Boston’s newly passed city ordinance, which prohibits property owners from hosting short-term rentals in homes they don’t live in and aims to make data on short-term rental properties more widely accessible, is one of many efforts across the northeast to regulate the short-term rental industry. As the short-term rental industry has grown – Airbnb alone now boasts more than 5 million listings – the number of affordable multifamily housing units available has dwindled. Consequently, as supply has diminished, the ability to secure units in already competitive metro markets has become increasingly difficult.
Taking a Closer Look at Short-Term Rentals in Boston
The ordinance that Mayor Walsh will soon sign is designed to crack down on what are deemed to be “investor units.” Consequently, those who reside in a unit and seek to rent a spare bedroom or an adjacent unit in their multifamily home are able to do so for a year. The City estimates these new regulations will put approximately 2,000 housing units back into inventory for renters or buyers.
The Alliance of Downtown Civic Institutions reports that as many as 220 new units per month have come online in Boston with Airbnb since Q3-2017. Their Report also notes that Boston’s inventory of investor-owned housing units is four-times higher than other major cities.
The Impact of Airbnb on New York
Similar to Boston where demand is strong and prices are already high, New York’s multifamily market is feeling the impact of Airbnb. In most multifamily/apartment buildings, New York State Law prohibits rentals for less than 30 days via online sites unless the owner or tenant (“the host”) is present. Without a registry of Airbnb hosts on file, cities and the state have limited ability to crack down on illegal short-term rental operations.
To help address this problem, the New York City Council is proposing a bill that would require short-term rental companies to provide them with the addresses of all local listings. This registry would provide the data needed to review active listings and penalize and/or shut down those who are operating illegally. In turn, the number of available housing units would increase, helping to regulate pricing in an already competitive market.
Airbnb’s Impact on Rhode Island
Mitigating the effects of Airbnb on Rhode Island is a statewide effort. Much like Boston and New York, the Rhode Island market is characterized by demand consistently outpacing supply, a problem that is only compounded by short-term rentals. In late May, a bill came before a House Judiciary Committee proposing that any hosts who engage in a short-term rental for less than 30 days be required to carry at least $300,000 worth of property and casualty insurance, and comply with health, anti-discrimination and safety rules.
In addition to the bill that sits before the House Judiciary Committee, Rhode Island has formed a state commission to evaluate the impact of short-term rentals on the state’s tourism industry. Communities across the state are also taking their own steps to crack down on short-term rentals. In Warwick, lawmakers have solicited bids from companies who can determine whether short-term rental properties are compliant with zoning and safety regulations, while Narragansett has already passed an Airbnb regulation policy. Legislation to tax Airbnbs throughout Rhode Island was passed in 2015.
Connecticut and the Hudson Valley Also Impacted by Airbnb
While markets such as the Hudson Valley feel the impact of Airbnb and short-term rentals most acutely in the hotel industry, the impact in Connecticut is two-fold. New Haven, which is home to Yale University and a growing college population, brought in $2.2 million from 15,000 guests in 2017, making it Connecticut’s largest Airbnb market. In turn, many who seek workforce level housing in New Haven find themselves priced out of the market and left to seek housing in neighboring communities.
With an estimated 65 percent of booked nights on short-term rental sights occurring in multifamily buildings, companies such as Airbnb are changing the face of the multifamily industry. Data also shows that Airbnb’s impact is about more than availability – it’s also about occupancy. The 2017 Renter Preferences Survey conducted by the National Multifamily Housing Council and Kingsley Associates found that nearly half of apartment renters under the age of 25 (49%) were interested in the opportunity to generate additional income through short-term rentals, compared to 15% of renters age 65 and over.
As short-term rental units available through sites like Airbnb impose limits on already tight multifamily supply in major metropolitan markets, apartment seekers can benefit from exploring alternatives in neighboring communities where pricing is less competitive and there is more inventory available. For investors in these neighboring markets, this presents an opportunity to maintain strong occupancy rates and maximize returns by securing Class-B and Class-C multifamily assets with solid growth potential.