The fallout from New York City’s 2023 move to ban many types of short-term rentals (STRs) continues to reverberate throughout the United States. Some municipalities are trying to beef up their own restrictions, while several state legislatures are working in the opposite direction. Given the ever-evolving landscape, many of the main players in the should they or shouldn’t they debate, including Airbnb, the American lodging industry, affordable housing advocates, and lodging data analysts, are weighing in.
In September of 2023, Local Law 18 went into effect in New York City. It requires all short-term rental (less than 30 days) hosts to register with the city or face fines of up to $5,000. It also prohibits booking platforms from processing transactions for properties that are not registered.
The measure was passed in order to end the proliferation of illegal short-term rentals and to enforce an existing prohibition against rentals of fewer than 30 days unless the host is present. The result of the new legislation, according to Inside Airbnb, is that between August and October of last year, the number of short-term rentals in New York City plunged 85 per cent.
In toughening up its regulations and enforcement efforts, New York is following in the footsteps of other large cities in the United States. Many have installed licensing and registration requirements, and limitations on rental nights. San Francisco, the birthplace of Airbnb, was one of the early adopters of STR regulations. As far back as 2014, San Francisco ruled that only permanent residents, who have registered with the city, are allowed to be short-term hosts. To be a permanent resident, one must reside in a unit for at least 275 nights per year. The ability to share space when a host is present is unlimited, but host-absent stays are limited to 90 days per year.
The controversies
The main argument against STRs in most metropolitan areas is housing affordability. Affordable housing advocates say short-term rentals are taking away housing that could be used for long-term residents, thereby driving up rental and real estate prices.
In reaction to the critics, in January of this year, Airbnb announced it was forming a housing council that will “advise the company on policies, initiatives, and partnerships it can support to help spur housing supply and better balance the benefits of home sharing with the needs of communities.”
In the announcement, Airbnb mentioned that the formation of the group will “build on Airbnb’s recent support of housing organizations and other efforts to drive long-term housing solutions.” That support includes more than four million dollars in donations to national and local housing advocacy groups. Whether these efforts will truly be meaningful, as opposed to merely self-serving, is yet to be determined.
The traditional hotel industry is another thorn in the side of the short-term rental industry. “Our position on short-term-rentals is simple: since short-term rentals are businesses that directly compete with hotels, we believe they should be subject to the same laws, taxes, and regulatory standards as hotels,” says Chip Rogers, American Hotel & Lodging Association (AHLA) president and CEO. “That means registering their business, paying taxes, following laws and regulations, and removing illegal listings – particularly for multi-unit operators that are effectively running illegal hotels.”
He adds that “ the hotel industry is under constant threat due to efforts in states to give short-term rentals like Airbnb unfair tax and regulatory advantages.” He says that in 2023, AHLA deterred legislation in 12 states that would have prevented local governments from regulating short-term rental properties by the same standards as hotels.
Despite AHLA’s efforts, some states are actually working to ease restrictions on short-term rentals. While many cities around the country are trying to crack down, they are often at odds with state government. For example, the Idaho legislature is currently considering a bill that would block cities from placing any rules on short-term rentals that aren’t placed on regular long-term rental properties. The bill would also prevent cities from requiring additional fire protection or sprinklers in rentals, or additional off-street parking or improvements to the physical structure of a rental. In Virginia, the General Assembly is working on a bill containing language that would make it so localities couldn’t require certain permits for short-term rentals involving a homeowner’s primary residence. At the same time, the legislation would limit city registration fees to a maximum of $150, and fines to $300.
Resorts and rural areas top spots for short-term rentals
While most of the headlines focus on big cities, the data shows that short-term market rental share is highest in resorts and rural areas. In urban and suburban areas, their share of the lodging market has either declined or flattened, according to CoStar Group’s STR division. “Looking to the future, hotel supply will likely remain strongest in urban and suburban locations, with low development in coastal and rural areas due to higher barriers to entry, where short-term rentals will likely see more opportunity for growth,” said STR’s Vice President of Analytics Isaac Collazo.
AirDNA collects data on short-term rental pricing in order to help investors understand the playing field. It recently released a study called The New Frontier in Lodging: Supply and Demand Growth for Short-Term Rentals Outpaces Hotels. Among its key findings:
- Strong rental demand growth is especially pronounced in small city/rural areas. Between January and May of 2023, demand growth for small city/rural locations was 24 percent for rentals and zero percent of hotels.
- Rental demand change exceeded hotel demand change in mid-sized cities, suburbs, mountains/lake resorts, and coastal resorts.
Jamie Lane, AirDNA’s chief economist, suggests demand patterns showcased by STR data provide proof of concept to hotel companies trying to figure out where and what to to build.
According to Lane, “In part due to the pandemic, but also in part because of the success of Airbnb et al, the hotel industry realized that there was a new segment of people with flexibility in where they are working and living, who needed lodging that included kitchens and extra living space.”
The hotel industry, he says, “has reacted to the growing demand by adding extended-stay supply in markets where Airbnb’s success showed there is a critical mass for that type of demand.” The industry, he says, is also reacting to the fact that there is proof of growing demand for multi-bedroom lodging.
According to AirDNA data, bedroom quantity influences consumers’ lodging decisions, particularly when traveling for leisure. In May 2023, homes with three bedrooms accounted for 33 percent of total rental demand change, while two bedrooms accounted for 22 percent, and one bedrooms, most likely to compete with traditional hotels, accounted for 14 percent. Lane cites Marriott’s 2022 introduction of Apartments by Bonvoy, along with the growing roster of hotel companies offering house rentals, as a reaction to the STR competition.