0:05

Back in 2020, Tom DeRose

0:07

was in college in New York City when

0:10

he got into a jam. He says

0:12

he couldn't afford his rent anymore, but

0:15

he also couldn't get out of his lease. And

0:18

then he heard of a possible solution.

0:20

One of my friends

0:22

told me about Airbnb, which at

0:25

the time I was extremely skeptical. I figured,

0:28

OK, I'll put it up on Airbnb and then maybe

0:30

someone wants it for the weekend. And my expectation

0:32

was I was not

0:35

going to be making the baseline

0:37

rent, the kind of normal rent that I was paying. I would

0:40

still be losing money. But I thought, well, OK,

0:42

this can supplement it.

0:43

So Tom moved in with friends

0:46

and he put his place up on Airbnb,

0:49

a ground level, street facing studio

0:51

apartment in midtown Manhattan. And

0:54

this was like full of my own

0:56

ugly furniture, half I found

0:58

on the street, not designed

1:00

to be providing a nice experience

1:02

for people, just as a way to say, here's

1:04

my apartment. If you want to stay there for the weekend,

1:07

here's the price. And I

1:09

was completely booked up. It was extremely

1:12

surprising how well it worked out.

1:14

So well that he decided

1:17

to do more and more. And

1:20

soon Tom built a bona fide

1:22

business where he rented out apartments

1:25

and listed them on Airbnb.

1:30

And

1:31

what did that look like for your wallet?

1:34

It was really good for me. I mean, I went from

1:36

basically being a broke college student,

1:39

like a lot of college students, to someone who had

1:41

a lot of excess income all of a sudden.

1:44

How much did you make? During the

1:46

peak, probably close to $150,000 a year. In

1:50

my mind, I said, if I can do another

1:52

and I have the money in my bank account, let's

1:55

rent another apartment. Let's furnish it and let's go. But

1:58

Tom's little Airbnb empire would

2:00

face a big obstacle. Amid

2:03

a housing shortage and skyrocketing rents,

2:06

New York City tightened its laws to

2:08

crack down on short-term rentals. And

2:11

today, those new regulations

2:13

go into effect, imposing

2:16

some of the toughest rules in the country and

2:18

threatening to essentially shut down short-term

2:21

rentals in New York City. Airbnb

2:25

calls it a de facto ban on

2:27

short-term rentals.

2:30

Welcome to The Journal, our

2:32

show about money, business, and power.

2:35

I'm Kate Leinbaugh. It's

2:37

Tuesday, September 5th.

2:42

Coming up on the show,

2:44

New York

2:47

City's de facto ban on Airbnb.

3:04

Our colleague, Alison Pohle, covers

3:06

the travel industry, including short-term

3:09

rental companies like Airbnb, Vrbo,

3:12

and Booking.com. How

3:14

would you describe the relationship between

3:17

the nation's largest cities and

3:19

Airbnb? Tumultuous,

3:22

tense. The relationship

3:25

is litigious as

3:28

well.

3:31

Airbnb is taking legal action

3:33

against cities in order to fight back against

3:36

some of the restrictions that city

3:38

councils have passed. More

3:40

than 4,000 Airbnbs and short-term rentals could soon

3:42

disappear from Atlanta because of

3:44

a new ordinance. San Francisco

3:47

isn't done trying to regulate Airbnb. Airbnb officials

3:50

say that they've sent hundreds of comments and emails

3:53

to the New Orleans City Council saying they're

3:55

not happy with the... Airbnb is suing the city

3:57

of San Francisco effort

4:00

to stop the city from enforcing

4:02

new rules on rentals. Dallas city

4:04

staff told council members today that defining

4:07

short-term rentals like those listed on Airbnb

4:09

and Verbo as lodging

4:12

would eliminate about 95% of the rentals operating

4:15

in the city.

4:18

New York City says short-term rentals

4:21

deplete the housing supply and contribute

4:23

to rising rents. And the city

4:25

council has been trying to go after them

4:28

for a few years.

4:30

So back in 2018, the

4:33

New York City Council

4:36

voted to restrict Airbnb

4:39

and other short-term rental services.

4:42

So the bill at that time

4:44

was trying to prevent landlords

4:47

and tenants from renting out their apartment

4:49

for these short-term rentals.

4:52

Did this law slow

4:54

down or stop Airbnb

4:56

rentals in the city? No, it

4:59

did not. Because it was very

5:01

tough to enforce because these

5:03

short-term rentals were not registered

5:06

with the city. So the city really had no

5:09

way of knowing just how many of them were

5:11

out there.

