Business Monday

How $20,000 fines have made Miami Beach an Airbnb battleground

Daniel Sehres in his home on Meridian Avenue. The home, formerly a short-term rental, is undergoing a $200,000 renovation to become a bed-and-breakfast property.
Daniel Sehres in his home on Meridian Avenue. The home, formerly a short-term rental, is undergoing a $200,000 renovation to become a bed-and-breakfast property. cjuste@miamiherald.com

For the past eight months, Miami Beach has waged a war against short-term rentals. Its weapon of choice: $20,000 fines.

One property on Meridian Avenue has been walloped three times, totaling $60,000 in fines against the historical five-bedroom home. Owner Daniel Sehres may still be able to circumvent the fines — if he finishes converting the home into a bed-and-breakfast, an option available to him only because he falls into a narrow set of criteria.

But the cost to add fire sprinklers, a wheelchair ramp, impact windows and a slew of other requirements that will make the property a legal short-term rental make the fines look like chump change. When renovations are complete, Sehres expects to have paid $200,000 in upgrades.

Early this month, the home was in upheaval. Work trucks and crews have been a permanent fixture in front of 1545 Meridian since construction started in August. A ditch at the front of the house is designed to tie it to the city utility in order to install fire sprinklers. The brick in the back patio has been torn apart to accommodate a wheelchair ramp. The drywall is cracked where new impact windows have been installed.

For Sehres, it’s worth the expense to stay in the blossoming short-term rental business. Renting, albeit illegally, once helped him come out of the recession after his home was in foreclosure. It gave him independence as an entrepreneur. And it pays: On home-sharing platform Airbnb, the home is going for $1,699 a night. He expects to charge a minimum spend for a maximum five-day stay between $12,000 and $25,000, depending on the season, when the renovations are completed.

“This, doing it properly, getting the license, everything, it’s a good business,” Sehres said outside the home earlier this month while construction crews worked.

 

Sehres was hoping to complete the home in time for Miami’s premier art show, Art Basel, this week, but renovations may take longer. During major events, short-term rental platforms have proven popular worldwide because they infuse cities with the extra supply needed to sustain added visitorship. New hosts flood the platforms, looking to profit from the tourist influx. But this year, they will contend with Miami Beach’s new fines for the first time.

Potential Basel hosts say the fines and the barriers to access on the beach are exorbitant.

Miami Beach’s short-term rental fines are the highest in the country, higher even than New York City, site of one of the most contentious battles against home-sharing. Last month, New York passed a law that penalizes Airbnb hosts who list illegal rentals up to $7,500, less than half Miami Beach’s fine.

“I’m not exactly sure why the excessive fines,” Sehres said. “[Short-term rentals] are OK in certain areas, and not in other areas — as long as it’s regulated and there’s some rules and it can be policed.”

But the city of Miami Beach feels short-term rentals should play a very limited role in the makeup of the city, where zoning prohibits short-term rentals in almost the entire island, save a few pockets such as a stretch of Harding Avenue and Collins Avenues. Since raising the penalty to a flat $20,000 from a previous cost of $500 to $7,500 in late March, Miami Beach has fined residents and rental companies themselves — including Airbnb, HomeAway and Booking.com — a combined $4 million. Residents who live in areas that allow short-term rentals may also get fined if they don’t have a business tax receipt and resort tax account to operate legally. Tourists staying in illegal rentals can get evicted, but not fined.

“I think [the fines] can be increased, actually,” said Miami Beach Mayor Philip Levine. “$20,000 is not enough. Our community is not in favor of short-term rentals.”

The city’s economic giant, the tourism industry, feels short-term rentals should be on an even playing field with hotels, paying taxes and complying with regulations. Real estate experts worry that short-term rentals reduce the long-term rental pool in an area already suffering from a shortage of workforce housing.

