Unwelcome guests: Airbnb, cities battle over illegal short-term rentals

“The fines are little bit higher in Miami Beach than in some other cities. But around the country —and around the world, in fact, what we’re seeing is a pretty consistent trend.”

Miami Beach’s law against short-term rentals has been on the books for years, but its $1,500 fine was not a deterrent, so the city increased it in 2016 to $20,000 for the first violation, rising to as much as $100,000 for the fifth.

Airbnb does not have a good record complying with local laws, according to Wachsmuth.

“I think very consistently the pattern that we’ve found is that Airbnb is happy to cooperate with regulators about collecting taxes,” he said. “They’ll collect the taxes to kind of level the playing field with hotels. But they will resist as strongly as possible any attempts to restrict how much actual activity is allowed on Airbnb.”

Two years of code compliance body-camera videos obtained by CNBC show raucous parties and unwitting tourists staying in illegal short-term rentals in Miami Beach, many of them advertised on Airbnb. One sign captured in an illegal Airbnb instructs guests to lie and say they are friends of the landlord if someone asks.

On the sidewalk outside the Miami Beach apartment, Maharaj called the Airbnb host, later identified by Maharaj as Rachel Perrea. As a CNBC camera crew rolls, Perrea falsely said the tourists are her friends and staying in the unit for free.

“Rachel told me you guys are friends and you didn’t have to stay there,” Maharaj asked the Airbnb guests. “Is that true?”

“That is not true,” one guest replied from the balcony.

The building’s owner and the company that rented the apartment were both issued a violation.

That company is Vacayo, which is well-known to city officials. The company and its co-founders are facing a total of $700,000 in fines at four properties in the city, which the company is challenging.

Vacayo is a New York-based management company that rents properties and then leases them to short-term tenants, using hosts to advertise them on platforms like Airbnb.

Miami Beach Mayor Dan Gelber said situations like this are common and not good for the city. Officials from other large cities also have seen similar problems.

“We’re seeing commercialized, predatory companies that are trying to commercialize our residential communities in ways that are damaging to our citizens and our residents and our quality of life,” Gelber told CNBC. “It is predatory.”

“It’s people taking very nice properties, buying them and turning them into essentially a flophouse for as many people as they can put in there to extract as much income as they can in the middle of a neighborhood that wasn’t zoned for that kind of behavior,” the former prosecutor and state representative and senator said.

The city expects it will investigate more than 1,000 complaints of illegal rentals this year, up from more than 800 in 2017. So far this year, $2.4 million in fines have been issued, records show, but only about $183,000 has been collected.

“The easiest way to stop all of this is if the home-sharing platforms simply didn’t send people into these neighborhoods,” Gelber said. “It’s just that simple. They’re the ones who do it and they claim they have no responsibility because, ‘oh, we’re just an internet platform.’ But they’re not.”

In an interview with CNBC, Isabel Berney, co-founder and COO of Vacayo, said the company has exited leases in the prohibited zones.

“Right now, we are not entering any additional units in Miami Beach that are not fully compliant,” she said.

Berney said she was not aware that Vacayo host Perrea had falsely told code compliance that she was renting the unit to friends. “I mean, she probably was just put on the spot and she was probably scared, and I wasn’t aware of what she says.”

CNBC reached Perrea who said, “I’m really sorry but I can’t take this call right now.” The call was disconnected and she did not respond to a follow-up call.

Hosts like Perrea, who work on behalf of Vacayo, are independent contractors, Berney said.

“Ultimately, our whole mission is to help landlords,” Berney said. “We help landlords earn passive income. We’ve saved landlords from bankruptcy, from foreclosure.”

Responding to the CNBC investigation, Airbnb said it has removed listings associated with Vacayo from the site.

Wachsmuth said it would be relatively simple for Airbnb to block hosts who try to rent properties in the city’s prohibited zones. Both London and Amsterdam, for example, limit the number of days someone can rent a property, which Airbnb tracks, he said.

