Features

July/August 2012 DIY B&B

The Internet is enabling more and more Americans to leverage their biggest asset, their home, by renting rooms to travelers. So why are local governments trying to shut them down?

By Blake Fleetwood

Early one Saturday morning last fall, Jonathan Hogan awoke to the sounds of banging on his front door followed by voices shouting, “Open up! Open up! We are the police!” Unaccustomed to trouble with the law, Hogan opened his door, and saw a group of five or six men in suits and uniforms standing on his Greenwich Village stoop.

“There was a policeman, three officials from the city, a fireman, and a couple of others that I didn’t recognize,” recalled Hogan. Despite their numbers, the authorities had not come to search for drugs or apprehend a fugitive. Instead, they were there because of an advertisement Hogan had posted on the Internet.

Hogan—who requested that we not use his real name—had recently fallen on hard times. He lost his job as an art vendor during the recession, and with five children, two of whom had recently gone off to college, and a hefty mortgage to pay, he had been left scrambling to make ends meet. The one asset he did possess was his house, which had several spare rooms and an apartment sitting unused in one of the most desirable neighborhoods to visit in Manhattan. At first, he rented them out to friends from Ireland who were passing through the city, but soon he converted them into rental apartments and began to post ads online to draw in lodgers from all over the world.

“I worked hard, gave my guests excellent service and value, and it was just starting to catch on,” Hogan said. His monthly finances were beginning to stabilize, his visitors were gaining access to a cheaper, cozier alternative to a hotel, and the city was drawing in additional tourists who might otherwise have been unable to afford to visit New York and support the local economy. Many of his guests enjoyed their stay enough to write positive reviews on Web sites like TripAdvisor, but with this enhanced reputation came another kind of attention, one that had brought the NYPD to his door.

For more than a year now, New York City has been enforcing a new state law that makes it illegal for homeowners like Hogan to rent out their house or apartment for less than a month. All across the city, police raids have shut down hundreds of similar informal bed-and-breakfast establishments, with nearly 1,900 different violations issued in under twelve months. Often, the fees associated with the citations stretch into tens of thousands of dollars. Hogan was threatened with a $25,000 fine—all for marketing the empty rooms in his house.

Short-term vacation rentals have existed for years with little attempt by local governments to stamp them out. But thanks to the Internet, an industry that was once small and underground has, in a few short years, exploded into a multibillion-dollar worldwide business. Airbnb, an Internet booking engine launched in 2008, connects more than a million renters and hosts in 192 countries. Homeowners, many of them left jobless by the economic downturn, have increasingly turned to the practice as a relatively secure, entrepreneurial way to leverage the value of their most significant asset.

But an opportunity for some can be seen as a threat by others. Short-term vacation rentals like Hogan’s cut into the bottom line of some powerful interests, and those interests are pressing local governments to put a stop to the practice. The dynamics that have led to the crackdown in New York are playing out nationally—and internationally—as governments struggle with how, or whether, to accommodate a burgeoning new vacation rental industry. While some regulation and taxation of this new market is inevitable and necessary, the danger is that we may strangle precisely the kind of small, entrepreneurial markets we should be fostering.

New York City has long been one of the world’s most enticing tourist destinations; more than fifty million visitors arrive annually in the Big Apple to stroll through Central Park and Times Square. But in recent years, the tourist landscape of the city has become a battleground between a powerful, entrenched hotel industry and a decentralized world of entrepreneurial homeowners doing business with short-term renters via the Internet. For much of the past decade, the entrepreneurs flew under the radar, making use of Web sites like Craigslist, sparking a boom in short rentals by tourists wanting to save a buck and have a more intimate vacation. However, with the onset of the recession and a decline in tourism across the board, hotels teamed up with hotel unions and began flexing their muscles and working their connections in city hall and Albany. They also found unlikely political allies among the city’s politically powerful tenant activists—there are more than a million rent-regulated apartments in New York City—who worried that legitimizing vacation rentals would encourage greedy landlords to get rid of their regulated tenants.

With the endorsement of the tenant activists, the hotel industry took its cause to city officials, who, in turn, lobbied Democrats in the state legislature. In 2010 New York passed a law requiring a minimum thirty-day stay for any rental in a residential building—in effect making shorter-term rentals, the bulk of the market, illegal. The law also required health and safety features, like sprinkler systems in each room, that the average homeowner usually doesn’t have and can’t afford. When the law went into effect last May, Mayor Michael Bloomberg’s administration began enforcing it with gusto.