For residents, the main gripe with sites like Airbnb and HomeAway is their effect on quality of life. Locals have complained that the transient renters often leave units in disrepair, pose unsafe conditions for nearby residents and use the rentals as party houses for their Miami Beach vacations.

And they may have a point, Sehres said.

“What I’ve learned, even if they say they don’t, everyone comes here to do one thing: party,” he said. Sehres has hosted Japanese bachelorettes and hip-hop artists. A few parties were broken up at his home.

Miami Beach code compliance has issued 145 short-term rental violations from March through Nov. 22, said the department’s director, Hernan Cardeno. “More often than not,” Cardeno said, citations are issued because of some type of disturbance, including parties and noise.

In May for example, a home at 1575 Stillwater Drive was fined on a second offense for a rental from May 5 to May 8 “due to a bachelor party which cost was $5,000 [sic],” according to complaint records. Cardeno said his department has broken up a short-term rental at a mansion on the beach where the renters were using and selling meth.

Alicia Wuscher, a resident who lives on Palm Island, said the house next door to hers on Coconut Lane sees a steady stream of short-term renters who often throw boisterous bashes. The noise gets so loud her house starts “shaking,” she said.

Last month, three women staying at a short-term rental on Euclid Avenue found hidden cameras inside three portable clocks in the bathroom. The rental owner, Winston Vargas, was arrested on a charge of video voyeurism.

“For us this is still an unlicensed, unregulated, unpermitted activity,” Cardeno said. “You are changing the character and the nature of our neighborhoods.”

In October, the Miami Beach City Commission approved two additional inspectors and a supervisor for the code compliance department dedicated solely to tracking down short-term rentals. Once they are hired, the department’s task force will number five.

But Airbnb, the nation’s leading home-sharing company, says its model makes it possible for travelers to experience Miami Beach as locals do. The company favors curbing disruptive behavior, said Michael O’Neil, Airbnb’s director of regional policy, in an interview last month.

“The company continues to find ways to be a good member of the community and trying to be responsible and responsive to neighbors,” O’Neil said. The home-sharing company has developed a neighbor tool, which allows people to submit complaints about Airbnb rentals directly on the site.

Airbnb says it wants to work with the city to develop “clear, fair rules” to operate short-term rentals and start paying resort taxes — 6 percent in Miami-Dade County plus a 2 percent tourist development tax on Miami Beach — that in turn supports the local tourism industry. While Miami-Dade County has engaged in ongoing talks with Airbnb about a possible tax agreement (about half of all rentals are spread out across 72 ZIP codes in the county; the other half stayed at Miami Beach’s three ZIP codes), Miami Beach Mayor Levine said he has been “approached many times” by Airbnb about negotiating a compromise but ultimately feels short-term rentals don’t have a place in the resort city.

“I just don’t believe it works on Miami Beach,” Levine said.



Other cities where home-sharing has faced opposition have reached a middle ground with companies like Airbnb, said Mark Lunt, partner in the hospitality and real estate practice at Ernst & Young. San Francisco for instance, where Airbnb was founded, passed a law that allows short-term rental owners in designated areas to register their rentals with the city for a $50 application fee. In that way, the city can keep an eye on its rentals, Lunt said.

“Many destinations started the way that Miami Beach is treating it,” Lunt said. “Better mechanisms have emerged in order to regulate the [rentals]. The economic model for sharing, the sharing economy, is constantly gaining traction. It’s probably here to stay.”

Hotels: Bracing for impact

For now, the fines — backed largely by the hotel industry — are Miami Beach’s only mechanism to curb short-term rental growth.

The local resort tax is helping fund increased code-compliance staffing to pursue rental complaints. The fines are endorsed by the Greater Miami & The Beaches Hotel Association, which has worked closely with the city to stop the illegal rentals.

Wendy Kallergis, the association’s president, said the prevalence of the rentals is, at least anecdotally, impacting business. The association supports regulation and taxation for companies like Airbnb — and the fines.

“When fines are as excessive as they are, I would hope that it will definitely pay off,” Kallergis said.

