Will a New Los Angeles Ordinance Put Airbnb Out of Business?

The city of Los Angeles recently adopted new rules for short-term rentals in a move that could impact Airbnb and other companies like it. Under the new regulations approved by the City Council, rent-controlled units in the city will be banned from using Airbnb in addition to other short-term rentals. The rules will go into effect in July after years of debate. These regulations will apply to the entire city of Los Angeles including popular places for people to vacation such as Venice.

Why the Change?

According to critics of the short-term rental industry, temporary rentals are causing neighborhood conflicts. They claim that short-term rentals make the housing crisis in the area worse. This makes a certain amount of sense since homeowners earn a lot by renting properties out time after time instead of selling them to families in need of a home.

Under the new rules, which the mayor still needs to sign into law, short-term rental hosts are only permitted to rent out the home that they use as a primary residence, defined as a place where they live for at least six months or more. The regulation also limits renting out primary residences to 120 days each year unless the person renting out the property obtains special city approval and pays an additional fee. To rent a home out for a longer period of time, potential hosts must register with the city. Registering comes with an annual fee of $89. By registering, short-term hosts will be able to advertise that they have a rental available on Airbnb and other platforms that offer a similar service without facing repercussions. As long as a unit meets the city’s criteria and is registered, vacationers could rent it out.

Hosts that rent out a property without registering will be in violation of the new Los Angeles ordinance. Along with the limitations that the city is now imposing, the ordinance also requires operations like HomeAway and Airbnb to track the number of days that a host rents out a property. The rules also require vacation rental sites to pay a penalty of $1,000 a day for violations. Mattie Zazueta, a spokesperson with the San Francisco-based Airbnb division, said, “Home sharing and vacation rentals play an important role in allowing Angelenos to directly benefit from 48 million visitors who travel to Los Angeles every year.”

Los Angeles may require online platforms to share information about those who sign up for their rental service. The city is requesting this step because officials are concerned about enforcement. However, sharing information could be an issue for some of the short-term rental companies. Airbnb is digging its heels in about that, stating that it will not share the names and addresses of its customers unless the city sends a subpoena. The company has fought with other cities about their requirements for organizations that operate hosting platforms like theirs.

Airbnb has admitted that it may be willing to create a system that would forward information to Los Angeles when hosts register with them. The rental platform clarified that it would only do this if the city provided an option for “vacation rental.” The company defines this as something other than a main residence for brief stays like an investment property or a second home.

HomeAway, which is another organization that offers vacation rentals, is arguing for a legal route that will allow them to stay in business, declaring that it provides a needed choice for travelers who want to rent a space that features the comforts of home. One council committee member admitted that the new regulations should not go into effect until a “vacation rental” order can also be put into place. This plan upset tenant activists who had concerns that waiting for another ordinance could delay the new regulation indefinitely and weaken how effective it will be.

Along with the need for affordable housing, the area needs a comprehensive short-term rental program that legalizes the city’s short-term rental activity including the vacation rental market. According to Zazueta, without a short-term rental policy, the city could establish a loophole that would permit bad actors to move from platform to platform as they evade the rules. Airbnb would like to work with Los Angeles to created regulations that maintain the financial benefits of short-term rentals for those who own them while decreasing the problems that the area is facing when it comes to affordable housing.

Los Angeles is also banning temporary and what it considers “non-residential” structures like tents, RVs and trailers. Mike Bonin, a Los Angeles City Councilmember, believes that the rules create a balance between assisting hosts who share their homes with vacationers “to make ends meet” and penalizing “bad” hosts who transform homes and apartments into “rogue hotels.”

