A Roadmap to Regulating AirBnB and Short-Term Rentals

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by Mai Thi Nguyen, CURS Faculty Fellow

"Multicolore" by La Boirie is licensed under CC-BY-2.0.

“Multicolore” by La Boirie is licensed under CC-BY-2.0.

March 26, 2015 — AirBnB, a company that started off helping the everyday man so that he could rent a bed in his home for a small fee to make extra income, has become a multi-billion dollar global business. AirBnB is a web-based service that allows residents—whether homeowners or renters—to rent a room or house to strangers. AirBnB and the many other web-based services that offer short-term rentals (STRs) have ushered in a cultural revolution in the way people shop for bedrooms and homes. While some argue that this is an example of capitalism at its best—two penniless entrepreneurs start a small company with a good idea and a few years later, voila, the company grows and develops into a successful global firm—the problem is that AirBnB and similar web-services don’t always play by the rules and can harm communities if they are not appropriately regulated. Economists would call this a negative externality—transactions on AirBnB are imposing harm on other people living in communities and the people involved in the transaction (e.g. AirBnB, hosts, and renters) are not paying the consequences.

Companies like AirBnB argue that tourists who visit cities and stay in an AirBnB accommodation contribute significantly to the local economy. While tourism does contribute to the local economy, these tourists may have otherwise stayed in a Bed & Breakfast (B&B) that was put out of business because of the rise of STRs. Critics of AirBnB charge that the company does not pay its fair dues in sales and occupancy taxes, unfairly competes with hotels and B&Bs that pay taxes and are heavily regulated, and take units out of the housing stock, thereby exacerbating affordable housing problems. Furthermore, AirBnB units often are not subject to or do not abide by health, safety, and building code standards and are often not monitored or regulated. Even basic safety standards, such as having smoke and carbon monoxide detectors are recommended but not necessarily required in an AirBnB rental.

In contrast, hotels and B&Bs must have an employee on site twenty-four hours a day, abide by city ordinances such as those related to parking and follow strict health and safety standards. Hotels and B&Bs also collect sales and occupancy taxes, while AirBnB does not (in North Carolina). Not playing by the rules allows AirBnB to keep their costs down and charge renters a lower rate than hotels and B&Bs. AirBnB and rental hosts share the profits while communities must deal with the consequences such as added traffic, noise, trash, and a parade of strangers coming in and out of the neighborhood. State and local governments have to manage the complaints and address violations, thereby costing valuable staff time and money.

Many cities around the country and in North Carolina are currently grappling with how to best address the rising number of STRs in their city boundaries. Based on my research on STRs in Asheville, North Carolina, I believe that it is imperative that cities regulate AirBnB as they do other lodging businesses. STRs should be considered commercial businesses, not residences, thereby making them a different type of land use and they should be regulated as such. Concentrations of commercial businesses, such as AirBnB, can negatively affect residential neighborhoods, induce unfair competition on hotels and B&B establishments, and take valuable housing stock off the long-term rental market, thereby exacerbating affordable housing problems. Here are some ways that North Carolina cities could regulate STRs:

1) To reduce negative impact on residential neighborhoods, cities could:

  • Step up enforcement of existing regulations, such as penalizing STR owners in residential zones;
  • Create an ordinance change that differentiates STRs as a different type of land use (e.g. commercial) and then create of an overlay district designating areas of the city where STRs may not be located, such as residential neighborhoods;
  • Charge a one-time only registration or permit fee to STR owners (in locations where the STR is a permissible land use);
  • Develop additional standards for owners of STRs to minimize the negative effects of STRs in residential neighborhoods;

2) To level the playing field between B&Bs/hotels and AirBnB, cities could:

  • Enact a registration fee and a yearly registration renewal fee for each STR, which will cover the cost of registration administration, inspections, and enforcement of regulations;
  • Develop health and safety standards for STRs that are similar to B&Bs/hotels;
  • Require that STRs have appropriate liability insurance;
  • Work with State and County government to ensure that appropriate taxes (e.g. sales and occupancy taxes) are collected;

3) To reduce the impact on affordable rental housing, cities could:

  • Set a cap on the number of STRs in each residential neighborhood if the STR is designated a different, permitted land use in that district; and
  • Designate multi-family units used as STRs as a unique land use and regulate them more heavily to discourage conversion of long-term rentals or owner-occupied units to STRs.

One major benefit of separately permitting, tracking, and regulating STRs is that data on where STRs are located and changes in the supply and demand of STRs can assist city and state policymakers in tracking the impact of STRs on neighborhoods and housing prices. Unfortunately, at this time, cities are unable to track the number and location of STRs because listing sites do not provide exact addresses until a unit is rented and paid for.

It doesn’t make sense that commercial businesses, such as STRs, are allowed to operate in our communities while local and state governments are not able to track them or identify owners. For policymakers, this makes it difficult to craft sound, evidence-based policies. Simple questions, such as how many STRs are in each neighborhood cannot be answered. Therefore, I encourage cities and states that are passing new regulation on STRs to consider ways to collect sufficiently detailed data that is not terribly onerous to maintain. This would allow policymakers to track and monitor the effects of STRs on their communities. A list of essential questions that should be asked of STR owners includes:

  1. Owner Information: Name, street address, mailing address, email address, telephone number, and contact information for a local contact if owner is non-local.
  2. Property Information: Name, street address, mailing address, email address, and telephone number of the person in charge.
  3. The sales tax registration number from the North Carolina Department of Revenue required of all retailers responsible for paying sales taxes.
  4. Are you renting 1) an entire home or 2) a room in your home?
  5. What type of unit is it? 1) Single-family detached; 2) condo or townhome; 3) an apartment in a multi-family complex; other (please specify).
  6. How many bedrooms are in the rental?
  7. How many bathrooms are in the rental?
  8. How many square feet is the rental?
  9. How much do you charge per night for the rental?
  10. What date did this become a short-term rental?
  11. On average, how many weeks a year is your unit rented out?

AirBnB is only one of many online rental web services and this market is growing by the minute. It is clear that cities and states are struggling to regulate and manage these new businesses emerging from web-based services. I hope this post provides a roadmap for those local and state government entities who want to address the negative neighborhood consequences, level the playing field for other lodging businesses, mitigate the effects on affordable housing, and collect relevant data that will allow for informed and appropriate regulations in the future.

You can find a full report on Short-term Rentals in Asheville, NC at: http://www.scribd.com/doc/250599355/Study-on-short-term-rentals

Dr. Mai Thi Nguyen is an Associate Professor in the City & Regional Planning Department at UNC-Chapel Hill. She employs both quantitative and qualitative methods to examine problems related to social and spatial inequality, urban growth phenomena, the relationship between the built and social environments, and socially vulnerable populations. She is an expert in housing policy, community development, economic development, immigration, disasters, and urban growth phenomena (e.g. demographic change, sprawl, and urbanization). You can email her at: mai@unc.edu or call 919-962-4762 for more information.