The crackdown in New York is similar to ones happening in several major European cities. Paris, for instance, passed a law in 2005 banning the rental of any residential property for less than a year, and began enforcing that law in 2010. London is now engaging in a wave of enforcement in the run-up to the 2012 Summer Olympics.

Many American cities have long had laws on their books banning short-term rentals. In New Orleans, for instance, rentals must be for a minimum of thirty days—sixty days in the French Quarter. As with many rules in the Big Easy, this one has been neither scrupulously followed nor enforced. But as homeowners have begun to soak up some of the massive tourist demand that floods the city during Mardi Gras and Jazz Fest by offering lodging over the Internet, signs that the local government will soon stop ignoring the phenomenon have begun to appear. Under increasing pressure from hotels and neighborhood associations to crack down, the city has launched a series of law enforcement sweeps to target people renting out multiple units in violation of the law. (This has netted some surprising offenders, like Henry Coaxum, a close associate of Mayor Mitch Landrieu’s who had been renting out rooms in a spare home.) The city has yet to target the average Craigslist advertiser offering up a room in the Vieux Carre, but if pressure from the hotel industry were to continue, those types of rentals could be next to face scrutiny.

Laws against short-term rentals have also long existed in some of the tonier cities in Florida, such as Boca Raton and Del Ray Beach. But similar restrictions have recently spread to other cities in the state, thanks, ironically, to a new state law intended to help individual homeowners take advantage of the Internet-empowered vacation rental market. The law set a date after which municipalities could no longer pass ordinances against short-term rentals. Predictably, a number of cities hurriedly pushed through such ordinances in order to beat the deadline.

Crackdowns against vacation rentals are also happening in other cities across the United States, in part for fiscal reasons: municipalities need the money. Cities like Palm Desert, California, and resort communities in Colorado have recently required short-term rental owners to buy permits and pay taxes, as well as abide by parking, trash, noise, and other ordinances. But these restrictions don’t seem unreasonable. The permits aren’t prohibitively expensive (a few hundred dollars), the taxes aren’t unfair, and unruly guests can legitimately upset neighbors.

Indeed, in a rare instance of an industry asking for more regulation and taxes, a group representing New York’s besieged short-term rental owners is backing a proposed state law that would similarly define, regulate, certify, and tax legitimate vacation rental apartments. In return for legitimacy and freedom from harassment and fines, the group, the Short Term Rental and Hospitality Association (STRAHA), says its members would gladly pay the same occupancy tax that regular hotels pay.

“License us and provide a way for visitors from Europe, South America, and Asia to check legitimate establishments, so that overseas visitors won’t get scammed by criminals pretending to offer accommodations,” said a STRAHA representative. “The scam artists would be driven out and safe vacation apartment rentals would be allowed to prosper.”

The danger of any ordinance restricting commerce is that it will wind up protecting incumbent interests at the expense of new entrants into the market. So even the more reasonable-sounding laws bear watching. But if done right, these lighter rules could ensure that necessary taxes are paid, legitimate neighborhood concerns are respected, and average citizens are free to make use of an untapped, valuable asset: their own homes.

[Return to The Future of Success in America]

Blake Fleetwood , formerly on the staff of the New York Times, has written for New York Magazine, the New York Daily News, the Wall Street Journal, USA Today, the Village Voice, the Atlantic, and the Washington Monthly.

Comments

  • SimpleSean on July 13, 2012 4:57 PM:

    Idea - instead of "renting rooms" why not "sell meals" (or something else) and, oh, by the way, we also have a couple spare rooms if you'd like to stay with us. E.g., instead of paying $150 to rent a room for two days, pay $150 for breakfast and dinner for two days, with a room thrown in for free.

  • Rod on July 13, 2012 5:38 PM:

    Good grief. Another article painting AirBnB hosts as victims of governments and Big Hotel industry. Take of the internet feel-good blinders for a second and think about why things like zoning laws are they way are.

    For example: Would my neighbors think it was a good idea for me to turn my residential garage into a full-time commercial vehicle repair garage? My garage is mine, its an asset for me to tap! However, my neighbors might be pissed at the traffic, the noise, the smell, etc. It would also create a safety risk - increased traffic, fire, oil disposal, whatever. Basically, its a bad idea. I can't use my garage for commercial vehicle repair b/c doing so imposes a cost on those around me in terms of property value, safety, noise pollution, environmental pollution etc.

    Turning one's house into a hotel is a less drastic example, but the same principle applies. Similarly, I can't turn my house into a restaurant, a record store, a fitness center, or any number of other businesses. And this is a good thing.

