Housing Brass Tacks

Illegal Hotels

“New Yorkers agree: Airbnb is great for New York City,” declared ads that papered the city’s subway system. But is it really? In the tenth Housing Brass Tacks discussion, Patrick Tyrrell of the nonprofit legal services firm Mobilization for Justice breaks down the impact of short-term rentals on New York’s housing market.

#1 Explosion of short-term rentals

Airbnb hasn’t been in business even ten years, but the online hospitality marketplace has sent cities across the country scrambling to revise their housing laws. Begun as an easy way to book vacation rentals in private homes, the company has grown to more than 3 million listings in 191 countries and an estimated worth of $31 billion. And New York City is one of Airbnb’s largest markets: As of June 2017, there were 41,187 listings on Airbnb in New York City, about 1.2 percent of the city’s total housing units. While renting out a spare room for short stays is nothing new and there are numerous similar booking sites, Airbnb is a giant sowing disorder into the housing system.

Cities have reason to want to regulate these rentals: They skirt safety and fire codes. They violate zoning laws. Neighbors complain of feeling unsafe around or bothered by constant transient guests. Millions of dollars in hotel taxes are lost annually. Some hosts break anti-discrimination laws, as #AirbnbWhileBlack has shown. Residents are harassed out of their apartments so landlords can cash in on more lucrative short-term guests. And units dedicated to short-term rentals exacerbate the city’s housing shortage — the current vacancy rate is 3.5 percent, making the search for decent, affordable housing a futile quest for many renters. Calling the “sharing economy” model that Airbnb is usually lumped into mere “marketing buzz,” Patrick Tyrrell offered a different definition of Airbnb: “a platform that promotes, enables, and incentivizes the conversion of residential homes, apartments, and rooms into tourist accommodations.”

Illegal hotels Despite its ubiquity, many of the listings on Airbnb are actually illegal. In 2010, an amendment to the state’s Multiple Dwelling Law (MDL) banned renting an apartment for fewer than 30 days in buildings with three or more units without a permanent resident present — and in New York City, most Airbnb listings for the “entire home or apartment” are likely not in single-family or two-family houses. Those “entire home” listings account for about half of all of the city’s listings, according to independent tracker Inside Airbnb. Concerned about the impact of short-term rentals on the housing market, New York Attorney General Eric Schneiderman subpoenaed listings data from the company and issued a report estimating that 72 percent of private home units were illegal. While nearly all hosts had only one or two listings, the six percent with three or more listings accounted for 36 percent of all bookings and 37 percent of all host revenue — painting a picture of career landlords dodging the normal rental market. The top commercial user of Airbnb had 272 units and made more than $6.8 million during the period analyzed. These “hosts,” termed illegal hotel operators, remove housing from the market and displace long-term tenants to make millions in profits off of short-term rentals: More than 4,600 units were booked as private homes on Airbnb for three months or more a year during during the review period. Since nearly all Airbnb rentals are in wealthy or gentrifying Manhattan and Brooklyn neighborhoods, that’s 4,600 fewer affordable housing units available to New Yorkers in the neighborhoods where they’re already the scarcest. New York City is stepping up enforcement: Last year, it became unlawful to even advertise an illegal short-term rental, with fines up to $7,500. The first fines were issued earlier this year.
Airbnb is notoriously private with its listings and user data, so Murray Cox created an independent, noncommercial platform called Inside Airbnb in 2015 to visualize how the short-term rentals impact neighborhoods in cities around the world. Map via <a href="http://insideairbnb.com/new-york-city/?neighbourhood=&amp;filterEntireHomes=false&amp;filterHighlyAvailable=false&amp;filterRecentReviews=false&amp;filterMultiListings=false">Inside Airbnb</a>
Airbnb is notoriously private with its listings and user data, so Murray Cox created an independent, noncommercial platform called Inside Airbnb in 2015 to visualize how the short-term rentals impact neighborhoods in cities around the world. Map via Inside Airbnb

