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Travel is about to get upended in the Big Apple.
After a recent court ruling, a new law set to take effect next week will outlaw tens of thousands of Airbnb listings overnight.
In a blow for the undisputed king of short-term rentals, the law will enact some of the strictest regulations in the U.S. on Sept. 5, removing options for travelers and shutting off the revenue streams for investors and other hosts who are currently making money through the platform.
“The city is sending a clear message to millions of potential visitors who will now have fewer accommodation options when they visit New York City: you are not welcome,” Theo Yedinsky, global policy director for Airbnb, said in a statement.
Theo Yedinsky | Airbnb
In January 2022, New York City passed Local Law 18. The law requires short-term rental owners to register with the city and it prevents companies like Airbnb from processing transactions for unregistered rentals.
New Yorkers are prohibited from renting their entire home or apartment for fewer than 30 days under the law and can only share their apartment with travelers after the law takes effect.
Airbnb challenged the law in a New York state court in June, calling the law a “de facto ban” on its business in the Big Apple. Justice Arlene Bluth dismissed the case earlier this month. It’s unclear whether the company plans to appeal the ruling further.
As of Aug. 14, the city had approved just 199 units that applied to register under the new rules, according to Crain’s Business New York. Officials within the city’s Office of Special Enforcement declined to provide an updated figure to Inman, but Bluth criticized the city’s “glacial” pace of work processing more than 2,000 applications, Crain’s reported.
AirDNA, a company that tracks the short-term rental industry, estimated there were closer to 22,500 nightly rentals in New York City, meaning about 99 percent of listings are at risk of becoming illegal and unavailable the day after Labor Day.
Crain’s reported there may be around 5,200 units eligible to be listed on the platform, or about 23 percent of the existing listings based on AirDNA data if the city approved them all. Some of those listings are simply hotels that are listed on Airbnb.
Airbnb and other competing short-term rental platforms frequently run into regulatory threats as cities grapple with unprecedented housing prices and backlash from tenants who view short-term rentals as lost supply that drives up the cost of housing.
“Some people just don’t like short-term vacation rentals for one reason or another,” said Nick Scarci, state and local government affairs director with the Vacation Rental Management Association. “Folks have moved away from just party house type discussions and there’s a lot more about affordable housing and [that] it’s eating away at the housing supply.”
The change is also a blow to the company as it seeks to ramp up its fight with its biggest competitor.
Hotels vs. Airbnb
Experts say the change will be a boon for the hotel industry, Airbnb’s leading competitor. That help comes at a time when the industry has rebounded significantly.
Dan Wasiolek | Morningstar
“Rental restrictions in New York can help an already recovered New York hotel market,” said Dan Wasiolek, a senior equity analyst for Morningstar. “New York had around 30,000 Airbnb listings earlier this year and if 20,000 of those go away that could shift to hotels.”
On a recent call with investors this month, CEO Brian Chesky announced the company’s profit had jumped 72 percent in the second quarter compared to a year earlier. Airbnb pulled in $2.5 billion in three months by charging hosts a 3 percent commission fee to list on the platform, and a 14 percent fee for guests to book a trip.
Chesky then went on to name his company’s next target: the hotel industry.
As a travel company and the outright market leader for short-term rentals, Airbnb is engaged in a battle to grab market share from the hotel industry. Simply put: fewer people staying in hotels means more people staying in Airbnbs.
“The hotel industry is more than about 10 times the size of Airbnb,” Chesky said. “Almost anyone that stays in a hotel could consider staying in an Airbnb. I mean, the spaces are one of a kind.”
The new regulations will make the company’s pursuit of market share much harder in one of the biggest markets in the country, a place where hotels have already largely rebounded after being rocked by the pandemic.
“At the end of 2019 there were about 138,000 hotel rooms in New York,” Morningstar’s Wasiolek said.
Nearly 84 percent of those rooms were occupied in mid-August, he said, citing Smith Travel Research. That’s up from 77.5 percent a year before, and above the 69.5 percent hotel occupancy rate for all urban markets, Wasiolek said.
“Assuming maybe half of New York Airbnb listings are removed and half of those were occupied on a given [night] and that half of those now book hotel rooms, would stand to add a few thousand incremental bookings,” Wasiolek said, “or about a low-single-digit percentage.”
The company Airbnb is looking to gain market share from isn’t Vrbo, which is likely the second-largest short-term rental platform. It’s Vrbo’s parent company, Expedia Group.
Expedia’s primary business is hotels. Its portfolio includes hotels.com, Travelocity, Hotwire.com, Orbitz and other well-known brands. The impact of Local Law 18 won’t hit the company as hard as it will Airbnb.
The company doesn’t report numbers that are specific to Vrbo. But as a whole, Expedia pulled in $3.4 billion in revenue during the second quarter through $19.2 billion in total bookings.
Airbnb, meanwhile, earned $2.5 billion on $19.1 billion in total bookings for the three months in the quarter.
In some ways, the abrupt change will force Airbnb to quickly adapt, including by leaning into changes it started making in anticipation of the challenges in New York.
A Big Apple return to the original
Earlier this year, Airbnb released what it called its “core product.”
Airbnb Rooms would allow homeowners — and some long-term renters — to rent a space in their apartment or home on the platform. That’s essentially the business Chesky and his fellow co-founders touted when they started Airbnb in 2008.
The change was an attempt by the company to add supply, attract new hosts onto the platform and also keep the cost of booking an Airbnb in line with — or lower than — hotels.
“A private room was the first offering that Brian and his roommates had way back when in the early years of the company,” Jay Carney, global head of policy and communications at Airbnb, told Inman in May.
Jay Carney | Global head of policy and communications at Airbnb
Rooms cost $60 to $80 less per night than the typical one-bedroom whole rental, according to AirDNA.
The focus on that core shared-home product also came as Airbnb was battling New York in state court, which may ultimately help to keep more supply online after the city begins enforcing the new law.
New York homeowners and investors can no longer offer their entire home to a traveler while they’re out of town. They must share the space, or Airbnb Rooms, with guests, according to Local Law 18.
The company said the drop in listings will disproportionately affect the outer boroughs, which make up more than half of all Airbnb listings.
“Furthermore, nearly 80 percent of New York City’s census tracts are home to Airbnb listings but no hotels,” the company said.
The bottom line
It’s not clear how much business Airbnb stands to lose from the spigot being turned off in New York, where the typical Airbnb costs $251 per night, according to AirDNA.
Wasiolek said Morningstar expected the loss to amount to “less than 1 percent of total revenue.”
Airbnb charges hosts a 3 percent commission but will suffer a bigger loss from the drop in guests traveling on the platform in the city. Guests pay a 14 percent service fee to the company when booking. Between the two, Airbnb is looking at potentially hundreds of millions of dollars in lost revenue from the city.
Nick Scarci | Vacation Rental Management Association
Airbnb won’t share specific data about the anticipated impact the lost business will have on its bottom line, though it did say that no one city amounts to more than 1.5 percent of its overall bottom line.
Traders, too, have likely already factored the loss into Airbnb’s stock price, given New York City passed Local Law 18 in January 2022, Wasiolek said.
One risk for the company would be if other cities that are also grappling with housing shortages and affordability issues see what’s going to happen in New York and copy it.
“Bad short-term vacation rental policies can be contagious,” Scarci said. “LA could say, ‘Hey this registration process is working really well to restrict the number of short-term vacation rentals, we could do that here.’ We’ve seen this with other policies. I’d assume this one could follow.”
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