Dan & Amy spoke with a Chicago real estate attorney about the specifics and the implications of the new City of Chicago ordinance, pushed by Rahm Emanuel, to highly regulate property owners who want to use Airbnb and other property rental "share economy" services.
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Dan Proft: Dan and Amy. So Amy, you're familiar with the share economy not just Uber and Lift but with respect to your home like Airbnb. Amy Jacobson: Yeah. Dan Proft: Have you ever used Airbnb? Amy Jacobson: Oh, yeah, I've used it several times. Dan Proft: All right. Well… Amy Jacobson: It’s great and I've been thinking about renting out my homestead, you know, to Airbnb because people on our block are doing it with their coach houses and apartments so… Dan Proft: That’s perfect because those people on your block doing it probably preclude you from doing it. Amy Jacobson: Why? Dan Proft: Okay, we’re going to get a little education on how city of Chicago politics works here from local attorney in Chicago, real-estate attorney. His name is Shorge Sato and he founded an organization, a nonprofit called Keep Chicago Livable, it’s KeepChicagoLivable.com. Kind of spontaneously created by property owners in Chicago who thought they owned their homes. How silly! Amy Jacobson: I own my home. Dan Proft: No, you don't. The government owns your home and they will let you operate your home so long as you do so at the prices they set and by the structures they said including as it pertains to participating in the share economy. That's the result of the ordinance authored by tiny dancer, passed by the 50 trained seals on the City Council, that regulates your private property as it pertains to Airbnb and other services. Shorge Sato, thank you for joining us. Appreciate it. Shorge Sato: Thank you, Dan and Amy. Good morning. Dan Proft: Good morning. So explain the 58 page, twenty-five thousand word ordinance on Airbnb that… Amy Jacobson: Who’s going to read that? Dan Proft: Nobody on the City Council, I guarantee you that. Explain the thrust of the ordinance they passed regulating people's property and what they can do with it. Shorge Sato: Yeah, I guess it basically tries to force all home sharing hosts or vacation rental licensees to register and license of the city and they have to decide which one they are. They’re renting a vacation rental or shared housing [inaudible 02:10] definitions are both the same and then if they do register, they are subject to very strict regulations which include a duty to comply with the Department of Health Regulations for commercial kitchens which means you can't have a dog and yogurt in your fridge at the same time. It also restricts your ability to rent if there are other people in your building that rent on other sites that you may or may not know. It subjects you too $3,000 to $5,000 a day of violation penalties. If you don't do your laundry, don't clean the towels, $3,000 penalty. If you don't wash and sanitize all your pots and pans after every guest, $3,000 penalty. This law is a gross invasion of your fundamental property rights. Amy Jacobson: Well, who comes in and checks… Shorge Sato: [inaudible 03:14] Amy Jacobson: Sorry for interrupting. Who comes in and makes sure that my… Shorge Sato: If you don’t register, then they’re going to hit you with a $3,000 fine for not being registered. Amy Jacobson: Okay, but who comes in to check to make sure my pots and pans are clean and that my towels are clean? Dan Proft: Ed Burke. Amy Jacobson: I mean have they decided yet who’s going to be the police, the Airbnb police? Shorge Sato: Yeah, the Department of Business and Consumer Affairs. If they hear a complaint about an unlicensed Airbnb or perhaps a licensed Airbnb that somebody in the neighborhood doesn’t like, the alderman doesn’t like, they will issue some sort of notice that demands an inspection and if they come in and if they see something amiss, that’s another violation on their ticket list. Dan Proft: We also have, you know, the kind of rent-seeking behavior afoot here. Hotel and motel pack, Illinois hotel and motel pack, has given about $30,000 in donations to number of aldermen over the last year. They supported this ordinance because they want to crowd out competition from private home owners and so the other thing this ordinance does is treat homeowners like hotels, subject them to the 17.4% hotel tax in the city but in addition to that, it treats them worse than hotels because there's an another 4% surcharge on top of the 17.4% hotel tax that short-term rentors would have to pay to the city, right/ Shorge Sato: Exactly. There's an additional 4% surcharge and there are additional requirements that are put on Airbnb hosts that hotels don't have to comply with. For example, in hotels if there's criminal activity happening in a hotel room, the hotels can only be liable if they know about it whereas Airbnb hosts if it just happens they’re strictly liable or if they suspect that it's happening, they are supposed to affirmably call the police. Amy Jacobson: Now, how many - I mentioned that there's two homes, an apartment and a home that I know of on our street that are renting out, that our Airbnb, is there a limit to how many people in a certain block can be Airbnb members? Shorge Sato: It's not limited by block as much as it’s limited by building although there is an ability that for the aldermen to create essentially a residential restricted zone to try to limit the number of, you know, Airbnbs, or HomeKeys, or HomeAway or FlipKey or VRBOs in a particular block, I guess, or in an area. Dan Proft: So and I just want to understand because you said something but it needs focus. The aldermen. So the aldermen are empowered to say, “Oh, well, the ordinance doesn't apply to you” so we are protecting the feudal system in Illinois where we pass an ordinance but everything runs through the aldermanic office to empower the local feudal lord to say, “Well, you can participate in Airbnb and you can’t. We’ll create a carve-out for you but we won’t create a carve-out for you.” Shorge Sato: Exactly. That's one of the, I think, the more, I don't know what the word is, grotesque things about this law is how it creates this Commissioners adjustment which has about, I’m looking at nine different factors that the commissioner may consider, which are extremely vague like the relevant geography, the legal nature and history of the applicant and then it also says that the Commissioner must solicit a recommendation from the alderman, the local alderman. One guy or girl. One man or woman. Not the entire city council. And within 60 days based on of these very vague factors and an aldermanic recommendation then the Commissioner will make a decision about whether to make an adjustment. I think that creates a huge risk of discriminatory enforcement if not a certainty of it. Friends of the alderman will be able to operate. People that are not friends with the alderman might not be so lucky. Dan Proft: So just in sum, your property’s not your own, you want to rent it out, you're treated like a hotel except more highly regulated, you pay taxes like a hotel except you pay higher taxes, you’re limited in who you can rent to or when you can rent and how many of you can rent and if you want special dispensation, you go genuflect before your local feudal lord. This is why it's the city that works. Shorge Sato: The one thing that gets me is why are we penalizing harmless hustle? I mean at the end of the day this is just people using their own property in order to make something out of nothing… Dan Proft: And in order to pay… Shorge Sato: … $34 million of economy directly to hosts and $209 million dollars to the tourist economy in Chicago in 2015. These are people that are doing that out of their own property, not hurting anybody and we're penalizing the fact that - it takes work. You have to change a lot of sheets, you have to buy things, you have to upgrade your place in order to have a good home because if you don't, the market on Airbnb will punish you severely. It's just like Yelp reviews. Dan Proft: But the market will never punish you more severely than city government and in addition to that in terms of being penalized for doing something constructive and entrepreneurial, you're penalized for trying to deal with ever escalating property taxes. So we're not going to let you come up with creative ways to deal with ever escalating tax burdens as well. I mean it's really – I’m so glad that you're spotlighting this. Shorge Sato, Chicago-based real estate attorney. The organization, if you want to get involved, learn more, helpful advocate on behalf of private property in Chicago, KeepChicagoLivable.com. Shorge, thanks so much for joining us. Appreciate it. Shorge Sato: Thanks a lot, Dan and Amy.