Last month, New York City began enforcing Local Law 18, which severely limits home rentals for fewer than 30 days booked through services like Airbnb. Under the law, hosts of short-term rentals will be required to register with a city agency. Any platform that facilitates bookings must validate hosts’ registration or incur a $1,500 fine per illicit transaction. The law further limits the number of paying guests to two, requires hosts to be physically present on their properties for the duration of each rental, and stipulates that rental units’ interior doors must stay unlocked so that occupants can access all areas of the property. Hosts who run afoul of the law face fines of up to $5,000. The number of short-term rentals has plummeted as a result, from over 10,000 in early September to just 405 legal listings as of last week.

This is a tough issue, pitting tourism and property and associational rights, on one side, against law and order and quality of life, on the other. New York’s economy depends heavily on its tourist industry, which supports about around 340,000 jobs and generates over $4 billion in city tax revenues annually. Most hotel units, unequipped with kitchens and multiple bedrooms, are poorly suited for visiting families, who frequently cannot afford to dine out and rent several hotel rooms. Property owners spending millions to buy into New York’s housing market, along with tenants who shell out heavily on rent, don’t want city government prohibiting them from sharing their homes for a few extra dollars. And yet, New York law has long stated clearly that short-term rentals are illegal under most circumstances. These rentals can erode neighbors’ quality of life, while the economic benefits accrue mainly to private hosts, their guests, and home-sharing apps.

The law’s larger story, however, involves a protracted battle between some of New York’s most powerful interest groups. City and state laws distinguish sharply between residences and hotels. The state’s Multiple Dwelling Law, which covers dwellings of three or more families living in independent units, has long separated residences from hotels. The former may not be rented for fewer than 30 consecutive days unless the permanent resident is also present (a court decision clarified that the prohibition also applies to one- and two-family homes). At the same time, New York City’s zoning code differentiates between residential and commercial uses, with hotel development permitted only in commercial and manufacturing districts. The city’s highly irregular property-tax system levies far higher burdens on commercial properties than on most residences, and the city and state collect a bevy of taxes and fees on hotel stays.

The advent of home-sharing apps like Airbnb, Vrbo, and confounded these distinctions. Homeowners who rent part of their homes on a short-term basis, or tenants who sublet their apartments to various short-term parties, effectively function as hotel operators. They remove already-scarce housing supply while receiving favorable residential property-tax treatment and attracting short-term visitors to residential neighborhoods. Pair that with the far higher rates short-term rentals command, and hosts get a double windfall. The prospect for outsize profits can raise record housing prices further, as those buying properties intended for illicit short-term rentals outbid long-term competitors. Local Law 18 can thus be seen as enforcing residence–hotel classifications by making it unprofitable for hosts to violate current laws.

The new law can also be justified as a means to protect third parties. Tenants’ illegal listings can result in fines against the building, leaving their landlords liable. And those who occupy an apartment for only a few days or weeks have little incentive to consider the local community. Other occupants in a building hosting short-term stays must contend with the nuisances and hazards associated with frequent turnover, including noisy late-night move-ins and strangers as neighbors. When short-term guests travel for special occasions, the revelry can extend late into the night—so much so that Airbnb permanently banned parties in its listings last year.

As for hotels, of the roughly 130,000 rooms in New York City, more than 54,000 were built between 2007 and 2019. Most of these newer units are in nonunionized, limited-service facilities. Supply expanded during this period largely because hotel construction occurred as-of-right: developers could establish hotels in any commercial or manufacturing zone.

For the Hotel Trades Council (HTC), the union that represents more than 35,000 workers in New York and New Jersey, these new nonunion hotels threatened to outcompete union shops. Its members had previously enjoyed a near-monopoly on hotels, most of which were full-service providers. And then came home-sharing, drawing the union into a multimillion-dollar, decade-long war that ultimately culminated in its greatest victory: Local Law 18.

Given these issues, it’s little wonder that the HTC is one of the most powerful and aggressive political players in the city and state. During former mayor Bill de Blasio’s failed 2020 run for president, about 70 percent of his donors were tied to the union. HTC was also the first major union to back Eric Adams for mayor, giving him a leg up in the crowded 2021 Democratic primary—a favor that he has vowed to repay.

De Blasio made it harder to build hotels, such as through a 2018 restriction on new construction in M1 manufacturing zones. And shortly before he left office, he and his allies in the city council passed another zoning text amendment requiring developers to obtain special permits for new hotels that must receive a full city council vote. Given the HTC’s influence on local politicians, this translates to union hotels or zero hotels. By December 2022, a year after enactment, not a single application for a new hotel was filed.

The city has therefore capped new hotel supply while simultaneously limiting short-term rental alternatives—a recipe for far more expensive nights in aging hotels. Sadly, that means fewer people will get to experience New York, making the city a less vibrant place.

Photo by Liao Pan/China News Service/VCG via Getty Images


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