    Final note: no one ever talks about insurance. The risk profile of a hotel or bed and breakfast is considerably different than that of a residence, and very few if any AirBnB'ers are carrying commercial hotel insurance.

    Anyway, these articles moaning and groaning about AirBnB crack-downs are as ridiculous as the business model of AirBnB: frantically exploiting a rapidly closing window of legal oversight.

    If this dude really has an entire apartment suite sitting empty, why can't he just rent it out to a normal tenant, like a normal landlord? Similarly, if he's got spare rooms, and needs to make ends meet, take on normal roommates on one-year terms. This isn't rocket science, and this person doesn't have to be a victim - he just has to be smart.

  • Tim on July 13, 2012 5:54 PM:

    Actually most importantly this takes affordable housing off the market since landlords can make more money renting under-regulated hotels than renting to long-term residents.
    They also don't have to be ADA compliant and they can "screen" applicants. It's not hard to predict that if short term rentals squeeze hotels out of business that we could return to the lovely era of the 1950s when African-Americans and people in wheel-chairs were out of luck if they wanted to travel.

  • ComplicatedSean on July 13, 2012 6:05 PM:

    SimpleSean,in the Police States of America it's even harder legally to host a lunch for money,as you don't have a chef license or some similar shit

  • CaptBackslap on July 13, 2012 6:21 PM:

    Tim: Let's not be so alarmist. For starters, the chance that people renting out spare rooms could actually "squeeze hotels out of business" rounds to zero. Second, most people are actually not horrible racists (even in Florida), and the threat of social-media shaming would be enough to warn off most who would try to discriminate. ADA compliance is a more valid point, but a high enough proportion of places are already compliant that disabled people wouldn't have trouble finding lodging.

  • Robbie on July 13, 2012 6:28 PM:

    @Rod, AirBnB automatically insures hosts for $1mm.

    Why is a "normal" tenant one who signs a long-term lease with a "normal" landlord? Long-term commitments are necessary only as long as the market will bear it (or governments will force it).

  • Ellen on July 13, 2012 6:40 PM:

    I operate a VRBO in a city and state that permit them. I pay county transient room tax monthly -- June's check went out today -- and state lodging tax quarterly. Luckily, my state allows insurance companies to write policies on this kind of use (you need Lloyd's in many states)and my annual premium is just a bit lower than I paid for homeowner's coverage. I take guests for as little as one night at times. Since I'm budget-priced, I attract all sorts of people, all of whom are absolutely thrilled to have a non-hotel option. Almost to a person they have treated the house well -- pruning my roses, fixing a pesky toilet, digging dandelions (!), and leaving me the extra blueberries they picked. It's been wonderful in every way. And the neighbors are utterly fascinated. They like to come over and find out where the latest guests are from, and offer restaurant advice. One neighbor was amused when one of my guests leaned over the fence to ask if he might buy a couple of eggs from their chickens, but he complied and cheerfully told me about it. My city and neighborhood would consider a vacation rental a net positive.

  • Jess on July 13, 2012 6:48 PM:

    I started renting out the 2nd bedroom in my apartment on Airbnb over a year ago, and have since joined Airbnb as an employee. I don't turn a profit renting my place out-- I simply supplement my rent, provide visitors with reasonably priced accomodations in an otherwise pricey city, and have a great time meeting new people and learning about their lives. Our guests support local businesses and often have more disposable income to spend there because they're accommodations are less expensive than a hotel. So while short-term rental laws protect the hotel industry, they effectively ignore the fact that hotels are often located in one area and disproportionately help businesses in those areas (San Francisco is a prime example).

    There also seems to be a perception that all short-term rentals directly compete with hotels, but in fact, Airbnb and others are solving a different problem- opening up housing in areas where there are no hotels and creating better opportunities for newcomers to the city. For example, in San Francisco, where it is notoriously difficult to find housing and sign a lease, Airbnb is often an interim solution for people looking to find permanent housing-- something most hotels are not able to accommodate due to their prices.

    Increasingly supporting local businesses, facilitating friendships, and bringing people together from around the world is, and always will be, beneficial for any city.

  • Hogan on July 13, 2012 7:32 PM:

    Usign government force to protect one special interests profits against another is the name of the game. Why people think that the voluntary free market cannot solve these issues versus using political coercion to threaten people of putting them in cages if they do not abide by crushing laws, is depressing.

    Wake up. Laws are just preferences with a gun. Taxation is theft. Find out more by searching for Voluntaryism.

