Short-term rentals on the rise face challenges and opportunity

The short-term rental industry is emerging from the pandemic with exciting opportunities as demand surges. However, the industry also faces increasing scrutiny and regulation that can present daunting challenges.

In order for the industry to continue to thrive, short-term rental operators need to get involved and engage in creating balanced, realistic rules — and comply with those rules — according to industry leaders that took part in a recent ShortTermRentalz webinar.

According to Matt Curtis, in the U.S., extreme regulations such as bans tend to drive undesirable activity underground rather than solve problems. Curtis is founder of Smart City Policy Group, which works with the industry and policymakers on short-term rental regulations.

This “creates a terrible experience for the local communities,” he said, which is not a desirable outcome for either communities or responsible members of the short-term rental industry.

While some governments are enacting bans on certain types of short-term rentals or those in certain areas, they’re also increasing penalties and fines for breaking the rules, according to Pam Knudsen, senior director of compliance services with Avalara MyLodgeTax. These serious repercussions are motivating individual operators to pay more attention to the rules and comply.

Governments are also working more with vacation rental platforms such as Airbnb and Vrbo — either via voluntary partnerships or through stiff penalties — for more effective enforcement of short-term rental regulations.

This is forcing the platforms to ensure their listings are compliant “because not only do they not want to have that reputation, they don't want to have the liability that's associated with that,” Knudsen said. 

These enforcement efforts create an environment where it’s becoming more difficult to fly under the radar without repercussions. So short-term rental operators need to work to shape what compliance looks like.

“The important thing to remember is that rules can be OK. There are certainly rules that are good for the community and good for all your neighbors. And it's you who know how to create those rules the best,” said Curtis.

“I suggest thinking about creating rules that make sense for the industry, and bring those forward to your local government and with other representatives of the industry from your community.”

The panelists encouraged hosts to become active with their local and national industry associations and make sure their voices are heard. The goal is not only to see to it that the industry follows rules such as tax collection, but to offer both guests and neighbors a great experience.

This kind of engagement is good for business as well, Curtis explained.

“It's surprisingly easy and I haven't seen a single manager or operator get engaged with an association to either work on advocacy issues or anything else and not see their business grow.”

Operators need to show that they want to follow the rules and contribute to the community in order to help the industry move forward.

“Everybody needs to look at this and say … compliance is not trying to stop you from doing business. It's trying to make sure that you can do business for the long term,” Knudsen said.

To do this, hosts need to be aware of the regulations, but they can also get support from a third party such as MyLodgeTax, which helps hosts automate and simplify lodging tax compliance.

Many of the complaints about vacation rentals in communities are based on anecdotal evidence, so it’s also important for the vacation rental industry to gather real data to counter these narratives.

For example, vacation rentals are often portrayed as major contributors to rising housing costs. But according to Carlos Perez-Lanzac de Lorca, founding president of the Andalusia Holiday Home Association in Spain, research shows that short-term rentals’ impact on prices is less than 2%.

In another example, while anecdotal evidence paints vacation rentals as disruptive to neighborhoods, they actually often have a positive impact on their communities as economic engines.

“The economic impact is not just from a tourism tax or from a lodging tax. It's the economic impact to the local restaurants, the local stores,” Knudsen said. Presenting the positive impact of the industry in terms of dollars and cents can be a powerful persuader.

Despite all the challenges, the panelists agreed that the outlook for the industry is bright.

“We are going to be the holiday of choice for a long time to come. People are now not just holidaying in our properties, they're also working in our properties and using our properties for all sorts of different things that they never really realized that they could do. If we play our cards right, our sector is going to go from strength to strength. We just need to make sure the regulations don't knock that on the head, and give people those quality experiences that they now demand. But I think we've got a hugely positive horizon to look forward to,” said Fiona Campbell, chief executive of the Association of Scotland’s Self-Caterers.

Have tax questions related to vacation rental properties? Drop us a line and we’ll get back to you with answers.