U.S. vacation rental income is expected to be $17.7 billion in 2023compared to $10.3 billion in 2020. And the average number of unique ads available for short-term rentals on Airbnb and Vrbo are expected to grow to around 1.3 million listings this year, up 20% from 2019.
While this sharing industry started with individual homeowners looking for ways to earn a few extra bucks by renting out an unused room, that’s no longer the case. Hosts with multiple units have become a key driver of this short-term rental economy, according to an analysis published by CBRE Hotels’ Americas Research.
Why? Because short term rentals regularly generate 30% more profit for investors than long-term leases.
As it is difficult for local governments and consumers to determine the exact addresses of properties on platforms like Airbnb and Vrbo, landlords may also, unknowingly or not, circumvent short-term rental occupancy taxes that go to schools, to firefighters and other important communities. services. And short-term rental tenants can introduce increased noise and the need for more litter or policing, often making it a focal point of debate among rental property owners, neighbors and residents. local governments.
Because short-term rentals are here to stay, it makes sense for local governments to manage them well rather than trying to ban them. So how can city councils make the best policy decisions when it comes to managing these rentals? How to better collect the transitional tourist tax, sometimes called hotel tax or short-term accommodation tax? And how can they keep pace as the future of tourism continues to evolve?
Here are five key considerations:
1. Short-term rentals and hotels are similar, but different.
While AirBnB started with many people renting an extra room on their platform, today most short-term rental hosts own multiple properties and are investors or businesses that rent out houses, apartments and guest houses. In fact, Vrbo doesn’t even allow hosts to rent a shared space, claiming they’re committed to providing a private experience. Although hotels are used to paying resort taxes, owners and rental guests may not realize the requirements. Platform rentals can be much harder to track, as their addresses and owners are often not visible on online platforms and only provided privately after booking.
the Philadelphia Institute of Economic Policy found that, overall, switching from traditional hotels to STR accommodation often leads to less reliable tax payments. It also suggests that the economic costs of these properties to nearby residents – meeting the additional needs of garbage collection, police and other services – may outweigh their benefits unless appropriate taxes are levied, which requires that STRs be subject to the same tax and regulatory requirements as hotels. .
A major difference is that while hotels are often in specifically zoned areas and have an identified number of rooms, short-term rentals can appear anywhere, including in residential areas where trash, police, and d ‘other services are not designed to cater to higher levels of tourists. Their numbers come and go dynamically, making it difficult to project each wave.
2. All short-term rental activity is “local”, so it is essential to assess the problems and their location.
While short-term rentals popping up in some residential areas can increase noise, litter, and even crime, the reality is that a very small percentage of these properties typically cause trouble. City and county governments need to be able to respond to complaints when they arise, but they also need to look at the data to anticipate what, where, and when issues may arise in order to make the best decisions.
Another concern is the potential impact of short-term rental properties on affordable housing. Are home prices becoming inaccessible to area residents due to short term rentals or are values simply increasing in the area? The effect these rentals can have on house prices depends on the specific area and its definition of affordable housing. The more data cities have, the better decisions they can make.
Access to short-term rental information, down to the property level, can help city governments:
- Assess potential zoning issues.
- Better enforce regulations and deal with potential complaints. In smaller communities or cities, it may be easier to monitor properties that have received complaints. In larger, more rural counties, such as the Desert and San Bernardino Mountains, it can take an agent three hours to travel to remote areas. Cities and counties can place an agent in areas where they tend to receive the most calls on Friday nights.
- Quickly find new short-term rental property owners and get them to follow local rules and best practices so they operate safely and fairly, enabling proactive problem prevention instead of reactive mitigation problems.
3. Voluntary collection agreements can have a costly trade-off.
Airbnb and others engaged in agreements will automatically collect taxes for stays booked on their platforms to help city governments save time and effort. With VCAs, data is aggregated across collections from listings in a particular postcode (instead of providing specific names, addresses, and collection amounts).
However, there is a big trade-off in allowing platform providers to collect occupancy taxes in this way: city and state governments have no way to verify or audit the accuracy of these payments.
They don’t get information about where or how long short-term rentals (a few days, a week, 30 days, or a year) are, and tax requirements may vary depending on the length of stay. Some local governments are also weighing minimum stay requirements, to avoid “party house” rentals of single weekend nights. Knowing only the number of listings (vs. properties) is also not informative, as owners may have multiple listings for a single property, or worse, a license they use for multiple properties.
VCAs do not integrate rentals booked on other platforms or offline, so cities would need to have VCAs not only with Airbnb, but also with Bookings.com, Tripadvisor and Vrbo. And they could still be missing out on the 25% of revenue that doesn’t happen online, according to Statista.
4. Short-term rentals aren’t just rentals; entire ecosystems have developed to support them.
In addition to short-term rentals, there is also a huge ecosystem of rapidly growing businesses focused on supporting the needs of hosts and guests that local governments need to be aware of. This includes thousands of businesses that offer everything from meet and greet services for guest arrivals, cleaning services, booking sync software, local activity experiences, grocery delivery, repairs emergency and more. Local governments need to understand this ecosystem when it comes to their region’s registration, tax, compliance, certification, and licensing requirements.
5. Technology can help.
Counties and cities cannot manage what they cannot see or assess. Artificial intelligence, software, and analytics tools can help governments automatically detect, manage, and report short-term rental permits and transient occupancy taxes. Some data mining solutions identify properties operating, both legally and illegally, in a given area for local authorities as soon as they go live with a listing allowing short-term rentals.
This data is essential for proactively processing new rental properties, often before landlords even take their first booking. By detecting non-compliance issues early, the potential rental property owner can be brought into compliance and receive the proper training on how to be a good neighbor. This is key to minimizing the negative impact on the community, as well-run properties rarely bother their neighbors and receive complaints for issues like noise, trash, or parking.
In addition, technologies, such as noise detection devices used in Hollywood, Florida and Henderson County, Nevada in the context of short-term rental permits and home Wi-Fi routers that can detect abnormally high levels of activity, can help manage these rentals. City and county governments can look to best practices in other counties for help.
Short-term rental is an evolving and rapidly growing industry. But with smart and well-regulated policies, the market can be a boon for local governments.