Okay. And did you put art on the walls? Yes. Anodyne kind of impressionless art?

Exactly. Like an out-of-focus tree or maybe a picture of the beach in the afternoon, kind of one step below motel art. I think I ate a huge amount of other people's food for a while just because every time someone checked out, it's like, oh, they left a... Every college student's dream. Yeah, it was my dream. I didn't have to pay for food in New York City. And that basically made me feel a whole lot richer.

How many did you rent at one time? Eight. Personally, eight. But I wasn't the only person on this bandwagon. It was closer to 21 or 22 apartments that I helped as well as the ones that I ran. So it was pretty easy to do this. Essentially, no matter what you do, you're going to make money from these apartments. It was simply signing a lease, furnishing it, and taking nice pictures,

and then ensuring it was clean. It's just arbitrage. This is a known idea. I didn't know about this when I started, but it's called Airbnb arbitrage. There's a lot of people online who talk about it. Tom was a couple years into his business when New York City passed a new law that would essentially put an end to all short-term rentals. And there's a lot in the law.

So you cannot rent out the entire apartment or, if you're a homeowner, your entire home for less than 30 days, even if you own the unit or the property. You also need to be present, physically present during the guest stay if it is for less than 30 days. Well, another aspect of this is that if you are renting out your unit, you cannot have any internal locks on doors, which means guests need to have full access to the entire property that they're staying in. And the owner has access to the area you're renting. Right. So everyone is supposed to be sharing a common household is what the regulation says. The new rules created a formal registration system, this time with an enforcement mechanism. Hosts of short-term rentals now need to register with the city

if they want to list their homes on a rental site. And if they don't, they could face fines up to $5,000. How has Airbnb reacted to this? So Airbnb says that they have tried for years to find a reasonable way forward with the city. So they've said, we are willing to crack down on these so-called illegal hotels, but you are punishing people who are not taking away from the long-term housing supply, whether those are people who are renting their apartment out when they're on vacation or homeowners. Airbnb sued New York City twice to try to stop the new rules go into effect.

Coming up, what they mean for Airbnb hosts. Introducing TD Insurance for Business, with customized coverage options for your business. Because at TD Insurance, we understand that your business is unique, so your business insurance should be too. Whether you're a shop owner, a pet groomer, a contractor,

or a consultant, you can get customized coverage for your business. Contact a licensed TD Insurance advisor to learn more. At Air Miles, we help you collect more moments. So instead of scrolling through photos of friends on social media, you can spend more time dinnering with them. How's that spicy enchilada? Oh, very flavorful. Yodeling with them. Oh, very flavorful. Yodeling with them. Ooh, must be mating season.

And hiking with them. Is that a squirrel? Bear! Run! Collect more moments with more ways to earn. Air Mile. Air Mile. Under New York City's new rules, the number of Airbnb listings will likely shrink dramatically. There had been about 40,000 Airbnb listings in the city.

But as of late August, New York had approved fewer than 300 applications for short-term rentals around the city. Allison says many hosts are upset. A lot of hosts are worried that they can't afford to live in the city without Airbnb. That's also been an issue for people who do own their homes and have put one floor, for example, or one area of the house on Airbnb. And they say that helped pay their mortgage. And some people said they were able to put their kids through college by renting out part of the space. And rather than have a long-term tenant, they're able to make more money with short-term rentals. And it also gives them more flexibility. They don't need to be landlords in this situation. Allison spoke to a host who said these new rules will make it harder for him to live in New York. His name is Kareem Fahmy. He lives in a two-bedroom apartment

in Harlem, which he would put up on Airbnb while traveling. He said most of his guests were families who didn't want to book multiple hotel rooms. He told Allison that renting his apartment allowed him to quit his day job in physical therapy and pursue a career in playwriting and theater. He can be gone for three weeks at a time, going to a work commitment, putting on a show. And during that time, he posts his property on Airbnb. And he says that's a way for him to pursue his artistic career. He says that once this goes into place, he might have to consider moving from the place where he's lived for 10 years. Over half of his income will be gone. It's going to completely change the way that he's able to

live his life. Another Airbnb host who saw the writing on the wall was Tom DeRose. When he learned of New York's new rules, he realized his Airbnb business wouldn't have a future. So he wound down his operations earlier this year. Do you think your Airbnb business was part of New York City's housing problem? Yes, I do. Unless there's a situation where there's, like, way oversupply of apartments on the market for rent,

I think any anytime an apartment is rented out and then put on Airbnb, that's an apartment that it can no longer be rented out to long-term renters, to actual residents, and it's going to contribute to a housing supply issue. There's just no way around it. How do you look back at that period? For a short time, it was like a little golden age of my life where I was making a lot of money all of a sudden out of nowhere, it felt like, for doing very little work. And looking back at it now, it feels like I was making money off the difficulties of others because every apartment that was rented out, as I said before,

it's out of someone else's hands who probably needed it more than I did. How will this affect people who've been having a hard time finding housing in New York? It's tough to say whether there will be a noticeable effect right away in a couple months or even a couple years, because Airbnb says they really don't think all of these units will all of a sudden open up. They point to people like the

playwright who were renting their unit out a couple months a year, but someone was living there and already renting out the apartment. So I think a lot of people will be curious to see if come this fall or potentially later, if a bunch of units do open up. It feels like this really is a story about how out of whack the housing market is. Right. So Airbnb would say they are being penalized when 40,000 is a very small percentage of the total number of available units in the city. So they say they're being targeted for a problem that's much bigger than them. And are other cities looking at what's happening in New York? What's happening in New York City is somewhat of a watershed moment. Airbnb has been engaged in many legal battles with cities across the country and even across the world.

After many years of legal back and forth, New York has seemingly prevailed against Airbnb and other cities are paying attention to how they were able to do that and what the regulations entail to see if there are any lessons they can take for their own municipalities. That's all for today, Tuesday, September 5th. The Journal is a co-production of Gimlet and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.