“I think the lesson is simply that the kinds of regulations that actually restrict the short-term rental market, Airbnb is not going to cooperate with that unless their back is really up against the wall,” he said.

In an interview at Airbnb’s San Francisco headquarters, Chris Lehane, head of global policy, described the company as “a people-powered platform.”

“We’re a community model. We have about 5 million hosts globally, and a typical host here in the United States makes their home available 41 times a year and makes on average $6,100 a year,” he said.

“I’ve yet to see a program being run by any mayor, any elected official in this time of economic inequality that’s generating $6,100 for a typical middle-class family. All without the expenditure of a single taxpayer dollar,” he told CNBC. “That is what Airbnb is about at its core. Trying to use technology to create economic empowerment.”

Miami Beach has a long history with short-term rentals, he said, suggesting the practice should be allowed in the part of the city zoned for commercial use.

“I think what seems to me that would be a common sense solution for Miami Beach — happy to do this if they actually really want to sit down and have a constructive conversation — is you could take that 35 percent of the city that’s a residential area, make that an exclusionary zone. Allow the activity to be able to take place in the 65 percent of the city that’s actually explicitly zoned for this type of activity.”

Asked multiple times about the ongoing illegal Miami Beach listings on Airbnb, Lehane said, “the city council members themselves have talked about the fact that their law doesn’t actually work particularly well, as you probably know. Twenty thousand dollar fines on someone making their home available a few times a year to actually help make ends meet?”

In order to block the existing illegal properties on Airbnb, Lehane said, “that requires having to work with the city. Right? We don’t have a lot of the information.”

He disagreed with city officials who blame Airbnb, saying “Miami Beach hasn’t been willing to sit down and actually engage in a conversation.”

The city’s zoning map, publicly available, shows the areas in Miami Beach where short-term rentals are clearly allowed and prohibited.

Lehane said about 1,000 of the 5,000 hosts in Miami Beach are doing short-rentals on a full-time basis.

“So Miami Beach is certainly not part of our economic model in terms of its impact on us,” he said. “What it is, it’s really important to those hosts, it’s important to their economic model.”

Airbnb provided a list of 52 metropolitan areas ranked by the number of guest arrivals. Miami Beach ranked 18 on the list, and had 1.9 percent share of the total visits for that grouping. The Miami region was listed as the platform’s eighth most popular city for 2018.

Lehane blamed the influential hotel industry in Miami Beach and around the country for blocking the company’s attempts to work with city officials. He said Airbnb has completed more than 400 partnerships around the world, including working with Los Angeles on proposed restrictions to book a short-term rental.

“Miami Beach, up to this point in time, has just not had a serious desire to really want to engage on this, because at the end of the day, as the information that has come out reveals, they’re effectively working hand in glove with the hotel industry, which is incredibly powerful. And a hotel industry that really doesn’t want to see everyday people to be able to use their homes to make extra money.”

In a statement to CNBC, Katherine Lugar, president and CEO of the American Hotel & Lodging Association, said, “Airbnb’s illegal hotels are a growing problem in communities across the country, flaunting basic safety and security standards, zoning rules and taxes while also pushing affordable housing options further out of reach.”

“Instead of supporting common-sense regulations, Airbnb has opted to deploy a massive obstruction campaign of dirty tactics, deceptive messaging and personal attacks against anyone who raises a concern.”

Her statement said that “mayors and state legislators across the country are standing up to Airbnb and taking issue with Airbnb’s bullying, and the endless stream of Airbnb horror stories in the news.”

Booking.com, which says Miami Beach is the sixth most booked U.S. destination for domestic and international guests, told CNBC it takes swift action against any host that violates its policy.

For example, during the ride-along in Miami Beach, Maharaj told a young couple who made reservations via Booking.com that the apartment was in the prohibited zone. The guests immediately alerted Booking.com, which moved them to another location. The guests told CNBC they were originally booked at a different South Beach address, but informed via email shortly before their vacation to show up at an address in the prohibited zone.