  • Scott on July 13, 2012 9:34 PM:

    Hey Rod
    Don't you think a commercial garage is an extreme example to use when comparing to a person using an apartment for what it was actually intended for - a place to eat, sleep, chill, etc. That is what we are talking about here. It's the amount of time in the apt that differs - that's it. The price per day may be a little higher if the supply and demand allow. That is the key, Rod. Supply and demand. If a market exists in which both parties mutually agree on a price, then why does the government need to intervene? The only reason is MONEY. Follow the money to the Hotels and their lobbyists who pay off the politicians to pass the laws they want. Why a 30 day limit? Why not 45 days or 1 year like in Paris? It's just the people with the money protecting their interests. It is the textbook definition of Facism as coined by Mussolini - Goverment and Corporations colluding to their benefit. It never ends well as we all lose more freedom with these overreaching laws.

  • Randy on July 13, 2012 10:30 PM:

    Rod -- you make no sense whatsoever.

    If you don't like the fact that a person might come and go when it's rented as a hotel, then how does that square with allowing a person who comes and goes every day for a year?

    Actually, it's unlikely that a spare room would be rented for 364 days out of the year as a hotel, but if you have a one year rental, it would be. Rather, he probably gets vacationers probably only half of the time.

    So -- it's okay to have a person enter and leave every single day for a year, but not okay to have a person enter and leave just half that time? It makes no sense.

  • Chris McCoy on July 14, 2012 12:13 AM:

    Issue is taxation and gov't has control over the lodging industry.

    AirBnB will thrive if they focus on stays under 30 days. It's too decentralized to regulate against, yet if over 30 days they get into the housing space. The gov't has supreme interests in that--and will attack.

    AirBnB gives the economy more disposable income. It's a blessing to both buyers and sellers.

    Most importantly, it frees up the highly illiquid asset of real estate (excess space) and makes it highly liquid. TaskRabbit is the equivelent for time.

    Gov't: AirBnB is a boon to the neighborhood-level economy. Leave it alone.

    Unless they focus on long--term stays. Then it's gov't business.

  • Eileen and Mike Beard on July 14, 2012 4:26 PM:

    Here’s another classic example of the big established bullies trying to crush the little guy, grass roots entrepreneurs who are just trying to survive! Someone has finally figured out a way to help people in trouble with their underwater mortgages, joblessness and general financial troubles. Is it really hurting the hotel industry or the tax base when neighbors, travelers and locals are helping each other to afford trips that they otherwise wouldn’t have made? I can’t tell you how many guests we’ve had who have told us that our affordable rooms made it possible for them to travel. Their home stays with us make it possible for us to pay our mortgage. I would think banks would be getting down on their knees and thanking Airbnb for preventing so many foreclosures. Cities and local communities should be thanking Airbnb for attracting so many new tourists, travelers, interns, etc. who are bolstering the local economy. These are people who otherwise, would not be in their area. They also would not be downtown in a big hotel that they can’t afford. In dire financial times a little creativity is needed. Airbnb is doing its small part to help correct some of the huge losses we’ve all endured due to inept government regulators and greedy lenders who overlooked many laws and rules to get rich at our expense.
    Eileen and Mike

  • Chris Burns on July 16, 2012 1:24 PM:

    Dear Editor,
    I enjoyed reading the article by Fleetwood recently and the corresponding counter argument given by Tom Cayler and felt the need to add my comment and opinion regarding the issue.

    I have friends who travel occasionally to and from NY and often with family during the holiday periods. Some prefer to stay in a hotel but when with a large family most try to find an apartment that can accommodate the five to six(not easy in New York).
    An apartment is the only viable and affordable option
    My family and I try to budget our vacations like most large families and a hotel in NY is out of the question. I have rented many apartments over the years and developed some amazing friendships along the way. The people that I have rented from have never let me down and have always provided the best and cleanest places that I have ever stayed in.

    Tom Cayler from the West Side Alliance brings forward his opinion on issues of safety and sanitary conditions that are compromised by guests or tourists that stay in apartments. I would seriously like to see his statistics on crime/health problems resulting from the rental of apartments to tourists? There are no "terrorists" or "weapons of mass destruction" hiding in apartment rentals for tourists and a family of four children and a working professional such as myself cannot jeapardise his lifestyle. On the contrary, I feel that I have much to offer as do the millions of tourists that come to NY each year($$$).

    As is the current trend in America, unjust rulings and laws that restrict freedom of commerce have taken the stage. I hope that the powers that be can see the true value of allowing people to profit from their property and the obvious trickle down affect it must have overall in any community.

