Urban Policy Recommendations for Airbnb-style Short-Term Rentals

Sustainable Economies Law Center's picture

By SELC

May 27, 2013

These policy recommendations were written by Sustainable Economies Law Center Legal Intern, Jessica Arena; Executive Director and Staff Attorney, Janelle Orsi; and City Policies Program Director, Yassi Eskandari.

Introduction

This policy brief recommends the adoption of city-level policies allowing residents a reasonable amount of latitude to host and be compensated by short-term guests. The Sustainable Economies Law Center (SELC) recommends that cities adopt such laws in order to increase the affordability of housing, diversify local tourism opportunities, and create new sources of local wealth and city revenue.

What Are Short-Term Home Stays?

In recent years, it has become increasingly common for people to invite strangers into their homes for short-term stays. This movement grew with the help of websites such as Couchsurfing, which enabled travelers to stay for free in the homes of hosts around the world. This movement expanded with the creation of websites like Airbnb, which facilitates short-term stays in which guests compensate their host. In this brief, we would like to address policy barriers to the latter form of short-term stays, in which hosts are compensated by guests. The following are two examples of how such short-term home stays take shape:

Susana’s Host Home Rental: Susana is a preschool teacher with a two-bedroom apartment. She rents her spare bedroom to traveling guests about twice per month. The income she receives – around $300/month – helps her to afford the high rent she pays to live near her school. As described below, SELC refers to this activity as a “Host Home.”

George and Gavin’s No-Host Home Rental: George and Gavin own a humble condo. Twice per year, they spend three weeks doing volunteer work at a school in Rwanda. While they are gone, they rent their condo to students who come into town for brief internships at a local art museum where George works. The income received from the rental of their condo helps them to afford their travel to Rwanda. As described below, SELC refers to this activity as a “No-Host Home.”


Rental platforms like Airbnb have recently come under fire in New York City and elsewhere. Photo credit: Kevin Krejci. Used under Creative Commons license.

Current Law

Currently, laws in many cities make it prohibitive or even illegal for someone to host a short-term guest for money. In many cases, a host would need to comply with all laws that apply to commercial-scale hotels, including obtaining zoning approval, complying with health, building, and safety laws, and paying a special hotel tax. Zoning laws generally do not permit the operation of a hotel activity in most residentially zoned areas – at least not without a rigorous and expensive zoning application process.

Benefits of Short-Term Home Stays

Enabling short-term home stays strengthens local economies by increasing local tourism, local wealth circulation, and the affordability of housing.

Making housing affordable: The supplemental income earned from short-term renting makes housing more affordable for its residents. Particularly during times of high unemployment, income from short-term stays can prevent evictions and foreclosures.

Increasing and diversifying tourism: Short-term rentals are becoming a common – and even indispensible – way to travel. Beyond the fact that home stays can offer tourists an authentic local immersion vacation, they can often be a more economical option than hotels stays.

Creating local wealth: Enabling short-term renting will also infuse a substantial amount of money into the local community. A significant portion of this country’s hotels are owned by one of 12 large hotel conglomerates. This means that when a traveler pays $200 to stay at an absentee-owned hotel in San Francisco, for example, a significant portion of that $200 will leave San Francisco and is less likely to be re-invested in the local community. By contrast, if a traveler pays $200 to a local resident to stay in that resident’s spare bedroom, the entire $200 goes to a member of the local community, and remains available to re-circulate within the city. Local businesses may also benefit when tourists spend less on hotel rooms, because travelers who save money on overnight stays may be more likely to spend in local restaurants, shops, and entertainment.

Addressing Concerns about Short-Term Home Stays

Preserving the Affordable Housing Supply

Many cities are concerned that allowing short-term rentals will decrease the supply of affordable housing in the city, as landlords would choose to convert housing units into short-term vacation rental homes. However, there are at least three ways in which people temporarily share their housing in exchange for money, as described below. Of the three, only the third form – vacation rentals – actually has the potential to remove affordable housing from the market. The first two, conversely, increase the affordability of housing, by helping residents to offset the high cost of rent or mortgage payments. The three forms are as follows:

1. Host Homes: Hosts rent out a portion of the living space in their homes, while the host stays concurrently with the guest.

2. No-Host Homes: Hosts rent out most or all of their own living unit while the host stays elsewhere temporarily.

3. Vacation Rental: A home is not occupied by a permanent resident, but is rented for many short-term stays all year long.

Preserving the Quality of Neighborhoods

Cities may also be concerned that short-term rentals could increase noise and traffic in residential areas and detract from the residential feel of a neighborhood. Neighbors may be concerned because they do not want to live next door to a house or apartment that has strangers coming and going. The policy solution we describe below will keep a balance between neighborhood quality of life and autonomy by limiting the number of guests per home per year.


Revenues from short-term home rentals are more likely to recirculate in the local economy. Photo credit: La Citta Vita. Used under Creative Commons license.