Harming Renters

Since it’s much more profitable for property owners to rent their homes and apartments to people who are vacationing than to long-term renters, critics of short-term rentals and city officials are arguing that rental platforms like Airbnb are taking much-needed rentals off the market. In Los Angeles, there are something like 23,000 homes and units for rent on short-term rental sites. According to estimates, 10,000 of them are used as short-term rental properties. The executive director for Strategic Actions for a Just Economy, which is a nonprofit organization in South Los Angeles, said, “With Los Angeles facing a housing crisis and growing homeless population, the trend of commercial Airbnb investors taking homes away from permanent residents has got to end.” She believes that the action taken by the L.A. city council is a huge step in the right direction.

The other side to the story is the high price of owning a home in Los Angeles. A number of Airbnb hosts testified at City Hall that the platform has been a lifesaver in helping them cover the high cost of their mortgages. In fact, several people pointed out that the short-term rental option allowed them to keep their home as housing costs have escalated.

One Airbnb host told the council that she rents the upper unit of her Miracle Mile rent-stabilized duplex and lives in the lower level. The added income from renting it out to guests has allowed her to stay in her home after her employer downsized her position at work. The Los Angeles area is becoming increasingly unaffordable with residents discovering that they need services like Airbnb to stay in the area.

John Choi, the public policy director for Airbnb supports the measure. Choi considers it a step in the right direction since his company is backing a regulation to create a separate ordinance, one that would oversee vacation rentals or units that are not the primary residence of a host.

A measure that would create a separate ordinance was introduced recently. City Council members Herb Wesson and Marqueece Harris-Dawson introduced a proposal calling for a registration process and permitting system for vacation rentals. The measure would cap the city’s number of vacation rentals.

Three Years of Deliberations

Passing the new ordinance comes after three years of deliberations about Airbnb regulations. In 2016, the short-term rental company struck a deal with Los Angeles to cover hotel taxes for its hosts. Airbnb’s hosts have racked up at least $100 million in transient occupancy taxes for the state’s biggest city since August of 2016.

The director for the USC Sol Price Center for Social Innovation, Gary Painter, said, “There are definitely studies that have linked the relationship between rising rents and the size of the short-term rental market.” While the ordinance will begin on July 1, 2019, it is possible that it will be delayed until the city begins working on regulating ordinances for non-primary residences. City officials acknowledge that the measure doesn’t satisfy anyone 100 percent, but it comes as close as officials thought they could come after working on it for several years in an attempt to strike a balance.

About the Housing Units in L.A.

A recent vacation rental and Airbnb report determined that in 2017, there were something like 1.5 million housing units in Los Angeles with an estimated 13,600 of them registered as vacation rentals. This represents around 0.9 percent of the city’s total available housing. In the meantime, Airbnb featured listings in 2018 for about 0.3 percent of the city’s housing stock or less than 3,000 full-time rentals.

The recent ordinance permits accessory housing units, or what is also referred to as granny flats, to be exempt. According to city officials, there have been thousands of additional housing units built because of reduced state rules that allow more of the units. These regulations were relaxed to help the state’s housing shortage. Simultaneously, the ordinance blocks short-term rentals of units that fall under the Rent Stabilization Ordinance. Statistics show that around 631,000 units of the 118,000 properties in the city fall under the ordinance. This includes condominiums and apartments.

City officials acknowledge that the ordinance will need to be reviewed in about six months to a year to see where it’s working and where it’s causing problems or failing altogether. Officials concede that one change could be to permit some of the low-income residents who reside in rent-stabilized units to turn into hosts for these short-term rentals.

There is room for the council to tweak and revise the ordinance based on what winds up happening on the ground to make sure that what they’re passing does what is intended, which is to protect rental housing and maintain the city’s neighborhoods.

An Ongoing Process

The council also contends that it is important for them to permit “people who are genuinely trying to use their personal property, their primary residence, to make ends meet.” Whether the ordinance works will depend on how well Los Angeles is able to enforce its new regulation on short-term rentals. While it’s understandable that some residents are upset about their neighborhoods turning into zones for tourists, the cost of homes in the city is such that people must find a way to make ends meet. It’s time for Los Angeles to figure out a way for people to live within its borders and still have a little disposable income.