    Sincerely, Chris Burns

  • ARHW on July 16, 2012 5:24 PM:

    The excuses offered for the 30 day restriction on short term rentals are 1) loss of affordable housing - but only de-regulated apartments are (and should be) in question here; and 2)safety - but why is a family staying 31 days more safe and less dangerous to its neighbors than a family staying a week or two?
    We are not talking about the industry bad guys cramming raucous teenagers in bunk bed dormitories next to peaceful families - we are talking about family housing for people who would otherwise never be able to afford to come to NYC. Many are of the Bed & Breakfast type who bring serious tax dollars to the City and State. I love meeting these interesting people from all over the USA, and indeed, the world!

  • tony on July 16, 2012 6:06 PM:

    I read Blake Fleetwood's article and he makes a number of good points among which are: 1) why the 30 day rule if safety is the issue, is a person who stays for only 30 days safer than someone who stays 1 night? 2)is allowing people to rent one or two bedrooms for 1 night safer and more desirable than renting out an entire 2 bedroom apartment to a family? Renting a bedroom out on a nightly basis usually brings in single, transient, tenants ie similar to the SRO hotels. If you have two bedrooms to rent out to total strangers, can you put 2 bunk beds in each bedroom and rent out on a nightly basis to 8 people? 3) the ban on less than 30 day rentals was supported by the hotel industry and has had the effect of driving out long established bed and breakfasts. 4) in response to complaint in many cases why do the police, fire dept, and dept of building inspectors all have to show up and start knocking on doors threatening and intimidating tenants about how long they're staying...why the heavy handed enforcement against mom and pop bread and breakfasts?

  • Tony B on July 17, 2012 2:15 AM:

    Another example of BIG BUSINESS bureaucracy destroying the small business competition.

    "Conservatism" is slowly destroying America. From off-shore tax evasion scams to bribing Congress...the small business-person better learn who the real capitalists in America are...vote progressive or get what you deserve.

  • Liz on July 17, 2012 11:55 PM:

    I am certainly in agreement that long established B&B's, both in peoples homes/apartments and in individual small buildings should certainly not be outlawed. Condo's and co-op buildings should (and have for years )regulate themselves. This was never something that the city government was interested in dealing with. However, since Air B&B has stepped onto the scene, anyone can rent out their closet/sofa/air mattress and get away with it without fear of being caught and without paying the appropriate taxes. I do see a huge problem with that. Hotels should not be the only game in town. Of course we know that many many tourists cannot afford to visit New York if it weren't for alternative accommodations such as B&B's, but these places should be accountable, registered with the city, tax-paying, and completely transparent. Enforcement has not helped the matter at all, it has just made places go more underground. It would be wise if the city took a good long look at how very dangerous this will become if they continue to use heavy-handed enforcement which drives these places further underground.

  • tony on July 18, 2012 10:32 AM:

    Under NY’s Illegal Hotel Act a permanent occupant can legally rent out their closet/sofa/air mattress or extra bedrooms to no more than 4 boarders for less than thirty days.. This the one type of short-term “rental” in class A dwellings that is actually allowed---where the permanent occupant is also in the unit and allowing a guest or guests to stay as well.

    This is another example of how this Act does not make sense. If the Act was passed to address safety, fire, noise and unruly strangers in hallways concerns then why does it provide this exception? Is it safer to rent your apartment closet/sofa/air mattress or extra bedrooms to 4 strangers on a nightly basis than to rent out a licensed and long established bed and breakfast which under the ACT is prohibited? This Act also would encourage occupants of rent stabilized apartments to generate extra cash by renting extra bedrooms on a nightly basis.

  • Liz on July 18, 2012 2:12 PM:

    Tony, yes you are correct, but keep in mind those who take boarders are responsible for paying several city and state taxes, and of course they are not doing that. This is what I meant when I said being transparent. These hosts should be registered and have proof of it, so the playing field is equal. Your last sentence is right on the money.....renters of rent stabilized apartments are making a killing, while many owners/ landlords are being fined.
    Lets hope the city re-thinks this law and does what it can to preserve affordable housing and at the same time let owners of tiny buildings and B&B's provide diverse, clean, affordable hotel alternatives.

  • newyorker on July 18, 2012 9:16 PM:

    It is important that the City and State both take a hard look at reforming NYCs short-term rental industry. B&B's for instance, are the collateral damage in the Citys fight against illegal hotels. Taxpaying, registered Small Facility Operators (B&B's), have been it with huge fines while other have been forced to shut down. To learn more on how to help keep B&B's open for business visit http://www.staynyc.org
    STAY-NYC Member and B&B owner

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