Local Government Catching Up with Airbnb and Other Short-Term Transient Rental Businesses

Airbnb and other short-term transient rental websites, such as HomeAway and FlipKey, seem to be in the news on a daily basis. Depending upon your perspective, these commercial enterprises can be many things: shining examples of the “sharing economy,” unwelcome intruders into established residential neighborhoods, ways for homeowners to help pay their monthly mortgages, businesses skirting their local financial and regulatory obligations, and the list goes on. Regardless of your feelings, it is probably time to consider whether your community needs to establish or update its short-term transient rental regulations.

Some local governments have focused their zoning regulations on more traditional travel accommodations, like hotels/motels, and tried to prohibit short-term rentals altogether, but such bans have met with limited success. So, if a community wants to adopt standards to regulate short-term transient rentals, where should it start? I would advise that local governments begin by identifying what issue(s) they want to address. Is it:

1. Lack of lodging and sales tax collection on these short-term rental stays;
2. Unregulated traffic, parking, and noise impacts on the surrounding neighborhood; and/or
3. Non-compliance with life/safety standards that are commonly applied to other types of lodging establishments (such as hotels, motels, and bed-and-breakfasts)?

Tax Collection

Even though Airbnb has started collecting all applicable sales and lodging-related taxes in Washington State (as of October 15, 2015), there are many other short-term rental websites that leave it up to state and local government to try and collect those taxes. If a primary goal is to collect a lodging tax, a logical first step is to adopt a local lodging tax, if you don’t already have one. Once in place, a municipality should then provide clear information to short-term rental unit owners about payment of applicable fees and lodging taxes, and may want to follow Portland’s lead by setting up a low-cost licensing program.

The benefits of a user-friendly, low-cost licensing/permitting program extend beyond just collection of lodging taxes. Such a program will also likely encourage more short-term transient rental owners to register their units, so that a local government will be knowledgeable of their locations and assured that the owners are aware of all local requirements.

Neighborhood Impacts

In the ideal world, short-term transient rental guests would be well behaved and nearby residents would not even realize that those occasional visitors weren’t just friends visiting their neighbors; this situation is likely the case for the vast majority of short-term rental experiences. If you are a local government and don’t want to rely on a “best case” scenario, however, you should review and update your local regulations, so that it is clear how short-term rentals are defined, where they can be located, and what rules need to be followed by guests and owners. Palm Desert, California’s Short Term Rental regulations provide a good example - they have a low-cost licensing program, specify the on-site parking requirement, and point out the local noise regulations, among other things. New Orleans defines and regulates short term rentals as “bed and breakfasts,” which means that owners need to occupy part of the residential structure they are renting out, making it easier for them to monitor guests’ behavior.

It is also important to consider the impact of short-term rentals not just on immediate neighbors, but on the neighborhood as a whole. To avoid an over-concentration or “clustering” of short-term transient rentals in a specific neighborhood, Durango, Colorado established a program that currently limits such rentals to only one rental per ”street segment” within specified zones and caps the total number within those zones. Austin, Texas has a cap on the number of non-owner-occupied and multi-family/commercial short-term rentals allowed per census tract.

Safety

In most communities, lodging establishments must meet stricter life/safety standards than those required of single-family residences. Public safety is a major issue for Portland, so their Accessory Short-Term Rental (ASTR) program requires initial and follow-up inspections (which are covered by the permit fees) that check for adequate egress to the rentable sleeping rooms, smoke detectors, and even carbon monoxide detectors in some cases (Portland’s ASTR adopted regulations may be found here).

Enforcement

A major challenge in regulating short-term rentals will be on the enforcement side. A well-crafted set of regulations that spell out a community’s expectations may be important, but there also needs to be effective methods for enforcing those standards. Enforcement will likely be difficult, however, because most short-term transient rentals are in residential neighborhoods and not as visually noticeable as a hotel or motel located in a commercial zone. Reacting to citizens’ complaints and monitoring short-term rental websites, with the appropriate follow-up against violators, appear to be the two primary tools for enforcing your licensing, permitting, and tax collection requirements. Santa Monica and Bainbridge Island staff members review the various short-term rental websites to identify violators. Portland had to go so far as to sue HomeAway.com and its VRBO.com subsidiary for not following the city’s regulations, and underwent serious negotiations with Airbnb before reaching an agreement with them.

Given their popularity with consumers, short-term transient rentals appear to be here to stay. Given this prognosis, I would recommend that Washington cities, towns, and counties identify their locally significant issues (be it tax collection, reduction of neighborhood impacts, or something else), and proactively take steps to address them. The major challenges will be to create a process that is not so complicated, burdensome, and expensive that it causes short-term rental owners to “fly under the radar,” rather than comply with local requirements, and to encourage a high rate of participation with your local program.

Recommended Resources

• Lawmakers Struggle to Legalize Airbnb, GovTech.com
• Popular online short-term vacation rental sites can mean tax, neighborhood issues, The Gazette (CO)
• Video about Austin’s (TX) Short-Term Rental Licensing Requirements

If you have had experience with short-term transient rentals in your community or have developed an approach that has been working, please leave a comment below or contact me directly at sbutler@mrsc.org.