Across the country, cities large and small will be deciding the future of local short-term rental operations and regulations via ballot measures on Tuesday, November 8. The topic of short-term rental regulations has been moving to front-and-center over the years and has proven to be incredibly nuanced with pros and cons that must be considered. From outlawing completely, to implementation of taxes and licensing, to imposing lottery systems and adding new layers of compliance and regulation, there are numerous factors that should be considered when it comes to casting a vote about short-term rental regulations.
Understanding the implications of short-term rental regulations
Different regulations have varying impacts on stakeholders in the community, from full-time residents to small businesses. It is important for voters to understand what is at stake in these decisions, long and short-term, for tourism, municipal tax coffers, fiscal health of local retailers and short-term rental-focused providers, and housing affordability for local workers.
Here are some examples of upcoming short-term rental votes:
In Portland, Oregon, there are two questions on the ballot which would significantly shape the short-term rental landscape in the area. Question A seeks to ban corporate and non-local operators from registering short-term rentals, prevent property owners from evicting residents to convert their home to a short-term rental, and prevent owners of affordable housing from becoming a short-term rental. Question B would reduce the number of short-term rentals in the area and increase fines and fees and update the city’s fee structure to $250 for owner-occupied rentals and $750 for non-owner-occupied homes.
In La Quinta, California, voters will weigh in on a ballot initiative that deals with property owners’ rights to rent their own property. If passed, it would terminate the rights of homeowners outside a small commercial district to rent their homes for less than 30 days, which is the foundation of the short-term rental business structure. It is possible that some homeowners will seek compensation or damages if their property rights are revoked.
In Dillon, Colorado, new lodging and excise taxes for short-term rentals are on the ballot. The ballot initiative will offer voters the option of creating a 5 percent excise tax on short-term rentals and increasing its lodging tax from 2 percent to 6 percent. These taxes have the potential to bring in around $3 million from the lodging tax and $1.5 million from the excise tax, which would then be used for various projects including housing upgrades, street and parking improvements, addressing visitor impact and other line items geared toward city improvement.
Short-term rental impact on community
While it is true that tourism brings crowds and sometimes elevated noise, it also delivers big vacation dollars to local communities. Shopping, dining out and other vacation splurges all go to local retailers and small businesses as they serve short-term rental visitors.
For example, The San Diego Tourism Marketing District reported that tourism creates 1 in 8 jobs in the city and delivers upwards of $11 billion per year in visitor spending – to say nothing of municipal lodging tax, STR license revenue and more. With San Diego recently passing the Short-Term Residential Occupancy ordinance, significantly reducing the number of permitted STRs from the current 13,000 down to 5,400, the city risks unforeseen economic consequences due to future impacts on tourism.
Examples like San Diego demonstrate the gamble inherent for cities decreasing their available lodging inventory and hoping to maintain tourism levels. Following recent trends, many families are specifically looking for STRs over hotels to better suit their vacation plans. Without such conducive accommodations, an untold percentage of travelers may simply choose alternative locations where STRs are available. This, in turn, has significant ramifications for local retailers. Decreased numbers of tourists means less traffic year-round for restaurants, grocery stores, bars, coffee shops and other businesses serving local visitors. Similarly, businesses that directly serve the STR ecosystem would lose a considerable chunk of their clientele. Cleaners, landscaping businesses, property managers, electricians, plumbers, caterers, pool services and so forth will all feel the sting of such a major reduction.
Short-term rentals and affordable housing
Understanding the arguments around affordable housing and the role short-term rental properties play from city to city is complex. Some assert that short-term rentals decrease rental availability for locals by taking a home off the market and turning it into a room for rent, and therefore the price of other available rentals goes up with the reduced supply. Others point to inflation, high interest rates and an unstable housing market as the causes of a lack of affordable housing. As voters head to the polls, they should look at their specific area and see how short-term rentals are affecting affordable housing in their specific city or county. One size does not fit all. Understanding the nuances of each area is important as some cities will not necessarily have the same short-term rental supply and demand as others, nor the deficit of affordable housing.
Short-term rentals on the ballot
Voting matters. Residents will be shaping the future of their city’s relationship with short-term rental owners, full-time residents with no stake in the STR business, property managers, small business operators, and tourists. This could mean regulating who can own a short-term rental, what fines and fees are implemented, determining if homeowners have the right to rent out their property, increasing taxes on short-term rentals to fund city projects, or even investigating how the short-term rental market impacts affordable housing. Compliance with these types of regulations will be important as well, so short-term rental hosts need to pay attention to the voting results of ballot initiatives in their area or hire a property manager to facilitate compliance.
Author: Pam Knudsen is an executive at Avalara, leading multi-tax teams including Lodging, Beverage Alcohol, Telecommunications and Sales & Use Tax. She serves as a leading voice in vacation rental tax compliance and regulation, in addition to bringing in-depth experience across software/SaaS technology as well as ERP systems. Pam joined Avalara in 2012.