As Airbnb Battles Cities Trying to Regulate It, One State Joins the Fight

A new law in Massachusetts aims to curb short-term rentals, which critics say are limiting the affordable housing stock and turning residential property into unregulated hotels.
by | February 1, 2019 AT 4:00 AM
Airbnb public policy manager Josh Meltzer, left, joined by Margaret Richardson, the company's director of global policy, at a news conference last year. (AP/Mary Altaffer)

Airbnb, the largest player in the short-term rental market, is facing pushback from governments worried about how the service is limiting tax revenues and affordable housing stock, and turning residential property into commercial enterprises with little government oversight.

Massachusetts recently became the first state to pass sweeping regulations on short-term home rentals, with a law signed by Republican Gov. Charlie Baker in late December. As is the case when local governments have passed rules for this emerging industry, Airbnb has threatened to fight the state's legislation in court.

The law, set to take effect in July, requires short-term rentals to register with the state, carry a minimum of $1 million in insurance and pay a 5 percent tax to the state. The law also allows local municipalities to assess an additional 6 percent tax and creates a state-run affordable housing fund, which will funnel money from another 3 percent tax on property owners with two or more short-term rentals in the same municipality.

The sponsor of the Massachusetts bill, state Rep. Aaron Michlewitz, pushed for the measure after he began to see short-term rentals saturating his neighborhood in Boston’s North End.

“People were buying properties and turning those properties into short-term hotels,” Michlewitz says.

At first, he wanted to push for an outright ban on all short-term rentals in his neighborhood. "But as I have learned about it, I have grown to understand the demand and need for this type of lodging,” he says.

Massachusetts may have the first statewide short-term rental regulations, but it's a debate that cities and states are having around the country.

 

How Cities Are Trying to Regulate Airbnb

In New Orleans, the city council passed a nine-month ban in May on issuing new short-term rental licenses or renewing existing licenses. The ban targets several neighborhoods popular with tourists.

Airbnb struck back by removing the licensing numbers that had been publicly displayed on its website, making it harder for city inspectors to match short-term rental licenses with actual properties.

In mid-January, the New Orleans City Council unanimously approved a package that permanently extends the nine-month ban on short-term rentals in the French Quarter and Garden District. In an effort to preserve retail space, the new rules also prevent Airbnb operators in commercial zones from renting first-floor units. And in residentially zoned neighborhoods, people can only rent out rooms in homes that they occupy.

Airbnb, which did not respond to an emailed request for comment, has said that it plans to sue New Orleans.

In New York last month, a federal judge struck down the city's short-term rental regulations, which called for Airbnb and similar companies to reveal the addresses and names of the hosts in monthly reports.

“The scale of the production that the ordinance compels each booking service to make is breathtaking,” Judge Paul Engelmayer ruled.

New York, like many other local governments, is hoping to rein in short-term rentals in part because they cut into tax revenues that cities receive from hotel stays. From 2010 to 2014, New York state lost an estimated $33 million in hotel occupancy taxes from Airbnb alone, according to the state attorney general’s office.

In Washington, D.C., Mayor Muriel Bowser pumped the brakes on regulations that would have become law in October. They would have required short-term rental operators to hand over more data to the city. The mayor returned the bill to the council unsigned and without a veto. She said she was concerned the proposed regulations would open up the city to a legal challenge.

Despite their resistance, some say Airbnb would benefit from embracing some form of regulation.

“Regulation is legitimization for them. They don’t want to be seen as illegitimate because that brings uncertainty as they move toward an IPO [initial public offering],” says Daniel Guttentag, assistant professor and director of the College of Charleston's Office of Tourism Analysis.

The company has said it plans to go public either by the end of June or, at the latest, in 2020. Like the ride-sharing company Uber before it, Airbnb disrupted an established industry before local policymakers could control it. Imposing regulations means the business is gaining credibility.

Regulating Airbnb, however, is a tricky proposition. Cities must determine whether an operator is simply renting out a room in their own home -- sometimes as a means of affording their mortgage payments -- or running what amounts to a hotel.

“Part of the challenge of regulating it is that you have all kinds of activity, ranging from informal and infrequent rentals to real commercial businesses,” says Guttentag.

Massachusetts’ law tries to draw a line between the two. For instance, the state's new law exempts properties rented for fewer than 14 days a year.

According to a 2015 study by the Los Angeles Alliance for a New Economy, leasing companies have increased their listings on platforms like Airbnb and account for 37 percent of all revenue. Meanwhile, property owners renting out a single room have been on the decline, dropping 16 percentage points to 36 percent of home-sharing revenues.

 

Does Airbnb Drive Up Housing Prices?

Efforts like the ones in Massachusetts and New Orleans are based on the underlying notion that short-term rentals are inflating home prices and fueling gentrification. But is that actually true?

Research suggests that it is.

According to the New York City Comptroller, Airbnb cost renters there an additional $16 million in 2016. Additionally, a 2018 study by David Wachsmuth at the McGill University School of Urban Planning showed that Airbnb alone was responsible for a 1.4 percent increase in rents between 2014 and 2017. The report also estimates Airbnb caused the city to lose between 7,000 and 13,500 housing units in the same period. All of those impacts were more likely to impact black residents.

In Los Angeles, the Alliance for a New Economy estimated that home-sharing platforms took 11 units off the local rental market each day of 2015. The presence of those services has swallowed up a significant portion of the new housing built.

Guttentag, however, doubts that short-term rentals are the biggest driver behind rising rental prices.

“You could shut down every Airbnb, every short-term rental platform in Boston tomorrow, and real estate is still going to be expensive,” he says. “Airbnb may not have helped, but to put the blame all on Airbnb is misguided.”