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Chicago targets ‘party houses’ in new STR ordinance

by Meg White

Chicago targets ‘party houses’ in new STR ordinance

Landlords who rent Chicago properties on short-term rental sites such as Airbnb will soon see tighter regulations, and in some cases, new fees. The Chicago City Council passed a reform ordinance today that will strengthen the regulatory power of the city’s Department of Business Affairs and Consumer Protection in relation to such business activity.

Starting Oct. 17, property owners will no longer be able to rent out units on a single-night basis, which was billed by the mayor’s office as a way to crack down on party houses. Also, the new rule gives city residents more power to oppose STRs in their neighborhoods. Neighbors can already petition to have these arrangements banned in their precincts if they’re in certain low-density areas (typically, zoning districts 1, 2 and 3). With the passage of today’s ordinance, registered voters in more areas can come together and create Restricted Residential Zones, with the new rule expanding this right to those in residential zoning districts 3.5 through 5. Such restricted zones require at least 25% of registered voters within the precincts to agree to the prohibition.

“For too long, communities have suffered from out of control ‘party houses,’ in my ward and throughout the city,” Ald. Michele Smith (Ward 43), who co-sponsored the reform ordinance, said in a press release. “Now more Chicago residents who want to restrict short-term rentals in their community will be able to petition to keep them out of their precinct.”

Purveyors of short-term rentals will need to register and receive approval for their properties with BACP before they can list them online. Owners were able to list pending properties prior to this new ordinance’s passage. It had been the duty of the two intermediaries licensed to operate in Chicago — Airbnb and HomeAway — to send information about individual listings to the city, but that exchange will be much more direct starting next month.

The ordinance will make it easier for some smaller operators to break into the business, however. Starting in April, a tiered licensing program will replace what is now a blanket $10,000 fee for intermediaries. Those listing one to 499 units will now pay $5,000 per year and intermediaries with 500 to 999 units will pay $7,500. Only those with 1,000 or more units (which presumably includes the two intermediaries that are active in the market now, overseeing nearly 9,000 units in the city collectively) will pay the current rate of $10,000 annually. Those who own individual units will have to pay a new $125 registration fee to BACP in order to register their residences.

“We are not only ensuring customers have the transparency they need but also making it easier for small operators to become licensed in our city,” said Mayor Lori Lightfoot. “By enhancing the city’s enforcement powers against bad actors and increasing regulatory oversight through BACP, we can further ensure this new and innovative industry remains safe for all of Chicago’s residents.”

These regulatory enhancements build on a 2016 law that made Chicago the first city in the nation to receive information from hosts, according to a release from the mayor’s office.

“Over the last four years, we have worked tirelessly to oversee the evolving shared housing industry within the limits of the existing regulations,” said BACP Commissioner Rosa Escareño. “This ordinance will modernize the process, improve host registrations and enhance the city’s ability to hold problem actors accountable while preserving the innovation that is critical to this industry.”

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