Foregoing the Cleaver for the Scalpel: How New York Can Add Some Nuance to Its Short-Term Rental Laws

• Author: J.T. Minor
• Position: J.D. Candidate, The University of Iowa College of Law, 2018; B.A., Belmont University, 2013
• Pages: 817-839

Foregoing the Cleaver for the Scalpel: How New York Can Add Some Nuance to Its Short-Term Rental Laws J.T. Minor * ABSTRACT: In 2010, New York passed a law that made it illegal for residents living in areas zoned as class A multiple dwelling to rent their homes on a short-term basis using services like Airbnb. Just six years later, New York went even further and prohibited the advertisement of these short-term rentals. This Note will argue that New York’s short-term rental laws go too far in banning short-term rentals outright. In addition, this Note will discuss solutions for how New York can provide greater nuance to these laws by simultaneously addressing the legislature’s primary concerns with short-term rentals and allowing New York to reap the tax and tourism benefits that these rentals provide. These solutions include (1) imposing at least the standard hotel tax on short-term renters and allowing services like Airbnb to facilitate the collection of that tax; (2) distinguishing between commercial and noncommercial short-term renters (allowing the latter and outlawing the former); and (3) enabling individual neighborhoods to opt out of allowing noncommercial short-term rentals via a petition and subsequent hearing. I. INTRODUCTION ............................................................................. 818 II. BACKGROUND ............................................................................... 820 A. T HE L OOPHOLE T HAT L ED TO L AW ......................................... 821 B. N EW Y ORK C ITY ’ S A PPROACH C OMPARED TO S AN F RANCISCO AND C HICAGO ........................................................ 824 III. WHY NEW YORK’S SHORT-TERM RENTAL LAWS ARE PROBLEMATIC ............................................................................... 826 A. L OSS OF T AX R EVENUE ............................................................ 827 * J.D. Candidate, The University of Iowa College of Law, 2018; B.A., Belmont University, 2013. I would like to thank my wife Meredith for all of her love and support while writing this Note and throughout law school. I would also like to thank my parents for a lifetime’s worth of love and encouragement. 818 IOWA LAW REVIEW [Vol. 103:817 B. L OSS OF I NCOME S TREAM FOR R ENTERS .................................... 828 C. L OSS OF R EVENUE FROM T OURISM ............................................ 830 IV. THE SOLUTION: REVENUE, NUANCE, AND OPT-OUTS .................. 832 A. C HARGE S HORT -T ERM R ENTERS ( AT L EAST ) THE H OTEL T AX R ATE ............................................................................... 833 B. R EGISTRATION AND THE A CQUISITION OF A S HORT -T ERM R ENTAL L ICENSE AS A M EANS OF D ISTINGUISHING B ETWEEN C OMMERCIAL AND N ON -C OMMERCIAL S HORT -T ERM R ENTERS ............................................................ 835 C. H EARINGS AND P ETITIONS FOR I NDIVIDUAL N EIGHBORHOODS : T HE C HANCE TO O PT O UT OF S HORT -T ERM R ENTALS ........................................................... 836 V. CONCLUSION ................................................................................ 838 I. INTRODUCTION In 2010 and 2016, the New York State Legislature passed two short-term rental laws that make it illegal for New York residents living in areas zoned as class A multiple dwelling to rent out their homes using services like Airbnb. 1 These short-term rental laws are problematic in a number of ways. First, these laws prevent New York from reaping the benefits of a significant amount of tax revenue that could go not only to ensuring the proper use of short-term rentals but also to other important social programs like homeless services and low-income housing. 2 Second, these laws take away an income stream upon 1. S.B. 6873, 2009 Leg., 234th Sess. (N.Y. 2010) (deleting “as a rule” from New York State Multiple Dwelling Law § 4); Assemb. B. 8704, 2015 Leg., 238th Sess. (N.Y. 2016) (amending New York State Multiple Dwelling Law § 4 to make advertisement of short-term rentals illegal). New York Governor Andrew Cuomo signed the latter bill into law only very recently, and Airbnb has now filed a suit against the state of New York. Katie Benner, Airbnb Sues over New Law Regulating New York Rentals , N.Y. TIMES (Oct. 21, 2016), http://www.nytimes.com/2016/10/22/technology/new-york-passes-lawairbnb.html. There is evidence that New York has recognized a distinction between commercial and non-commercial hosts since at least 2014, but the legislature did not attempt to use any such distinction in the bill enacted in 2016. See Henry Grabar, Everyone Is Wrong in the Battle Between New York City and Airbnb , SLATE: MONEYBOX (Oct. 24, 2016, 6:31 PM), http://www.slate.com/blogs/moneybox/2016/ 10/24/some_new_york_airbnb_hosts_may_be_fined_under_a_new_law.html. This bill has further incited protests by many Airbnb hosts. Anisa Purbasari, Airbnb Hosts Protest New Rental Law Outside New York Governor’s Office , VERGE (Oct. 26, 2016, 4:32 PM), http://www.theverge.com/2016/10/26/ 13421874/airbnb-rally-law-home-sharing-new-york-governor-cuomo. 