Legal landscape shifting for sharing-economy lodging
Legal landscape shifting for sharing-economy lodging
08 DECEMBER 2016 9:34 AM

High-profile legal proceedings in San Francisco and New York are setting the tone for the nation’s overall struggle to regulate short-term rental properties.

REPORT FROM THE U.S.—As legislators nationwide continue to fight for control of the burgeoning short-term rental market, most recently popularized by sharing-economy provider Airbnb, bills passed recently in New York and San Francisco offer insight into what can be expected.

Much of the controversy so far has focused on the effect of multi-property owners who are converting residential properties into high-profit, high-turnover short-term rentals. Concerns also have been raised over the safety of such properties, as well as how to ensure they are compliant with the Americans with Disabilities Act and adhere to nondiscriminatory practices—all of which are governed by law at hotels, yet frequently go unregulated at short-term rentals.

The legal wrangling in New York and San Francisco, sources said, is just the beginning, and drawing a lot of attention as both cities cope with limited, high-priced housing inventories. What is happening there won’t necessarily translate to other markets, but it could set the tone for legal battles elsewhere.

“There’s a big divide between some of the major cities, which have the people and time to sort this out,” said Jeffrey B. Goodman, a New Orleans-based researcher and community planner entrenched in the market. “It’s more meaningful for them; you’re talking about a place like New York that has 10,000 listings, or San Francisco with 7,000. They’re being forced to take the time and they have the leverage that your vacation communities and smaller or poorer towns don’t have. So you have these big cities really driving the bus when it comes to legislation.”

Laws and impact
In October, New York Governor Andrew Cuomo signed a bill that sets hefty fines for hosts who use short-term rental sites like Airbnb, HomeAway, FlipKey and VRBO, in violation of a state law passed in 2010 that prohibits most apartment buildings from being rented out for less than 30 days at a time. Hosts who live on-site and rent out a spare room (or rooms) are exempt, as are one- and two-family homes.

“There was a comprehensive report issued by the NYC attorney general in 2014 that said that 72% of the listings on Airbnb violated the law,” said Alex Lycoyannis, an attorney with the NYC firm Rosenberg & Estis. “A little more than a quarter of listings were someone who has a two-bedroom apartment or something and is having trouble making ends meet, and needs to rent out the extra bedroom. But the other 72% are trying to profiteer and run de facto hotels.”

In cities like New York and San Francisco, that has a direct effect on local housing stocks and makes a tight market even tighter. More and more investors are buying multiple residential homes explicitly for short-term rental use, and some landlords have been known to price-gouge or evict long-term tenants so they can cater their properties to higher-profit, short-term renters instead.

“The biggest issue is creating housing shortages,” said Guy Maisnik, partner and vice chairman of Jeffer Mangels Butler & Mitchell’s Global Hospitality Group. “It’s one thing for you to have a house, and an extra room, and rent out a room, and it’s another thing for you to take a bunch of houses off the market in order to create your own hotel. Even those who are in the sharing business agree that that’s a service that can be problematic.”

The problems
Meanwhile, converting an apartment into a hotel room isn’t as simple as listing it on Airbnb or a similar site.

“Apartment buildings are built to different standards than hotels,” Lycoyannis said. “Hotels have more stringent building regulations because they’re populated by short-term residents who aren’t going to necessarily know where the nearest fire escape is and aren’t going to be as familiar with their surroundings. … The fire department doesn’t want to send its firefighters up into a burning building to rescue people who aren’t familiar with the layout.”

Also, the quality of a neighborhood or building may suffer when it hosts short-term renters. Most owners treat the property differently when they actually live in it, which is another key justification for the latest regulations.

“People who are coming into an empty unit might trash it, or make more noise, or be disrespectful of the neighbors,” said Airbnb host/consultant/blogger Susan Douglas, a self-dubbed “Airbnb Expert” in Los Angeles. “When you come into a hosted home, the chances of any of that happening is next to nothing. I’m very much against homes that are just being rented out when nobody else is home.”

But cracking down on illegal multi-unit operators is also just the beginning of a broader debate over the short-term rental trend. According to insiders, regulations often fail to account for other rights and freedoms that lodging guests are generally afforded under the law—specifically, the assurance of handicapped-accessible facilities and the right to access accommodations without discrimination.

“I really worry about the ADA compliance of all the listings on Airbnb,” Goodman said. “I worry about these bombshell studies about racial discrimination and bias. Things that we would never allow from a hotel or motel suddenly become, through the internet, ‘We’re going to shrug our shoulders about it.’ That’s unacceptable to me, and that’s the frontier of regulation that no one’s really touching, and honestly, aren’t likely to be touched in the next few years, because it would have to be at the federal level.”

Prelude and precedent
Despite passage, legislation in New York and San Francisco is far from settled.

On 22 November, Airbnb settled a lawsuit that sought to block New York state from enforcing legislation that targets short-term rental properties. The company also recently settled a suit focused on New York City’s law, which carries fines of as much as $7,500 for short-term rentals. That company contended that the wording was ambiguous and fines could be levelled to the platform and not just hosts, but city officials have agreed to punish strictly the hosts

Airbnb is also suing San Francisco to block enforcement of a law that would fine the company $1,000 per day for each illegal listing.

The cases may set a key precedent: Short-term rental platforms like Airbnb—while internet-based—still are subject to regulation by individual cities, as part of their overall industrial landscape.

“It’s a big deal. That’s been the big hurdle in terms of enforcement,” Goodman said. “It feels likely that that’s the way the judge will rule [in San Francisco]. If that’s the case, then you’ll move in a very different direction, where cities can say, ‘OK, you have to check whether something has a permit before something has a listing, and if you don’t do that, we’re going to fine you.’ That’s the holy grail of enforcement, and that could be soon, depending on what San Francisco turns out to be. That would be a real game-changer.”

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