Cities That Are Leading the Way

Very few cities have taken steps to carve out a clear legal space for short-term home stays. However, in March of 2012, Palm Desert, California, enacted an ordinance providing for the licensing of residential property for short-term rentals. Any property rented for three to 27 days must obtain a special Rental Permit ($25) on an annual basis and must remit a 9 percent Transient Occupancy Tax to the city. The regulations require on-site parking for short-term renters, compliance with the city’s noise ordinance, a round-the-clock contact person who can respond to neighbor complaints, and a limit on the maximum number of guests (two people per bedroom). Such restrictions are intended to alleviate concerns regarding noise, congestion, and other neighborhood disturbance.

City officials in San Francisco have also been working toward proposing an ordinance that would allow residents to host short-term home stays. In April of 2012, the City Council of San Francisco expanded the Transient Occupancy Tax of 14 percent to include all forms of short-term renting, not just traditional hotels. This was a step in the direction of recognizing the value of short-term renting, but this legislation did not address the legal barriers that continue to make most short-term home stays illegal.

SELC’s Policy Recommendations

SELC recommends that cities create a “Short-Term Home Stay” category that would be separate from “Hotel,” “Bed and Breakfast,” and “Vacation Rentals” in the city zoning, tax, and regulatory codes. “Short-Term Home Stays” would be regulated and taxed differently depending on how they fall into the following two categories:

Two Short-Term Home Stay Categories:

1. Host Homes: Hosts rent out a portion of the living space in their homes while the host stays concurrently with the guest.

2. No-Host Homes: Hosts rent out most or all of their own living unit while the host stays elsewhere temporarily.

The policies proposed above would enable residents to share their homes and supplement their incomes without posing a threat to the supply of local affordable housing. When adopted, the policies would mitigate the impact of short-term home stays on the quality of life in neighborhoods, and would also grow local tax revenues from travel and tourism.


Short-term stays can help offset the ever-high rents in cities like San Francisco. Photo credit: Idle Format. Used under Creative Commons license.

The following is a set of guidelines and rules that a city may want to consider when adopting rules that allow Short-Term Home Stays:

1. Registration: A city may want to require short-term home stay hosts to register their home as a “Short-Term Home Stay Host.” The application fee should be minimal (no more than $30) and could require that the registration be renewed periodically, such as every three years. Residents who operate Host Homes and No-Host Homes should not need to apply for a business license of the same type and nature that commercial hotels must obtain. Host Homes and No-Host Homes should be considered an accessory use of a residence or should be included in zoning laws as allowable home businesses.

2. Information and Amenities Provided to Guests: A city may want to require that the name and phone number of the host or a responsible local contact person and proof of registration be posted in a conspicuous place in the home. A city could also mandate that all bedrooms have a working smoke detector and that the hosts post an evacuation plan identifying all means of egress from the home. A city could adopt other rules and regulations, such as requiring that the host post information explaining how the city separates recycling, compost, and land-fill trash into separate bins.

3. Cap on Annual Income: Cities that are concerned about limiting the scale and scope of short-term home stays may want to cap the amount of money each host may earn annually from short-term guests. For example, a city can specify that a host’s gross income from short-term home stays shall not exceed 75 percent of the actual rent, in the case of a rental property, or of the area market rate rent for similar homes, in the case of properties where the host is the owner. This is to reflect the idea that short-term home stays serve the purpose of offsetting housing costs, not of earning the host a profit.

4. Tax: A city may wish to impose a special tax on the income received by Short-Term Home Stay Hosts. However, we recommend that the tax be much lower than that applied to commercial hotels, and that each category of home be taxed at a different rate. For example, in San Francisco, where a 14 percent tax applies to hotels, we might recommend a tax of 5 percent for Host Homes and 7 percent for No-Host Homes. To reduce administrative costs to the host and to the city, we also recommend that the tax be paid annually, not monthly.

5. Limited Duration of Stays: A city may wish to limit the duration of guest stays to 30 days to prevent hosts from using the Short-Term Home Stay law to circumvent landlord tenant laws.

6. Guests and Nights Per Year: A city may wish to limit the number of nights per year that a host may have short-term home stay guests. For example, a city may mandate that the sum of “Host Home” and “No-Host Home” overnight guest stays may not exceed 160 per year and that only 60 of these nights may be “No-Host Home” nights. To limit the frequency of guest turnover, a city may also wish to limit the total number of guests per year. A “guest,” in that case, may refer to an individual or to a group of individuals who travel together, such as a couple or family.

7. Recordkeeping: In order to ensure compliance with the rules and limitation a city adopts for short-term home stays, a city may wish to require that hosts keep records of guest names, guest contact information, dates of stay, and fees paid, and may want to require that hosts maintain the records for a number of years and require that records be made available for inspection by the city upon request.

Summary

The above recommendations are aimed at helping cities adopt regulations that balance the interests and concerns associated with short-term home stays. Cities may, in fact, vary widely in how they ultimately adopt such regulations, depending on the unique needs and concerns of the city. Our primary goals in offering the above recommendations are to encourage cities to open new doors to short-term home stays, to ensure that the barriers remain low, and to offer suggestions to help cities address common concerns that arise in connection with the growing practice of short-term home stays. We believe that the overall impact of allowing short-term home stays will be greater economic stability for city residents, greater variety of local tourism and travel options, and stronger local economies.

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