Avalara MyLodgeTax > Blog > Industry Insight > The simmering battle over short-term rentals

The simmering battle over short-term rentals

  • Mar 24, 2018 | Jennifer Sokolowsky

The short-term rental industry is booming, with no end in sight. Annual revenue from short-term vacation rentals in the United States is projected to reach nearly $18 billion in 2018; that is forecast to rise to $23 billion by 2022.

The growth of this industry happened quickly; Airbnb, the major player in the short-term rental space, was founded only 10 years ago.

This rapid growth has caught many communities unawares as an industry that previously existed only in major tourist destinations has taken hold in all kinds of locations across the country. Rather than being led by legal regulations, short-term rental growth has occurred organically, host by host, and in most places that means regulations have lagged far behind the industry’s establishment.

Now, however, short-term rentals have become very visible — as has their collective impact on communities. As governments struggle with how to regulate short-term rentals, short-term rental operators, rental platforms, neighborhood activists, tourism promoters, the hospitality industry, and others chime in with their perspectives.

The issue is a complex one, with many different arguments for and against stronger regulation of short-term rentals. Here are some of the commonly raised points as the debate on short-term rental markets plays out in communities across the country.

Positives of short-term rentals

1. Short-term rentals offer many people needed extra income.

Short-term rentals allow hosts to make the most of their homes to earn extra cash — often taking advantage of extra rooms and vacation properties that would otherwise go unused. In areas with high housing costs, this kind of additional income can even help residents with low or fixed incomes afford to stay in their neighborhoods.

Last year in Colorado alone, for example, Airbnb hosts made a combined $183 million, with an average of $8,100 per host.

2. Short-term rentals generate taxes that can contribute to community coffers.

The short-term rental market continues to grow — and that growth brings more revenue to communities where short-term rentals are taxed. These types of taxes are often more welcome than income or sales taxes, since lodging taxes are paid by visitors rather than residents. While some communities restrict the use of lodging tax revenues to tourism-boosting expenses, others are able to use this tax revenue to fill out general funds.

Communities are realizing the benefits that short-term rentals can offer in terms of tax revenues, and this is one of the major drivers for communities seeking to update their short-term rental regulations. Communities ranging from Columbia, Missouri, to Walker County, Georgia, are looking at lodging tax rules that can help them capitalize on the popularity of short-term rentals.

3. Short-term rentals can stimulate tourism.

Being able to choose from a wide variety of accommodations is a plus for visitors seeking a vacation destination. Short-term rental options can be particularly important in areas where traditional hotels are hard to find.

Brevard, North Carolina, for example, recently approved short-term rentals in some areas of town in order to encourage visitors to area attractions such as Pisgah National Forest to stay overnight in Brevard rather than in hotels in other cities.

4. Short-term rentals give travelers an alternative to expensive and often generic hotel accommodations.

Short-term vacation rentals offer travelers more options for their accommodation experience. Short-term rentals can cost far less than a hotel room, particularly for guests that rent rooms rather than a whole unit. Short-term rentals are often more convenient and comfortable for groups, and they also offer opportunities for visitors to get to know their hosts and neighborhood — for a far more personal experience than the typical hotel can offer.

5. Short-term rentals are more environmentally friendly than hotels.

Because they maximize the use of existing resources and can often be run more efficiently than commercial hotels, many short-term rentals can be considered more environmentally friendly than traditional accommodations.

Other factors also come into play. An Airbnb study showed that guests staying at an Airbnb are 10 to 15 percent more likely to use public transportation, walk, or bike than if they stayed at a hotel. And Airbnb accommodations are far less likely to offer single-use toiletries, which also cuts down on waste.

Negatives of short-term rentals

1. Short-term rentals can negatively affect the amount of affordable housing stock available to full-time residents.

Advocates for affordable housing often have concerns about whole-unit short-term rentals taking up housing supply that could go to permanent residents. This is a particular concern in major cities, such as San Francisco and New York, where housing is at a premium and rents have been steadily rising, leaving a dearth of affordable options.

These fears are not unfounded. A report published in the Harvard Law & Policy Review found that in Los Angeles, illegal short-term rentals can be related to rent increases, reduced housing supply, and segregation. And a 2016 study showed that short-term rentals reduced New York City’s available housing stock by 10 percent.

Recently, Ashville, North Carolina, created new rules severely restricting new short-term rentals, driven by concerns about resident housing being converted into vacation rentals.

2. In many locations, short-term rentals generate income for operators, but not tax revenue for the community.

While lodging taxes on short-term rentals have the potential to have a big impact on government budgets, many short-term rental operators are not charging, collecting, or remitting these taxes. In some places, short-term rentals are not required to charge lodging taxes. But in many places, short-term rental hosts simply ignore lodging tax requirements.

On Hawaii’s Big Island, for example, more than 6,000 short-term rental operators are doing business without registering with the state or collecting lodging taxes. That’s the vast majority of short-term rentals on the island. However, the Hawaii State Legislature is considering legislation that would strengthen oversight of short-term vacation rentals.

3. Short-term rentals can disrupt neighborhoods.

A major complaint among activists targeting short-term rentals is that they bring in visitors who have no ties to the neighborhood — and who may act in ways they wouldn’t in their own homes. Problems can range from late-night noise to increased trash, traffic, and parking issues.

Communities are increasingly taking steps to hold hosts responsible for guest behavior, such as Vail, Colorado’s new rules requiring short-term rental operators to designate an agent who can be reached 24/7 in case of complaints. However, in most communities, there’s no recourse for neighbors to deal with ill-behaved short-term renters other than complaining to local law enforcement.

4. Short-term rentals often have an unfair advantage over traditional hospitality businesses.

The hospitality business has long been strictly regulated in terms of zoning, permits/licenses, safety rules, tax collection requirements, and more. Short-term rentals, on the other hand, often don’t face the same kinds of regulations that hotels do. From the point of view of traditional hospitality businesses, short-term rentals are money-making enterprises too — and they should follow the same rules.

5. Short-term rentals often break the law with impunity.

Even when the rules for commercial hospitality businesses apply to short-term rentals, it’s much easier for short-term rentals to break those rules. That’s because short-term rentals may not always be obvious. In many cases, short-term rentals quietly start up business and authorities have no knowledge of them unless a complaint comes in, for example/.

And in many places, enforcement of short-term rental laws is nonexistent, so short-term rental operators have very little incentive to follow the rules. Online rental platforms such as Airbnb have often been reluctant to provide authorities with information on their hosts, which makes enforcement difficult.

San Francisco is seeking to address this issue with new rules requiring Airbnb and HomeAway to register all hosts with the city. Hosts who don’t have permits will not be allowed to place a listing on either site.

Short-term rental hosts in the middle

For short-term rental hosts, the raging debate surrounding the industry ultimately means that they need to be prepared. The argument is not over, and neither is government regulation. Short-term rental operators need to stay aware of action being taken in their communities — and take action themselves to comply with the rules.

Lodging tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Jennifer Sokolowsky
Avalara Author Jennifer Sokolowsky
Jennifer Sokolowsky writes about tax, legal, and tech topics. She has an extensive international background in journalism and marketing, including work with The Seattle Times, The Prague Post, Avvo, and Marriott.