“Upon finding out what this apartment owner did, which is certainly a violation of our terms and how we agree to work with properties, we have removed his property from the Booking.com website because … we take this very seriously and always work with governments,” said Leslie Cafferty, head of global communications at Booking.com.

While Miami Beach targets tourist rentals in prohibited zones, for years a different issue has plagued Los Angeles: raucous parties in mega homes in the Hollywood Hills and other sections of the city.

Short-term rentals are illegal in Los Angeles for less than 30 days in areas zoned as single-family residential neighborhoods. But that hasn’t stopped homes from being rented for party nights.

In February, the City Council approved an ordinance imposing steep escalating fines on both homeowners and renters who have large parties that disturb neighbors. Violators can face fines of up to $8,000.

The City Council also gave preliminary approval to a new ordinance in May that limits the number of days a host can rent to 120 days a year. Qualified hosts can be exempted from the cap. Only primary homeowners can list their properties for short-term rentals under the new restrictions.

Final approval won’t happen for another several months.

“Overall we wanted to preserve our housing stock, we wanted to get bad actors out of the way, and control party homes that are primarily used for just house parties,” said Los Angeles Councilman Jose Huizar, who chairs the planning and land use management committee.

Lehane said Airbnb has worked with city officials to devise a law that makes sense.

“And I think that’s an example of the type of partnership and deals and relationships that we have done all over the world,” Lehane said.

Nevertheless, Cory Palka, senior captain of the Los Angeles Police Department, Hollywood division, said disturbances caused by short-term rentals are “probably next to homelessness, one of our biggest challenges in Hollywood.”

“Neighbors are furious that this has gotten so wildly out of control that it impedes their ability to have a normal lifestyle here,” Palka said.

Deputy City Attorney Steve Houchin has filed public nuisance civil charges against four Hollywood Hills homeowners since October. Two of these four locations are still listed on Airbnb.

CNBC found another Hollywood Hills home listed on Airbnb as “LA’s premier recording studio and creative space.” Listed at $3,300 a night, the home is equipped with an in-house recording studio, an eight-seat reclining chair movie theater, and a heated pool and hot tub. High-profile celebrities such as rapper Flo Rida are featured posing on the home’s Instagram page, which is known as “House Thirty Three.”

“I’ve never heard anything this loud,” said Natasha Ward, a longtime Hollywood Hills resident who lives on the street just below House Thirty Three. “It’s like being at a concert.”

There are noisy parties one or two times a month, Ward said. Large cars and vans that arrive full of people “gridlock” the narrow road leading up to the house, according to Ward.

Police records show 17 patrol calls to the home since the beginning of 2017. Ten of the calls were for minor disturbance parties and two were classified as group disturbances.

“That is an incredible amount of calls for service,” said Benjamin Thompson, LAPD Hollywood division senior lead officer. “It’s incredibly indicative of the misuse of the kind of public safety danger that is being cultivated at the property.”

Martin Gray, who said he manages the home’s recording studio and listed it on Airbnb, described the property as “not really a traditional Airbnb” and as more of a place “built to accommodate artists and record labels.”

Gray told CNBC he first listed House Thirty Three on Airbnb in January and that there have been a few short-term rentals booked through the platform. Record labels booked the home for March and April and did not use Airbnb to reserve it.

“A lot of the Airbnb stuff was just daily rates,” Gray said.

When CNBC informed Gray that short-term rentals at this Los Angeles address are illegal, Gray said he was surprised and did not know about the prohibition. He said he was unaware of the police calls to the home. The property’s owner did not respond to a request for comment.

“Our neighborhoods have become de facto nightclubs,” Estevan Montemayor, the city’s communications director, said. “And that’s not what they were built for, what they’re meant to be.”

Further north in the San Francisco Bay Area, an incident in April illustrates the clash between residential peace and quiet and the nightmare next door.

Paul Larson, who lives in Millbrae, didn’t mind when he first heard the house next door was being rented through Airbnb. But then came the loud parties and the fears for his own safety.

In the early morning of April 22, a party with dozens, possibly hundreds, of partygoers culminated in eight loud gunshots.