#2 Illegal hotels, from SRO to Airbnb

The fight to maintain Single Room Occupancy (SRO) units, generally individual rooms with shared bathrooms, is the antecedent to today’s short-term rental battle. “It’s very hard to understand the current crisis and how it relates with Airbnb without understanding this historical detail in New York City housing,” said Tyrrell. SRO housing encompassed hundreds of thousands of units in the early 20th century, and though originally housing a range of socioeconomic classes, came to be known as housing of last resort. Officially, some 35,000 SRO units persist today, although Tyrrell says the actual number is much lower. As tourism increased and housing prices rose in the early aughts, SRO landlords saw a lucrative opportunity in clearing out their long-term SRO tenants. As landlords tried to skirt housing regulations, housing advocates fought to preserve these affordable units, winning an amendment to the Multiple Dwelling Law and a series of court battles. The Imperial Court Hotel on the Upper West Side, where monthly rent is as low as $400, was forced to stop booking hotel rooms in 2016 after the State Supreme Court determined the makeshift hotel was illegal, ruling in favor of five long-term, rent-stabilized tenants. Others like the Ace Hotel in NoMad have transformed almost completely from SRO to luxury hotels, with a few hold-out long-term residents. Advocates and lawyers who sharpened their teeth against illegal hotels on these SRO conversions saw more permanent housing slipping away through new online platforms, and made Airbnb a target of their illegal hotels campaign. “It’s all part of the same story,” New York Assemblymember Linda Rosenthal, a fierce critic of Airbnb, told Mashable.“It’s different facets of the disappearance of affordable housing.”

SRO + Airbnb = Co-living While shared, transitional housing is a mainstay of affordable housing, recently the market for SRO-style living has taken a strange, luxurious turn. Although Airbnb is primarily associated with tourism, some listings are available on a monthly basis. And the model of furnished rooms or units booked online for transitional housing is expanding. A new generation of high-end residential hotels offer the flexibility of short-term leases and a host of amenities, under the guise of “co-living.” Like Airbnb, co-living emerged from the “sharing economy” and startup milieu. Common, started by a founder of the coding school General Assembly two years ago, has eight locations in Brooklyn and Queens, and recently announced three more. Private rooms start at $2,150 for Common Baltic in Boerum Hill. WeLive, the residential offshoot of the co-working company WeWork, has only one New York location so far, where studios start at $3,050 a month. Krash, Node, Quarters, Pure House — these are some of the companies that have bought up buildings (or built new ones) in New York City to provide flexible, communal, amenity-laden housing aimed at millennials — toilet paper and Game of Thrones screenings included. The model combines the benefits of SROs and Airbnb — without the affordability, suggesting another battle in this housing fight.

#3 Patchwork housing laws

“New York has really stringent requirements…about the purpose or utility of different kinds of housing stock,” said Tyrrell. Yet those stringent requirements are not always straightforward — and can in fact conflict with one another. The two primary laws governing housing are the city’s Housing Maintenance Code (HMC), which establishes minimum habitability standards, and the state’s Multiple Dwelling Law (MDL), which applies to all residences with three or more dwelling units. The MDL divides buildings into two classes: A for permanent occupancy and B for transient housing, including hotels and dorms. Yet there’s more gray area than these definitions suggest. For example, a provision in the HMC says that if two or more people are staying in an apartment for transient use, it automatically becomes an SRO. In addition, if the unit is rent regulated — about half of the city’s apartments are — then the city’s Rent Stabilization Code is also in effect. These tenants are subject to a clause that says they can’t “profiteer” from renting out a spare room, defined as making more than a ten percent profit above the amount of the room’s rent.

Still with us? If not, you’re not alone. The courts are also trying to interpret the patchwork laws surrounding short-term rentals, and pending cases will significantly impact the future of illegal hotels.

Notorious operator Landlord Hank Freid has been on housing advocates’ radar for more than a decade, primarily for harassing tenants and illegally renting out rent-stabilized SRO units to transient guests. In June, the city filed a lawsuit against Freid for illegally deregulating and converting three of his Upper West Side buildings to hotels. (These rooms were listed on online booking sites, although not on Airbnb.) The case hinges on whether these SRO units are allowed to be used for transient use. The case is currently being heard by the New York State Supreme Court. Housing law is “constantly catching up to social issues” surrounding tenants’ rights.
Airbnb launched an extensive advertising campaign touting, "Airbnb is great for New York City." A disgruntled New Yorker revised one of those ads to say, "Airbnb is great for Airbnb." Photo by Linda Dawn Hammond via <a href="https://www.flickr.com/photos/dawnone/15143967918/in/photolist-p5dN49-n5dM6j">Flickr</a>
Airbnb launched an extensive advertising campaign touting, "Airbnb is great for New York City." A disgruntled New Yorker revised one of those ads to say, "Airbnb is great for Airbnb." Photo by Linda Dawn Hammond via Flickr

