(Bloomberg) — The two-story brick house in Flushing, New York, is a million-dollar home, but perhaps not in the way the owner intended.
Just off of Main Street in a residential neighborhood in Queens, not far from a car wash, a pharmacy and a T-Mobile store, the home has old newspapers on the door partially obscuring a yellowing notice from New York City’s Department of Buildings and a sign warning that security cameras are watching.
According to public records, the house has been used as an illegal Airbnb rental property and people have been living in the attic and basement. It has been on the city’s radar for years, accumulating violations, complaints from neighbors and an order to vacate a portion of the house that was illegally occupied, the city’s filings show. In 2021 alone, the homeowner racked up $984,000 in defaulted penalties, none of which have been paid, a Bloomberg calculation based on city records shows. The same filings show it accumulated more fines than almost any other illegal Airbnb property in 2021, the latest year of data available, by a large margin, accounting for about 11% of all fines issued for the entire year.
But it’s far from alone. New York has more than 29,000 short-term rentals, and almost a third of those are illegally listed, according to Mayor Eric Adams’ Office of Special Enforcement, which is tasked with regulating the short-term rental industry. With some of the strictest regulations in the country, New York essentially forbids rentals in most apartments for fewer than 30 days without a present tenant.
The city has made some high-profile shakedowns of illegal Airbnb empires and issued $8.9 million in fines in 2021. But records show only a fraction of hosts are quick to pay. In fact, the filings show many have let the penalties pile up. One property near the Port Authority in Manhattan, owned by ORJ Properties, accumulated about $170,000 in fines in 2021, according to a Bloomberg calculation of records. ORJ Properties, which had some of its penalties dismissed, didn’t respond to telephone and email requests for comment. A man at the Flushing home waved away a reporter who showed up at the door and refused to comment.
New York has tussled with Airbnb Inc. for years over the proliferation of illegal listings and has spent significant resources chasing down violators. New rules taking effect in May are designed to prevent properties like the one in Queens from hitting the market in the first place. Hosts who wish to register on Airbnb or other platforms will be required to register with the city and receive an operating license. Companies won’t be able to collect booking fees on unregistered properties, so it should help alleviate pressure on the city to track down illegal listings. Units that have uncorrected fire-code violations or vacate orders will be ineligible for registration.
The new rules are the culmination of a year-long legal battle between Airbnb and New York, one of the company’s largest domestic markets. The city blames Airbnb for pushing up an already high cost of living in some neighborhoods, listing unsafe accommodations and taking much-needed rental space off the market for locals.
The measures coming into effect this spring will put more teeth into existing laws and introduce new rules. Hosts will be required to show a diagram with all exit routes in the unit and display the registration certificate, submit proof that the host is a permanent occupant and list the number of unrelated permanent occupants in the residence. Hosts could face penalties of as much as $5,000 for repeated violations.
The tightened policies have led to heated objections from hosts concerned about a significant loss of income if they can no longer rent out their property in one of the world’s most expensive real estate markets.
“Regular New Yorkers should be able to share their home and not be targeted by the city at a time when many families are trying to keep up with the rising cost of living,” said Nathan Rotman, Airbnb’s regional public policy lead. “The rules as currently written will prevent the vast majority of New Yorkers from listing their homes, and we urge the administration to work with our host community to support a regulatory framework that helps responsible hosts and targets illegal hotel operators.”
After a series of public hearings, the city made the rules more flexible by doubling the length of the registration term to four years, expanding eligible identification documents and agreeing not to require submission of a full lease during the application process, among other changes.
Until a lawsuit was settled in 2020 in which Airbnb agreed to turn over personal data on its hosts, officials were often forced to weed out illegal listings through old-school sleuthing, like looking at photos online. And fines and penalties seem to have little impact on some property owners determined to flout the rules. Close to 75% of all violations issued by the Office of Special Enforcement in 2021 were for failing to file paperwork with the city showing previous infractions, such as not having appropriate fire safety, had been fixed.
Licensing short-term rentals “has been on the city’s radar for over 10 years,” said Kathleen McGee, a partner at law firm Lowenstein Sandler and previously the director of the Office of Special Enforcement under the Bloomberg administration. “It is an administrative burden on the city for those entities that are not paying those fines.”
In 2019, the Office of Special Enforcement collected 21% of all fines imposed, but that dropped in 2020 as the pandemic decreed New York City. That year, officials imposed $7.4 million of penalties but clawed back just over $400,000 in payments as of August 2021. The city’s reports only provide a snapshot of the collection efforts at a given time and in order to sell a home or refinance a mortgage, the fines have to be cleared, leading officials to believe that they will eventually be paid. The city sees the Queen’s home and the ORJ Properties building as outliers.
After eight years, the time expired for the city to collect the debts. But that doesn’t mean violators are off the hook.
“If you’re going to be a legitimate ongoing business concern, you can’t do this,” said Chris Slowik, a property lawyer and partner at Klein Slowik PLLC.
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