Airbnb Bans Only Make Tourism More Expensive. Just Ask New York.

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A lot has changed since New York City began strictly enforcing Local Law 18, which effectively banned short-term rentals in the city. But it’s unclear whether improved housing affordability, the goal of the crackdown, is one of those changes.

An Airbnb analysis released in January found no evidence that the new rules had impacted rent prices or rental inventory, even amid new construction completions, and the city hasn’t reported any changes in housing affordability metrics attributable to the law. 

New York City has, however, seen a rapid increase in hotel rates and a growing black market for illegal short-term rental units since the number of short-term rental listings began sharply declining last fall. New Jersey short-term rental hosts have also benefited from the surge in demand for legal rentals with easy access to New York. 

It’s now more expensive and less convenient to find lodging as a tourist visiting the Big Apple, but it’s no less expensive to live there. In fact, some former short-term rental hosts who relied on the revenue to offset their housing costs are finding it even more difficult to make ends meet. 

The effects of the new rules may be delayed, and it may be difficult to measure the impact of Local Law 18 amid the city’s other efforts to improve housing affordability and the slew of other factors that impact rent prices. But it’s worth questioning whether the law was a worthwhile endeavor, especially as other cities look to NYC as a blueprint when considering tighter regulation of the short-term rental market.

The Reasoning Behind Local Law 18

Rent increases are outpacing wage growth in most cities, but the gap is particularly wide in New York City, where the supply of rental properties is tighter than it’s been in 50 years. A recent report from the city puts the home vacancy rate at just 1.4%. 

Apartments in Manhattan rented for an average of $4,771 last month, according to data from Redfin. Naturally, city officials have been motivated to solve the problem for residents, who can only afford about 5% of New York City apartments on an average salary. 

Rentals of less than 30 days in multifamily buildings have been illegal in many New York cities since 2011 when the state legislature amended the Multiple Dwelling Law. The law included an exception that allowed New Yorkers to rent out a room within their primary residence for fewer than 30 days, as long as the host was present and the guest had access to the entire apartment. But the rules were difficult to enforce.

By 2015, there were more than 43,000 Airbnb listings in the city, and officials worried that the growth in short-term rental activity was exacerbating the shortage of affordable housing by removing units from the long-term rental market. The New York City Comptroller produced a report in 2018 that estimated, based on a regression analysis, that 9.2% of the total rent price increase in the city between 2009 and 2016 was due to the impact of Airbnb, leaving renters to pay an additional $616 million in rent in 2016. 

The findings were based on publicly available data from AirDNA, a short-term rental data analytics company. However, a spokesperson for AirDNA said in 2018 that the report drew “flawed conclusions” based on errors in interpreting the data. 

For example, the analysis was based on the total number of listings in each neighborhood, even though many of those listings were inactive. It also made no distinction between listings for private rooms and listings for entire residences. 

If an NYC resident rents out their condo for one weekend per year while they’re away or rents out their spare room for extra cash, that has no impact on supply in the residential housing market. That unit was never going to be a long-term rental anyway, which the analysis failed to account for. Nevertheless, city officials used the report to justify new rules for enforcement of short-term rental policy. 

To increase compliance with the long-standing restrictions, lawmakers passed Local Law 18, which went into effect in fall 2023. Officials estimated that there were more than 10,000 illegal listings before the measure was enacted. 

Local Law 18 required short-term rental hosts to apply for registration in order to legally list their property on a booking site and allowed short-term rental platforms like Airbnb to collect fees only after checking that the registration was approved. The law also imposed steep fines for offenders. As of June 24, the city has only approved 2,276 of the 6,395 applications for short-term rental registrations. 

It appears that it was erroneous to assume that strict enforcement of the near-ban on short-term rentals would lead existing hosts to become long-term rental landlords. At least, that hasn’t been the initial outcome. The number of short-term rental listings did fall from 22,246 to a low of just 2,646 in October 2023 after the law went into effect. 

But many hosts converted their short-term rentals to medium-term rentals for stays of longer than 30 days, hoping to continue collecting revenue from guests seeking temporary furnished apartments. The total number of Airbnb listings only dropped 14% since the rules went into effect. About 95% of the members of the New York Homeowners Alliance have indicated they don’t plan to rent their units to long-term tenants. Many chose the STR model to avoid the issues that come with a tenant lease agreement—evicting a long-term tenant from a New York apartment is notoriously difficult. 

There is compelling evidence from Irvine, California, that a city ban on short-term rentals can decrease rent prices, which means the full effects of Local Law 18 may not yet be apparent. But so far, the most pronounced impact of the law has been to increase hotel prices, leading people to find other avenues of accessing short-term rentals when visiting New York City. 

The Fallout of a Diminished Short-Term Rental Market

Local Law 18 has been a boon for the NYC hotel industry, with occupancy rates hitting 82% last year, well above the national average of 63%. Nightly rates have risen 8.5% since 2022, reaching a record high average of over $300 per night. Families traveling to NYC often require two rooms or a more expensive suite, leaving the tourist destination out of reach for many budget travelers, who may have opted for a well-equipped short-term rental before the ban. 

Other factors are likely contributing to the surge. The city has struggled to provide housing and services for the influx of migrants, and about one-fifth of hotels in NYC now shelter migrants in exchange for guaranteed payments from the city. Many of these hotels would have provided budget or moderate-rate options for tourists. 

But it’s reasonable to believe that the shortage of vacation rentals is also playing a role in the high prices. “It’s not surprising to me that you remove 20,000 short-term rentals, and all of a sudden, hotel rates are going up by 10%,” said Jamie Lane, chief economist at AirDNA, in an interview with Business Insider. 

The remaining hotels have been able to raise their rates due to high demand, even if they were already charging an arm and a leg for a room. Some would-be visitors are so deterred by the high hotel prices in amenity-rich neighborhoods that they’re seeking accommodations in the black rental market. People can find illegal listings on platforms like Facebook, Craigslist, and Instagram. 

Those avenues present a risk for both hosts and guests, however. The protections that come with a traditional booking site, like host liability insurance, reviews that show a host’s reputation, a secure way to exchange payment information, and support for disputes, are all absent through unofficial channels. There’s a higher risk of scams on both sides of the transaction. 

But the lower prices are sometimes enough of an incentive. The Instagram account Book That Sublet NYC, which posts new listings daily or weekly, has more than 5,000 followers. 

Others look for vacation rentals in New Jersey, where vacation rental hosts are benefitting from a spike in demand. As of February, demand for short-term rentals in Jersey City had surged 84% year over year, while Weehawken and Hoboken saw a 59% and 35% increase, according to AirDNA data. Some clever hosts are even circumventing the rules by listing NYC apartments in New Jersey and privately letting guests know the actual location. Other hosts are continuing business as usual and hoping they won’t get caught with an illegal NYC rental—many homeowners depend on the revenue from their rentals to afford life in New York. 

The Bottom Line

More than nine months into NYC’s near-ban on short-term rentals, there hasn’t been a discernible impact on the supply or price of rental homes. Local Law 18 could take time to influence housing affordability in the city, but the tourist accommodation landscape in and around NYC has already gone through significant changes. 

As more cities consider enacting stricter regulations on short-term rentals in an effort to combat the affordable housing crisis, New York City may serve as a guide for other local governments, and rent price changes over the next year could be telling. Given the impact these policies can have on an investor’s livelihood, research into local laws has become even more important, and anyone investing in a vacation rental should be ready to pivot if a policy change occurs.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.