During peak times like Art Basel on Miami Beach, short-term rentals become even more disruptive for the hotel industry. Hotel rates traditionally crest during this week — a practice that has drawn criticism from art fair participants. An influx of rental options also limits hotels from raising prices too high.

“The lodging industry locally is generally not a fan of Airbnb [and other short-term rental companies] because they can’t get those peak rates anymore,” said Lunt of Ernst & Young. That factor was best illustrated during this year’s Summer Olympics, where short-term rentals played a major role in providing the supply needed to house an estimated 500,000 visitors in a hotel room-anemic Rio de Janerio.

Miami’s “Olympics,” albeit annual, is Art Basel and the surrounding two-dozen art fairs.

“Home sharing is an important tool to accommodate [the event] influx while also capturing the full economic benefit of hosting these events,” Airbnb said in a statement. “We are excited about partnering with the greater Miami community to welcome artists and designers from around the globe for Art Basel.”

Airbnb argues its platform also benefits the local economy because its renters spend more money in the communities they stay in. In Miami-Dade, the average user spends a little more than $250 a day.

Still, Cardeno of code compliance said the department has “enhanced scheduling for [Art Basel] to handle an increased caseload across all code violations.”

Up to now, Airbnb says the fines “have not deterred the mission of Miami Beach hosts to share their homes.”

The platform hosts a small fraction of the beach’s tourists: Only about 1 percent of all tourists who came to Miami-Dade County last year stayed at an Airbnb rental, according to ZIP Code data provided to the Miami Herald by the home-sharing company.

But that 1 percent, plus renters who use other platforms to book a stay in the resort town, is projected to grow.

The increase is powered largely by millennial travelers and multi-generational travelers, who are gravitating more toward home-sharing over the traditional hotel stay, Lunt said.

Younger travelers want to collect experiences infused with local flavor. Multi-generational travelers want a more cost-effective option for big groups than booking multiple hotel rooms.

“[Home-sharing] fits a sector of demand that the hotel business doesn’t meet that well and that’s somewhat exacerbated on Miami Beach because Miami Beach has so many boutique, Art Deco, small room hotels,” Lunt said.

Real estate: Long-term implications

As Airbnb nears its 10th birthday, the ripple effect of its growth and the home-sharing industry it made mainstream could trickle into real estate, experts predict.

More short-term rentals means fewer housing options — affordable or not — for residents and workers, said Jeff Margolis, partner and co-manager of the Business, Finance & Tax Team at law firm Berger Singerman.

“It takes inventory away from those that work and want to live on the beach on a permanent basis and driving [up the rates for] the units that are available for long-term rentals,” Margolis said.

Airbnb argues that most renters would never put their homes in the long-term market anyway, because most purchased their Miami Beach vacation properties with the aim of renting them out most of the year. The units that potentially could be used as affordable housing tend to be “a negligable amount of the housing stock in a city,” said Airbnb spokesman Christopher Nulty.

Instead, the high fines against short-term rentals may lead property owners to rent long-term instead, depreciating the value of the properties because they generate less income from renting, said real-estate broker Ross Milroy.

“This is diluting the rental pool. With more properties available, people have more choices,” Milroy said. “It’s starting to bring down rents. Once rental prices come down, prices will follow. It’s decreasing the value.”

That scenario assumes the whopping fines will stymie the popularity of short-term rental sites.

So far, they haven’t. Cardeno said only about $65,000 in fines have been paid so far. Most cases are being appealed.

Public sentiment continues to favor sites like Airbnb: According to a poll conducted by David Binder Research of 500 Miami-Dade County residents in August and sent by Airbnb to county commissioners last month, 52 percent of respondents said they had a favorable opinion and 10 percent they had an unfavorable opinion of the platform.

And its reach only grows.

Between 2015 and 2016 alone, the number of inbound guests to the county via Airbnb rose 30 percent.

Since 2014, that number has tripled.

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