“It sounded like they were coming from right outside the wall and it really spooked me,” Larson said of the gunfire. “I could hear commotion, I could hear yelling, I could hear scurrying.”

CNBC obtained surveillance footage captured on Larson’s video security system of the private road leading up to the Airbnb house. The videos show guests entering and exiting throughout the day and into the next morning, as well as the gunfire and subsequent commotion.

Police are seen walking and driving past the surveillance camera in the hours before and after the gunshots rang out.

“Nobody from Airbnb has reached out to me or any of the neighbors to apologize,” Larson said, saying it’s a source of frustration. He said he reached out to the Airbnb unit host hours before the gunfire. The host tried contacting Airbnb to voice her concern several times, but kept getting put on hold and never received a response, according to Larson.

“The chance of this happening under just normal circumstances if it was not an Airbnb is basically nil,” Larson said. “It’s all because of the Airbnb.”

In a statement to the mayor, vice mayor and Millbrae City Council, Airbnb said: “We have zero tolerance for this type of behavior and upon learning of this incident, we permanently banned this guest from our platform and suspended the listing. Additionally, we are reaching out to the San Mateo County Sheriff’s Office to offer our assistance.”

New York City, which Airbnb lists as its top destination for guests, has some of the tightest restrictions on short-term rentals in the country. It is illegal to rent out an entire residence for less than 30 days in New York City. Short-term rentals are permitted only if the homeowner is also staying there throughout the rental period and there are no more than two renters.

New York Gov. Andrew Cuomo signed a law in 2016 making it illegal to advertise occupancy for short-term rentals in buildings with three or more units. Violators are subject to fines up to $7,500.

But CNBC easily found what appear to be illegal listings on Airbnb in New York.

Wachsmuth was one of the authors of a 2018 report that analyzed Airbnb activity in New York City. The study, titled “The High Cost of Short-Term Rentals in New York,” found that 45 percent of all New York Airbnb reservations last year were illegal and two-thirds of revenue is from likely illegal listings. The report was funded by the Hotel Trades Council, which Airbnb says makes the findings questionable.

“I’ve been doing research on Airbnb for years now,” Wachsmuth said. “And the vast majority of that is independent, university research. And the fact of the matter is that everybody who studies this, almost without exception, comes to very similar conclusions.”

“Cities all across the world are cracking down because they see the same facts that we see. And those are the facts, although they happen to be inconvenient for Airbnb,” he said.

Airbnb faulted the data collection and methodology used to compile the report calling it “deeply flawed and inaccurate.”

In 2017, New York doubled its number of inspections of potentially illegal short-term rentals, said Christian Klossner, executive director of the Mayor’s Office of Special Enforcement.

“The city has dedicated a significant number of resources, we’re ramping up enforcements,” he said.

Regulatory efforts in other cities have wound up in court.

Last year, Airbnb and HomeAway, reached a settlement with San Francisco, in which the companies agreed to enforce regulations from 2014 that require hosts to be registered. The companies also will collect data from people who list their units for under 30 days, information San Francisco can use when determining who can register.

The goal of the agreement was to limit the number of “commercial de facto year-round hotels,” said Omar Masry, senior analyst at the San Francisco Office of Short-Term Rental Administration and Enforcement.

“We tend to see a strong correlation with quality-of-life issues, noise and parties,” Masry said about commercially operated listings. He added, they “rarely see this with short-term rentals playing by the rules.”

Since the rules went into effect last September, he said the number of listings has dropped from around 10,000 to 4,000. The city has been working closely with Airbnb to identify illegal listings and remove them from their platform.

“We’ve seen a massive reduction in illegal listings including many folks who we had seen operating … high-volume short-term rentals across the city,” he said.

While Airbnb points to scores of hosts who earn extra income from short-term rentals, CNBC found companies around the country who have rented properties from landlords and turned them into Airbnbs.

For example, the New York short-term rental report found that the top 10 percent of hosts earned 48 percent of all revenue in 2017, while the bottom 80 percent earned just 32 percent.