Airbnb crackdown is a windfall for New York City hotels

This story first appeared on travelweekly.com

Business is booming for New York City's hotels, and the city’s recent crackdown on short-term rentals may be a driving force.

New York enjoyed the highest December occupancy of any top 25 market in the U.S. at 86.6%, according to STR. The city's average daily rate (ADR) also surged in December, rising nearly 11% to $393, while revenue per available room (RevPAR) shot up 15.6%.

That compares with a national December RevPAR average increase of just 0.3%.

The spikes coincide with a plummeting of availability for short-term rentals of 30 days or fewer, which went from approximately 13,500 listings in August to under 3,000 in December, according to data from AirDNA, due to a New York City law enacted last year that made rental requirements much more onerous for hosts.

Jan Freitag, senior vice president of lodging insights for STR, noted the correlation, saying the city had a “very strong showing” in December, the first full month that the city’s short-term rental enforcement went into effect. But he also emphasized that New York was concurrently benefiting from other tail winds that month, including high levels of holiday-related demand and a comeback in international inbound tourism, at the close of 2023.

“We are really seeing a return of international travelers, and I don't think it’s unreasonable to think that New York has a unique pull for international travelers in particular,” Freitag said.

But even after the busy holiday season, New York’s hotels maintained that momentum. For the first 20 days in January, the city’s hotels saw ADR increase 6% from the same month last year, to $212, compared with a national average ADR uptick of 3.1% over the same period, according to STR.

The immediate impact of the Airbnb law

New York has long had regulations restricting home rentals of less than 30 days, but enforcement of those measures had historically been lax. That changed with the city’s 2022 passage of Local Law 18, which strengthened existing short-term rental legislation and put an emphasis on mandatory host registration.

The law officially went into effect in September, but previous reservations for fewer than 30 days made via Airbnb were permitted through December 1.

Bram Gallagher, an economist with AirDNA, said the impact of Local Law 18 on New York's short-term rental inventory was “immediate,” with the vast majority of short-term rentals in the market now operating as “medium-term stay” accommodations.

Cities have seen the success of what happened in New York City, and over the last two months we've had no less than 40 cities reach out to us and say, ‘How can we replicate this?’

Chip Rogers, AHLA

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AirDNA found that last August, of New York’s 27,000 available short-term rental listings, about half were marketed for stays of less than 30 days. By December, that number had shrunk to around 23,000, with only about 10% offering stays under 30 days.

“In the past, we’ve seen that the primary effect of short-term rentals on traditional hotel product is to lower their ADR, because that flexibility takes out some of the compression,” Gallagher said. “And in urban areas, short-term rentals do compete more closely with hotels than in rural areas, because in rural areas, hotel inventory may not even exist.”

Gallagher added that the Big Apple’s clampdown has not only been a “windfall” for hotels but also for short-term rental markets in surrounding areas. He specifically cited markets like Jersey City and Newark, where short-term rental demand was collectively up 54% for December.

Whether Local Law 18 represents the city’s final say on short-term rentals, however, remains uncertain. According to Gallagher, some large cities that initially implemented rigorous regulations on short-term rentals have subsequently softened them, permitting a subset of short-term rentals to continue their operations.

“Berlin is one example where there was a blanket ban on short-term rentals, but people came forward saying, ‘This is unreasonable,’ and now there is a short-term rental scene in the city,” he said.

Airbnb’s not happy

Unsurprisingly, Airbnb has been highly critical of New York’s short-term rental strategy, putting out a statement in mid-January claiming that in the wake of Local Law 18, the city’s hotel prices are “at an all-time high” and that anticipated benefits of the measure related to housing affordability and availability have failed to materialize.

“Many have argued that removing the ability to host short-term renters will open up tens of thousands of available rental units in the city, yet there has been no detectable increase in available rental inventory, and rents have only risen further,” said Taylor Marr, a senior housing economist for Airbnb.

For hoteliers, however, New York’s crackdown is a clear win.

“Cities have seen the success of what happened in New York City, and over the last two months we've had no less than 40 cities reach out to us and say, ‘How can we replicate this?’” American Hotel & Lodging Association CEO Chip Rogers said during the Americas Lodging Investment Summit in January.

And while Rogers credited stepped-up enforcement of the short-term rental law and a relative shortage of new hotel supply with helping to “push up ADRs,” he stressed that New York’s hotels are grappling with the residual impacts of the pandemic as well as high inflation.

“It’s always important to remind people that this is an industry that went through two years of teetering on bankruptcy,” he said. “So, those large financial holes that were created when occupancy got down to 15% or 20%, those weren't filled overnight – it’s going to take some time.”