2. The estimation for this lost revenue ranges from $20 to $60 million. Compare Airbnb to Start Charging Hotel Taxes in a Handful of Cities , IOWA PUB. RADIO (Apr. 18, 2014, 6:13 PM) [hereinafter Airbnb Charging Taxes ], http://iowapublicradio.org/post/airbnb-start-charging-hotel-taxes-handful-cities# stream/0 (estimating a loss of $20 million), with Reuters, New York Bill Would Ban Airbnb Listings for Some Short-Term Rentals , NBC NEWS (June 21, 2016, 7:00 AM), http://www.nbcnews.com/tech/technews/new-york-bill-would-ban-airbnb-listings-some-short-term-n596111 (estimating that the company paid $60 million in taxes before the short-term rental laws were passed). As this Note will address, these 2018] FOREGOING THE CLEAVER FOR THE SCALPEL 819 which many families have come to depend. 3 Third, these laws reduce the amount of money that comes into New York via tourism. This is especially true since some consumers—particularly international ones—see many other U.S. cities as vacation substitutes and prefer services like Airbnb due to their perceived price and quality advantage over hotels. 4 This Note proposes legalizing short-term rentals in New York and seeks to address the primary concerns of the New York State Legislature by ensuring that certain safeguards are in place to prevent the more pernicious side effects of short-term rentals. First, in addressing the New York Legislature’s concern that short-term rentals would lead to “unsafe conditions,” 5 this Note proposes that New York apply the standard New York hotel tax rate to short-term rentals and to have Airbnb facilitate the collection of that tax to ease administrative costs. This tax revenue could then fund programs that ensure conditions remain safe. Second, in response to the New York Legislature’s concern that allowing short-term rentals would lead to increased housing costs for lessees, 6 this Note proposes a distinction between commercial and non-commercial short-term renters. This distinction would make it legal for non-commercial users to rent out their homes but not for commercial users who can drive up housing costs much more significantly. 7 In doing so, this Note acknowledges that the legislature would need to create a department of short-term rentals for enforcement and registration similar to that which San Francisco has created. 8 Last, this Note addresses the New York Legislature’s concern that estimates assume that New York would apply only its standard hotel tax rate. See infra Part III.A. If it decided to charge a higher rate, the losses would obviously be greater. 3 . See generally GENE SPERLING, HOW AIRBNB COMBATS MIDDLE CLASS INCOME STAGNATION, https://1zxiw0vqx0oryvpz3ikczauf-wpengine.netdna-ssl.com/wp-content/uploads/2015/06/Middle ClassReport-MT-061915_r1.pdf (last visited Oct. 25, 2017) (discussing how Airbnb income impacts middle-class earnings). 4. Christopher Mossa, Airbnb Under Attack in New York , UPTOWN RADIO (May 9, 2014), http:// uptownradio.org/2014/05/09/airbnb-under-attack-in-new-york (detailing the price advantage that short-term rentals have over hotels); Nick Vivion, Ranking of US Destination Underscores Intense Competition for Thriving Tourism , TNOOZ (July 22, 2014), https://www.tnooz.com/article/ranking-us-destination-underscores-intense-competition-thriving-tourism (ranking U.S. tourism destinations by revenue and concluding that Los Angeles had the best overall year for tourism). 5. Will Rinehart, New York Law Would Wipe out Half a Billion Dollars of Value for Airbnb Hosts , AM. ACTION F. (July 21, 2016), https://www.americanactionforum.org/research/new-york-law-wipe-half-billion-dollars-value-airbnb-hosts. This article will be referenced throughout this Note as a means of demonstrating the New York State Legislature’s primary concerns in passing these short-term rental laws. 6 . Id. 7. Ariel Stulberg, Airbnb Probably Isn’t Driving Rents up Much, at Least Not Yet , FIVETHIRTYEIGHT (Aug. 24, 2016, 7:00 AM), http://fivethirtyeight.com/features/airbnb-probably-isnt-driving-rents-up-much-at-least-not-yet. This article further noted these commercial uses of Airbnb “have drawn the most scrutiny from critics such as Sens. Elizabeth Warren, Diane Feinstein and Brian Schatz.” Id. 8 . About Short-Term Rentals , CITY & COUNTY OF S.F., https://shorttermrentals.sfgov.org/about (last visited Oct. 25, 2017). 820 IOWA LAW REVIEW [Vol. 103:817 short-term rentals would disrupt the quiet of residential neighborhoods 9 by suggesting that the Legislature provide these neighborhoods with the ability to “opt out” of the legalization of short-term rentals. This “opt-out” would require a clearly worded petition followed by a hearing presided over by an independent adjudicator. The adjudicator would weigh the interests of the proponents and opponents of short-term rentals and then issue a determination on whether these short-terms would...