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Airbnb: Regulation of Internet-Based Businesses


August 25, 2014 by Carol Tobin
Category: Licensing and Regulation , Tourism , Business Licenses and Taxes

Airbnb: Regulation of Internet-Based Businesses

It’s always something. Cities and counties have been grappling recently with the regulation of rideshare services such as Uber, Lyft, and Sidecar, that have been competing for business with taxis and limousine services. The latest regulatory issue along these lines is the regulation of short-term rentals, including such popular services as Airbnb, VRBO, and HomeAway. These online person-to-person short-term rentals compete with hotels, motels, and bed and breakfasts, and often they don’t pay license fees or lodging taxes. The sharing, peer-to-peer commerce concept, which started with services such as Craigslist and eBay, has evolved into a broader “shared economy” with shared rides, homes, and “maker” workspaces.

In the past, some Washington jurisdictions, including San Juan County, Port Townsend, and Westport, have regulated vacation rentals and transient accommodations, generally through zoning and/or business licensing requirements. With the popularity of online short-term home, apartment, and room rentals, pressure has mounted to regulate and collect taxes from these services, and even prohibit these uses, either in all or in part of a jurisdiction. Airbnb, for example, specifically warns property owners of possible local requirements, restrictions, and prohibitions.[i]

In July, Portland made the news when the city council adopted an ordinance to legalize one- and two-bedroom short-term rentals in privately owned homes (Ordinance No. 186736). Hosts must pay a two-year $180 permit fee, get their home inspected every six years, pay city lodging taxes (12.5%), and live on-site at least nine months out of the year. Homeowners may use a third party, such as a professional property manager or a family member, to run their in-home business. Within the next few months, Portland will consider allowing short-term rentals in apartments and condominiums as well. According to Airbnb, in one year the Airbnb service generated $16 million in economic activity in Portland and supported 660 jobs.[ii]

Founded in August of 2008 and based in San Francisco, Airbnb is a community marketplace for people to list, discover, and book short-term accommodations around the world – online or from a cell phone. Airbnb growth has been accelerating: in 2012, it booked 12 to 15 million “spaces.”[iii] Airbnb and similar services offer serious competition for traditional hotels, with rates about 20-50% below market price.[iv] In Chicago, short-term rentals generated $108 million in overall economic activity in 2013, with $70.6 million directly attributable to visitor spending on short-term rentals and related expenses, such as food, recreation, and transportation.[v]

While, to our knowledge, no Washington jurisdictions have enacted ordinances explicitly to address home-share services, some tourism-oriented cities and counties (as noted above) have had provisions in place for a while addressing short-term rentals. So, we can learn from Portland and other cities that have been facing this issue head-on. In June of this year, the U.S. Conference of Mayors issued a letter of support for innovative companies that participate in the sharing economy, including services such as Airbnb.[vi]

In addition to Portland, Austin, TX, Palm Desert, CA, Myrtle Beach, SC, and Madison, WI have passed ordinances regulating these short-term rental services. Communities that are currently tackling this issue include San Francisco, Boston, New York, and New Orleans, as well as smaller cities like Berkeley and Malibu, CA, Grand Rapids, MI, and Roanoke, VA. In 2011, Florida passed a law that prohibits local governments from banning short-term rentals. Some cities like Charleston, SC have even prohibited short-term rentals. In Los Angeles, the city issued a memorandum stating that city residents may not rent out their apartments and homes for fewer than 30 days if they live in what the planning department classifies as a purely residential neighborhood. In New Orleans, the city council adopted a ban on unlicensed short-term vacation rentals.

If your jurisdiction is considering regulations to address short-term vacation rentals, MRSC would be interested in hearing from you (email: ctobin@mrsc.org).

Other Resources

The following are some additional resources that address issues associated with the regulation of Airbnb, VRBO, HomeAway, and similar short-term rental services:
[i] See "What legal and regulatory issues should I consider before hosting on Airbnb?" Airbnb.

[ii] Airbnb 2014 press release.

[iii]Airbnb: A Spare Room for Debate,” by Larry Downes, Harvard Business Review Blog Network, June 26, 2013.

[iv]  Id.

[v]Studies Find STRs Boost Jobs And Local Economies in Chicago and St. Joseph,” Short Term Rental Advocacy Center, March 13, 2014.

[vi] Letter in Support of Previous USCM Policy, Airbnb Public Policy Blog.

MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

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