Successful Short-Term Rental Regulations: It is Possible!December 10, 2020
Short-term home rentals have become increasingly popular in recent years, and have continued to thrive even during the COVID-19 pandemic. In fact, many local communities report an increase in short-term rentals in the last six months, presumably as people seek safe vacation options close to home and take advantage of the ability to work from “home” anywhere they want. While short-terms rentals can be economically beneficial to hosts, guests, and local governments, they can also result in a number of problems—trash and parking issues, party houses, and decreased availability of long-term housing, to name a few. These externalities are typically borne by immediate neighbors and sometimes by the larger community. Problems are more likely to occur if short-term rentals are unregulated or regulated by outdated or ineffective rules. It is therefore advisable for local governments to periodically take stock of short-term rental activity in their area and adopt or amend regulations as necessary.
As is true of many local regulations, there is no “one size fits all” solution to short-term rental regulation that is appropriate for all jurisdictions. Instead, each community’s approach should depend on its particular policy goals and values. A jurisdiction experiencing an affordable housing shortage may want to impose limitations on short-term rentals that would not be a good fit for a vacation destination community where the economy depends on welcoming visitors and collecting transient occupancy taxes. Despite differing policy goals, all jurisdictions have an interest in minimizing problems that can be associated with short-term rentals. In terms of both policy and the prevention of undesirable externalities, local agencies have a number of regulatory and enforcement tools available to achieve their goals.
The basic framework of a short-term rental regulation is a formal registration or permitting system. The devil is in the details, of course, and the regulation should not only reflect the jurisdiction’s policy preferences, but should also clearly define the rules associated with permitted short-term rental activity. For instance, if the jurisdiction is wary of so-called party houses, it might ban one-night bookings, or allow rentals only where the host lives on the property for the duration of the rental period. It might also cap the number of occupants allowed at short-term rentals, either as a blanket number applied to all properties, or in relation to specific property characteristics (e.g., size, number of bedrooms). Likewise, limiting the number of nights per year that any one property can be rented may prevent pseudo-hotels from cropping up, and the purchase of properties by speculators intent on operating full-time short-term rental businesses. To prevent parking problems, the regulation can limit the number of vehicles renters may park on or near the property. Having adequate off-street parking at a short-term rental can also be a registration/permit requirement. There is a wide range of regulatory options, depending on the desires and needs of the community.
Regardless of specific rules, the regulation should also include clear and deliberate standards and processes for permit revocation. Typically, revocation is tied to a certain number of permit or code violations within a defined time period, which helps ensure that problem properties can be brought into compliance or promptly shut down. Taking into consideration the profit that property owners in that jurisdiction may make from short-term rentals, the regulation should also impose fines that are high enough to deter violations. When fines are too low, unscrupulous short-term rental operators will sometimes treat fines as a cost of doing business and continue to violate the law. Imposing high enough fines can be a particular challenge for general law cities in California because state law limits the penalties such cities can impose. Be on the lookout for possible state legislation to address that issue.
What About Enforcement?
As all local regulators know, any regulation is only as good as the ability to enforce it. This is especially true in the case of short-term rentals, where identifying violations may be difficult. Some jurisdictions have relied on staff to manually identify violations, for example by monitoring listings on hosting platforms to confirm that they reflect compliance with local regulations. For most jurisdictions, however, this method may be ineffective and cost-prohibitive There are simply too many hosting platforms, with listings being added, removed, and edited daily, for staff to keep up. Moreover, because listings typically do not include property addresses, exact locations, and/or identifiable exterior photos, it can be difficult for staff to identify the exact properties and owners associated with a noncompliant listing, which stymies enforcement.
In response to this problem, some cities have contracted with private sector companies that track and compile the jurisdiction’s short-term rental data, including address information. Theoretically, these services make it easier for staff to identify noncompliant properties, impose fines, and collect transit occupancy taxes. Proponents claim that the increased tax revenue and enforcement opportunities, combined with reduced staff time, make such services revenue-positive in the long run.
Many jurisdictions pursue enforcement on a complaint basis, typically when neighbors of a noncompliant short-term rental come to the City with information regarding violations. An additional way of capturing violations is to create a 24/7 hotline for concerned residents to report non-emergency complaints related to short-term rentals in the jurisdiction. These hotlines not only provide an additional means of identifying noncompliant properties, but also give neighbors and other affected individuals a targeted channel for complaints, and avoid burdening police and fire departments, who might otherwise receive these calls. Emergency issues and urgent health and safety problems should, of course, be directed to emergency personnel.
Finally, although hosting platforms such as Airbnb and Vrbo have historically taken a hands-off approach to local compliance issues, that may be slowly starting to change. Many platforms have shown some increased willingness to cooperate with local jurisdictions in response to increased (and well-publicized) public safety concerns. For instance, platforms may now be willing to delist properties identified by staff as noncompliant. Many platforms are also willing to require hosts to post their local permit number on listings, giving staff the means to match noncompliant listings with actual properties in the jurisdiction’s permitting or registration system. Some hosting platforms may also be willing to enter into agreements with local agencies related to compliance, direct registration, and tax collection. All this, however, does require local jurisdictions to invest time and effort. This is one of those areas where hard work and persistence pay off. Jurisdictions should not assume that short-term rental operators and hosting platforms will address problems on their own, but with appropriate outreach and enforcement local jurisdictions can allow for the best aspects of this industry while avoiding the worst.
Conclusion: Local Governments Have the Power
Each jurisdiction will have its own set of policy goals and concerns about the effect of short-term rental activity within its boundaries. Regardless of these differing perspectives, all jurisdictions can both encourage desired short-term rental activity and minimize the common problems associated with short-term rentals. This outcome depends, however, on thoughtfully considered and well-drafted regulations that reflect the jurisdiction’s goals and provide effective and achievable means of enforcement.