Airbnb is banned from more and more Chicago condo buildings

As City Hall gets ready to enforce its new home-sharing regulations, the supply of Airbnb’s most important raw material—homes—is shrinking, and fast.

So far, 901 residential buildings with 88,993 units have placed themselves on a list of properties off-limits to Airbnb and other home-sharing websites, according to the Chicago Department of Business Affairs & Consumer Protection. Many of them are in neighborhoods that are popular on Airbnb, the leader of a nascent industry that’s disrupting the hotel market, rankling condominium boards and attracting the scrutiny of government officials across the country.

The “prohibited buildings” list, part of the home-sharing ordinance approved in June, gives the city an extra tool to crack down on scofflaws—people who rent out their homes even if they live in buildings that don’t allow it.

Worried about becoming quasi-hotels for rowdy out-of-towners, the vast majority of big condo buildings and apartment landlords in the city already want nothing to do with the likes of Airbnb. But that hasn’t stopped Airbnb’s expansion here. A record 8,221 units or rooms in Chicago were listed on the home-sharing site in October, up 56 percent from a year earlier, according to Airdna, a firm that sells data analytics to Airbnb hosts.

But the number of listings could stop rising or even shrink, depending on how aggressively the city enforces the new regulations, which go into effect Dec. 17. A smaller potential inventory of homes available for rent—especially in neighborhoods popular with tourists—could limit Airbnb’s growth ambitions in Chicago and possibly diminish its competitive edge vis-a-vis hotels.

“The question will be whether the prohibited buildings list ultimately changes the paradigm,” says Howard Dakoff, a partner at Chicago law firm Levenfeld Pearlstein who specializes in condo law.

The new Chicago ordinance imposes licensing requirements on people who rent out their homes on a short-term basis through online home-sharing services. It creates a surcharge on rentals, restricts the number of units that can be rented out within properties and allows buildings that already ban short-term rentals to put themselves on the new prohibited buildings list. The city already has been hit with two lawsuitsarguing the regulations are overly draconian and amount to regulatory overreach.

Enforcing previous rules has been difficult, especially without the help of San Francisco-based Airbnb, which is essentially a broker. Building managers monitor Airbnb listings to catch residents who covertly rent out their units, threatening them with a lawsuit or eviction. “It’s a game of cat and mouse,” Dakoff says. Still, it’s hard to track which home is being rented without constantly monitoring listings.

The new ordinance could coerce Airbnb and other home-sharing services to cooperate. Using a direct “computer-to-computer interface,” home-sharing platforms must exchange information with the city and remove illegal listings from their websites, says Ald. Michele Smith, 43rd, who represents Lincoln Park.

The 88,993 units on the list represent just 8 percent of the roughly 1.2 million homes in the city. But a closer look shows they are concentrated downtown and in North Side neighborhoods where Airbnb has most of its listings. Excluding single-family homes, the banned list accounts for about 10 percent of the residential units in the city. Among high-profile addresses on the prohibited buildings list are Aqua, Trump International Hotel & Tower, Marina Towers and the Belden-Stratford.

Because the ordinance also limits the number of units within a building that can be rented out short-term at one time—big buildings can’t have more than six, for instance—the list, as of Nov. 30, actually removes only about 4,200 units from the city’s potential home-sharing inventory, according to the Department of Business Affairs & Consumer Protection.

In a statement, Airbnb calls the new rules “clear” and “fair” but declines to discuss their impact on its business. “The ordinance effectively empowers middle-class families who choose to share their homes for supplemental income,” the statement says. “We fully understand that home sharing is not a perfect fit for every housing association, and opt-outs are to be expected.”

The opt-out list also includes a 500-unit condo tower at 474 N. Lake Shore Drive. The lakefront building has had some rogue Airbnb rentals in recent years, though the number of scofflaws appears to be declining amid greater awareness of the new ordinance, says David Summers, president of the building’s condo board. “I think the regulations put a spotlight on it and made people think about it,” he says. “People are less likely to do Airbnb without checking the rules.”

The new prohibited list also may benefit the city’s hotels, which view Airbnb as a competitor and pushed the city for the tougher regulations. With fewer choices in desirable downtown residential buildings, more would-be Airbnb customers might book a hotel room instead, says Georgios Zervas, a marketing professor at Boston University who has studied the sharing economy.

At the same time, however, the regulations could turn more single-family homeowners into hoteliers if tighter supplies drive up rents. “Now they have more market power and will find it more worthwhile to list their properties on Airbnb,” Zervas says.

This tussle is far from over.