Illegal Hotels: Coming to a Neighborhood Near You?

For years, those of us who have lived on the Upper West Side, in Hell’s Kitchen, and in Chelsea have seen many of our worst landlords convert their rent-regulated housing units into illegal hotels. We never cease to be astounded when outsiders buy into Airbnb’s “sharing economy” bombast and its claims that illegal hotels provide “an easy way for people to monetize their extra space and showcase it to an audience of millions.” 

Treating most “short-term rental units” as a part of a “legitimate business model,” the Wright/Golden (A.7848&S.5039) and Camara/Savino (A.7495 & S.5637) bills now before the state legislature would legalize them as long as they are registered with the city.  If these bills pass, any legal barriers to companies like Airbnb getting their hands on whatever’s left of our rent-regulated housing may well come crashing down in the final minutes of the Albany session. 

Landlords have been renting former SRO rooms and rent-regulated apartments to tourists for at least a decade, often before converting those buildings to luxury coops or condos. But it wasn’t until 2008 that the present illegal-hotel regime took shape. That was the year when Airbnb was born and quickly emerged as the industry leader, providing a “community marketplace for people to list, discover and book unique spaces around the world.” 

Airbnb’s very success, however, made it harder to ignore the ugly side of illegal hotels. While accounts of Airbnb hosts coming home to find that their digs have been converted into pop-up bordellos have made the headlines recently, more mundane problems like lax security, noisy parties, fire hazards, and bedbugs have plagued illegal hotels from the start.

In 2010, the state enacted the Illegal Hotel Law. It defined illegal hotel activity as occurring whenever “residential apartments in buildings with three units or more are rented out for less than 30 days to transient visitors instead of residents.” 

When legislators seeking to gut the Illegal Hotel Act blame it for scapegoating “a specific class of good actors… that use certain units as vacation rentals,” they are simply barking up the wrong tree. The 2010 law was explicitly drafted to permit tenants “the rights to have roommates, sublet their apartments, or have non-paying guests stay with them. Additionally, residents who rent out rooms in their homes for less than 30 days (as long as they are also there the entire time) are not engaged in illegal hotel activity.” 

So, who’s really stunting the “sharing economy?” Try blaming landlords who add restrictive clauses to their tenants’ leases prohibiting them from renting out rooms. Stories such as the one that ran in the New York Times last winter about six people facing eviction from the Penn South nonprofit co-ops involve sharing that is legal under state law, but that violated their occupancy agreement. Tenant organizers and lawyers have reported an uptick in the number of such cases as Airbnb has gained momentum, and they fear that this will only accelerate if a weakened illegal-hotel law encourages “good actors” to ignore their leases. 

What is definitely not permitted under the law is for landlords themselves or their surrogates to rent out multiple units in which they do not live. However, when reviewing Airbnb’s records prior to the company’s filing a $11 billion initial public offering, state Attorney General Eric Schneiderman’s office cited a study from the data-auditing firm which found that, in New York, just 12 percent of Airbnb’s hosts controlled 30 percent of its listings. 

The new legislation would still prohibit hotel units in SROs and “entire buildings being turned into illegal hotels.” Although these may have been the form that illegal hotels took circa 2004, today’s illegal hotel units most often exist under the same roof as rent-regulated apartments, and in Mitchell-Lamas, coops, and condos. In those buildings, the legislation would offer a weak, hard-to-enforce registration system that critics fear would most likely only give bad actors a veneer of legitimacy as they rented out multiple units.

Supporters of these bills assert that most people in favor of the current law live in gentrifying area of Manhattan, and that illegal hotels benefit outer-borough low-income communities with few facilities for putting up tourists. That argument may have made sense ten years ago, but illegal hotels have metastasized into all five boroughs. They have also penetrated areas like Harlem and Bed-Stuy—precisely the communities that are least equipped to lose their rent-regulated apartments. In a housing market where only around 67,000 units became available for rent last year, can we really afford to have 19,000 apartments taken over for use as illegal hotels? Not only does this deprive potential renters of affordable units, but, by cutting into the supply of available housing, it drives up the prices of the remaining apartments. 

In addition to refusing to comply with a subpoena from Schneiderman’s office for more information, Airbnb has responded to attacks by creating an Astroturf organization called “Peers” (co-founded by Doug Atkin, the company’s “global head of community”). Peers’ origin myth states that: “a woman named Mishelle took her concerns about New York’s crackdown on Airbnb and home-sharing to a public forum using Peers’ online petition. She pleaded with New Yorkers who’d rented their homes to strangers… to join her in making one request to the state attorney general: Fix the law that’s hindering sharing.” 

Blame Mishelle (and her millionaire backers) for the bills that are now before the Legislature—and for turning illegal hotels from a local West Side story into a citywide campaign. Early efforts to outlaw them were spearheaded by groups like the Hell’s Kitchen-based Housing Conservation Coordinators and the West Side Neighborhood Coalition, and by Upper West Side organizations like the Goddard Riverside SRO Law Project. The campaign has since picked up endorsements by 41 local groups from all sections of the city, from the Working Families Party and key labor unions, and it has become a priority for the citywide Real Rent Reform coalition and Real Affordability For All. 

They know that if New York fails to rein in illegal hotels this year, the fate of rent reform legislation in 2015 may matter a lot less.