#4 Airbnb says not our problem

Airbnb’s stance has long been that the platform helps regular New Yorkers make a little extra money to pay their bills and stay in their homes. That’s certainly true for some: Paul, a freelance photographer, told The Atlantic, “Airbnb is the only way I can make it work in New York.” Donna Deans in Crown Heights told the New York Times that Airbnb is funding her retirement. Residents can typically earn much more money renting out their rooms or apartments on a nightly basis than with a yearly lease. Yet like Uber arguing that its drivers are not employees but independent contractors, Airbnb says it is merely a platform or broker, not responsible for the individual listings on its site. Hosts are left to parse the legality of their unit(s) on their own; Airbnb’s online Help Center only points potential hosts to the MDL, zoning code, business licensing, and other “useful links.” And when something goes wrong — and the internet is replete with horror stories — Airbnb is often hands off, while banking its intermediary fees. (Airbnb charges service fees of 3-5 percent for hosts and 5-15 percent for guests per booking.)

The tenant is left holding the bag Linda Lipetz, a 40-plus-year tenant of a rent-stabilized Greenwich Village apartment, was evicted earlier this year for profiteering from renting out a spare second bedroom on Airbnb. Lipetz could be a poster child for Airbnb: she turned to the site to cover medical costs after losing her job while battling breast cancer. She rented the room for 338 out of 519 days before the building’s new owner filed an eviction case, claiming she had violated the profiteering law by charging far more ($95-$128) than the per diem cost ($57) of her $1,758 monthly rent. Lipetz appealed the eviction, but in May, the state appellate court ruled in a precedent-setting case that Lipetz’s claim didn’t warrant a trial and she would summarily lose her apartment for profiteering. Lipetz’s lawyers argued that her profits should instead be calculated on a monthly basis, which were just over ten percent since her room was booked only about 65 percent of the time. Tyrrell called the per diem calculation approved by the court “woefully anti-tenant.” Airbnb is “basically letting her hold the bag,” according to Tyrrell, as she has been left to navigate the law and pay legal fees on her own.

#5 “Do we want to peg affordable housing to the tourist economy?”

Airbnb certainly can be a valuable service for both guests and hosts, but Tyrrell questioned whether it’s viable — or desirable — to depend on short-term rentals to keep residents in their homes. In both the pro- and anti-Airbnb campaigns, too much attention can be paid to some individuals benefited or harmed by the company while overlooking structural changes to the housing market. To counteract the problems wrought by short-term rentals and prevent the further hemorrhaging of affordable units, Tyrrell said, the city should vigorously preserve existing rent-regulated affordable housing and enforce laws against illegal hotel conversions. Second, it should focus enforcement on the “major offenders” who operate networks of illegal hotels. Third, it should stop the peremptory eviction of rent-regulated tenants who do violate the short-term rental law, and instead provide some “damage control” before booting tenants like Linda Lipetz. Fourth, the city should lift the ban on new SRO construction to meet demand for affordable housing and reconsider the design and facilities of contemporary apartments. Lastly, advocates, industry leaders, and policymakers should work toward a better short-term and vacation rental model: Both Airbnb and hotels have their problems, and as cases are litigated and cities establish regulations, hopefully a safer and more tenant-friendly sharing model can emerge.

Not just a New York state of mind While New York’s short-term rental laws are the strictest in the country, cities nationwide are playing catch-up to the rise of Airbnb. San Francisco, the only city with higher average rents than New York, instituted regulations rather than a ban. In 2015, the city passed an ordinance requiring hosts to register with the city as well as limiting rentals in which the owner or resident isn’t present to 90 days per year. (A 2015 ballot measure with more stringent restrictions, nicknamed the “Airbnb Initiative” and backed by the hotel industry, was defeated narrowly at the polls.) Earlier this year, New Orleans — where tourists far outnumber residents — implemented an annual registration system for short-term rentals. Debates over the registration, taxation, enforcement, and limitation of short-term rentals are being waged across the country: Chicago, Miami, Denver, Los Angeles, Seattle, Austin, and Santa Monica are just some of the cities that have or are considering new short-term rental regulations. Short-term rental markets have become such a thorny issue everywhere because they pit the interests of different groups against one another — the city and the company, the resident and the tourist — with ripple effects for neighbors and neighborhoods. And there’s billions of dollars in the mix, to boot.