5:12

That first attempt to rein in Airbnb

5:15

didn't work. The company filed

5:18

a lawsuit and the ruling made it hard

5:20

for the city to enforce its rules. This

5:23

was just before Tom DeRose started

5:26

building his Airbnb business. He

5:29

realized that if he kept signing

5:31

apartment leases and posting them

5:33

on Airbnb, he could make a big

5:35

profit.

5:36

He says he told the landlords what

5:38

he was doing. Soon enough,

5:41

he was managing several properties. And

5:45

he had a particular vibe that he was

5:47

going for.

5:57

really

6:00

dark blues, grays, white

6:03

walls, that kind of thing. Okay. And

6:05

did you put art on the walls? Yes. Anodyne

6:09

kind of impressionless

6:12

art? Exactly. Like out

6:14

of focus tree or

6:16

maybe a picture of the beach

6:19

in the afternoon, kind of one step

6:21

below motel art.

6:24

I think I ate like a huge

6:26

amount of other people's food for a while, just

6:28

because every time someone checked out, it's like, oh,

6:31

they left a... Every college student's dream.

6:34

Yeah, it was my dream. I didn't have to pay for

6:36

food in New York City. And that

6:38

basically made me feel a whole lot richer. How

6:41

many did you rent at

6:44

one time? Eight. Personally,

6:46

eight. But I wasn't the only person

6:48

on this bandwagon. It was closer

6:51

to 21 or 22 apartments

6:54

that I helped as well as

6:56

the ones that I ran.

6:57

So it was pretty easy to do this.

6:59

Essentially, no matter what you do, you're going to

7:02

make money from these apartments. It

7:04

was simply signing a lease, furnishing it and

7:07

taking nice pictures and then ensuring it was

7:09

clean. It's just arbitrage. This

7:11

is a known idea. I didn't know about this when I started,

7:14

but it's called Airbnb Arbitrage.

7:16

There's a lot of people online who talk about it.

7:20

Tom was a couple of years into his business

7:23

when New York City passed a new law

7:25

that would essentially put an end to

7:27

all short-term rentals. And

7:29

there's a lot in the law. So

7:32

you cannot rent out the

7:34

entire apartment or

7:37

if you're a homeowner, your entire home

7:40

for less than 30 days, even if you own the

7:42

unit or the property.

7:45

You

7:47

also need to be present. What?

7:50

Physically present during

7:52

the guest's day if it is for less

7:54

than 30 days. Well, another

7:57

aspect of this is that if you

7:59

are renting...

7:59

out your unit, you cannot have

8:02

any internal locks

8:04

on doors, which means guests

8:06

need to have full access to

8:08

the entire property that

8:11

they're staying in. LISA DAVISON And the owner

8:13

has access to the area you're

8:16

renting. KATHLEEN HALL Right. So everyone is supposed to

8:18

be sharing a common household

8:20

is what the regulation says. LISA

8:22

DAVISON

8:22

The new rules created a formal

8:25

registration system, this time

8:27

with an enforcement mechanism. Guests

8:30

of short-term rentals now need to register

8:32

with the city if they want to list their homes

8:34

on a rental site. And if they don't,

8:37

they could face fines up to $5,000.

8:42

How has Airbnb reacted to this? KATHLEEN

8:45

HALL So Airbnb says that they have tried for

8:48

years to

8:50

find a reasonable

8:52

way forward

8:54

with the city. So they've said, we

8:57

are willing to crack down on these so-called

8:59

illegal hotels, but

9:02

you are punishing people who

9:04

are not taking away from the long-term housing

9:07

supply, whether those are people who are

9:09

renting their apartment out when they're on vacation or

9:11

homeowners. LISA DAVISON Airbnb

9:14

sued

9:15

New York City twice to try

9:17

to stop the new rules. Both

9:19

lawsuits were dismissed. Today,

9:22

those new rules go into effect.

9:27

Coming up, what they mean

9:30

for Airbnb hosts.

9:43

My Alzheimer's diagnosis

9:45

was hard to take. But early detection

9:47

allowed us to take control of the situation together.

9:50

Talk to your family about seeing a doctor. Go

9:52

to alz.org slash time to talk.

9:54

A message from the Alzheimer's Association and

9:57

the Ad Council.

10:04

Under New York City's new rules, the

10:06

number of Airbnb listings will

10:08

likely shrink dramatically.

10:12

There had been about 40,000 Airbnb

10:14

listings in the city. But

10:16

as of late August, New York had

10:18

approved fewer than 300 applications

10:22

for short-term rentals around the city.

10:25

Allison says many hosts

10:28

are upset. A lot of hosts

10:30

are worried that they can't

10:32

afford to live in the city without Airbnb.

