Two Minute Tips

Tuesday's 2-Minute Tip

September 13, 2022
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Short-term rentals need long-term solutions

Owning a short-term rental is no longer as easy as it once was when services such as Airbnb first started out. With a constantly evolving landscape that widely differs from state to state, it is important for business journalists to be proactive in seeking out these stories and how they impact businesses outside the real estate industry.

Affordable housing and local workers

Each state has handled the short-term rental industry its own way over the past few years as more residents speak out against the negative impact of so many short-term rentals in their neighborhoods. A report from 2016 detailed that Airbnb homes exacerbated the affordability housing crisis in Los Angeles. Not only were short-term rentals making the availability of permanent homes decrease, some landlords were even evicting long-term tenants to list properties on the short-term market, increasing their profit margins.

San Diego has set a cap on the number of short-term rentals that would reduce vacation rentals by 48%. Additionally, there is now a lottery system doling out licenses to vacation rental owners. Reducing the number of short-term rental units means more housing should become available for local residents previously commuting to work. 

Sedona, Arizona, a tourist town where some local workers are living out of their car or commuting from other towns, is now offering incentives to owners in hopes that leases will go to the local workforce. Although the program seems like a good way to promote local renting, this particular incentive does little to address affordability as the program allows homeowners ‘to charge a fair market rent and lease’ – and the incentive goes directly into their pocket. This means that the ones benefiting the most from the program are homeowners, rather than the local workforce it claims to be aimed at. Such unintended consequences of government action make for great business stories.

Tourist taxes and local nuisances

Tax laws in many states have changed so that short-term rentals are assessed the same tourist taxes as traditional lodging like hotels. This came after studies such as this one noted that Airbnb accommodations were impacting the hotel industry as a whole, and lower-priced hotels were the most affected.

In addition to impacting the hotel industry, the absence of taxes or license requirements for vacation rentals meant that the local communities were missing out on important tax dollars that could greatly benefit their cities. The state of Massachusetts estimated that state and local governments lost out on $15 million in taxes in 2015.

Other negative effects of short-term rentals that residents have complained about in recent years have been ‘party houses’ that disturb local communities with constantly revolving tenants. Arizona recently implemented a three-strike rule that hopes to ‘rein in short-term rental properties that become a public nuisance in local communities.’

Airbnb has also attempted to crackdown on party houses in recent years by suspending properties and not allowing younger renters with few positive reviews to rent homes. Most of the restrictions were put in place in response to the pandemic, but have spilled over as more permanent measures for the platform.

Questions to consider

  • If rentals are going to local residents rather than vacation goers what does this mean for the local economy? Journalists should consider which businesses have the most to gain from this change and which have the most to lose.
  • How are local governments regulating short-term rentals in regard to licenses and taxes and how will that income be allocated in the spending budget?
  • How does the change in short-term rental law affect the investing market? Will investors change their tactics or lean into the changes?
  • How have short-term rentals impacted the hotel industry in your area and what have they been doing to incentivize consumers?

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