10:36

That's also been an issue for people who

10:38

do own their homes and have

10:41

put one floor, for example,

10:43

or one area of the house on

10:46

Airbnb. They say that

10:49

helped pay their mortgage. And

10:51

some people said they were able to put their

10:53

kids through college by

10:55

renting out part of

10:57

the space. And rather than have

10:59

a long-term tenant, they're able to make

11:02

more money with short-term rentals.

11:04

And it also gives them more flexibility.

11:06

They don't need to be landlords in

11:09

this situation. Allison

11:11

spoke to a host who said these new rules will

11:14

make it harder for him to live in New York. His

11:17

name is Kareem Fahmy. He

11:19

lives in a two-bedroom apartment in Harlem, which

11:21

he would put up on Airbnb while traveling.

11:24

He said most of his guests

11:25

were families who didn't want to book multiple

11:28

hotel rooms. He told Allison

11:30

that renting his apartment allowed

11:32

him to quit his day job in physical therapy

11:35

and pursue a career in playwriting and theater.

11:38

He can be gone for three weeks at a

11:40

time, going to a work commitment,

11:42

putting on a show. And

11:45

during that time, he posts

11:47

his property on Airbnb. And

11:50

he says that's a way for him to pursue

11:52

his artistic career. He

11:56

says that once this goes into place, he

11:59

might have to

11:59

consider it. moving from the place where he's

12:01

lived for 10 years, over

12:04

half of his income will be gone.

12:07

It's going to completely change the

12:09

way that he's able to live his life.

12:13

Another Airbnb host who saw the writing

12:16

on the wall was Tom DeRose.

12:19

When he learned of New York's new rules, he

12:21

realized his Airbnb business

12:24

wouldn't have a future.

12:25

So he wound down his operations earlier

12:28

this year.

12:29

Do you think your Airbnb business

12:31

was part of New York City's housing problem?

12:34

Yes, I do. Unless there's a situation

12:37

where there's like way oversupply

12:39

of apartments on the market for rent, I

12:42

think any time an apartment is rented out and

12:44

then put on Airbnb, that's an apartment

12:46

that it can no longer be rented out to long-term

12:49

renters, to actual residents, and it's going

12:51

to contribute to a housing supply issue.

12:54

There's just no way around it. How

12:56

do you look back at that period? For

13:00

a short time, it was like a little golden age

13:02

of my life where I was making a lot of money all

13:04

of a sudden out of nowhere it felt like

13:07

for doing very little work.

13:08

And

13:11

looking back at it now, it feels like I was making

13:13

money off the difficulties

13:16

of others because every apartment that was rented

13:18

out,

13:19

as I said before, it's out of someone else's hands

13:21

who probably needed it more than I did.

13:27

How will this affect people who've

13:29

been having a hard time finding housing

13:32

in New York? It's

13:34

tough to say whether there will be a

13:36

noticeable effect right away

13:39

in a couple months or even a couple years

13:41

because Airbnb

13:43

says they really don't think all of these units

13:46

will all of a sudden open up. They

13:48

point to people like the Playwright who were renting

13:52

their unit out a couple months

13:54

a year, but someone was living there and

13:56

already renting out the apartment.

13:59

of people will be curious to see if come

14:03

this fall or potentially

14:05

later if a bunch of units

14:07

do open up.

14:10

It feels like this

14:11

really is a story about how out

14:14

of whack the housing market is.

14:16

Right. So Airbnb would say

14:18

they are being penalized

14:21

when 40,000 is a very small percentage

14:24

of the

14:27

total number of available

14:30

units in the city. So they say they're

14:32

being targeted for a problem

14:34

that's much bigger than them.

14:37

And are other cities looking at

14:39

what's happening in New York? What's

14:41

happening in New York City is

14:44

somewhat of a watershed moment. Airbnb

14:48

has been engaged in many legal

14:50

battles with cities across

14:53

the country and even across the world. After

14:56

many years of legal back and forth,

14:59

New York has seemingly prevailed

15:02

against Airbnb and other cities

15:04

are paying attention to how they were able

15:06

to do that

15:07

and what the regulations entailed

15:10

to see if there are any lessons they can take for their own

15:12

municipalities.

15:28

That's all for today, Tuesday, September

15:31

5th. The journal is a co-production of

15:33

Gimlet and The Wall Street Journal. If

15:35

you like our show, follow us on Spotify

15:37

or wherever you get your podcasts. We're

15:39

out every weekday afternoon.

15:41

Thanks for

15:43

listening. See you tomorrow.