Short term rentals (STR) have grown at breakneck speed and, sometimes, offering a boost to city economies. Cities have struggled, however, to handle the booming industry and the growing dissension.
Before the Internet, vacation rentals were mostly a mom and pop type of business and often stayed under the radar. The proliferation of short term rentals came with the growth of the Airbnb platform. Airbnb made it easier for anyone to turn their space into an income property. Airbnb made millions of rentals available to the market and validated the demand for such properties. Today, the industry is attracting professional management and venture money.
Travelers have their choice of vacation accommodations and many are attracted to short term rentals because of the value and space these properties offer. Statista estimates industry revenues to be $84 billion worldwide in 2019, rising to $97 billion by 2023.
The industry is still small compared to the hotel industry. STR revenues are only 15% of the hotel industry, which generated revenues of $570.2 billion. But as a fast-growing sector, it has caused hotels to rethink its strategy, looking for new ways to differentiate.
As the industry goes mainstream, the line between short term rentals and traditional hotels are blurring. Expectations for amenities and the lodging experience is rising. Today, guests expect the rentals to offer space, value, privacy and still have hotel amenities like shampoo, soaps, Wi-Fi, and linens.
As STRs have become a formidable segment of the hospitality business, it has triggered all kinds of debate on hot button issues like urban planning and affordable housing, with calls for regulation and standardization.
The rental property surge has caught many cities by surprise. Cities are scrambling to introduce regulations and determine how best to enforce these regulations, while attempting to balance competing forces – hosts, neighbors, hotels, and the city itself.
Cities are not equipped to handle the booming business of short term rentals
Without a clear framework to minimize uncertainty, the proliferation of short term rentals has led to speculation and community suspicion and strife. Many of the complaints from residents and neighbors of short term rentals relate to disturbances from excessive noise or illegal parties. Others are uncomfortable with tourists taking over their quiet, residential neighborhoods. Up until the past couple of years, cities have not felt a high priority to regulate the industry.
Cities have struggled with how to regulate short term rentals in a way that balances the interest of property owners, neighbors, hotels, municipalities, public safety, and social goods. For many cities that are low on resources, it is an enormous undertaking to enforce the regulations once they are placed.
The sad reality is that technology changes quickly, but governance models are often not flexible enough to adapt. Cities have long been slow to adopt technology to ensure compliance with local ordinances.
Use of Technology is Key to Successful Outcomes
Smart use of technology will facilitate regulation management and produce better outcomes in compliance. As more cities start to institute regulations and move short term rental permitting and tax collection to online platforms, they are seeing some success in compliance.
Some cities have dealt with this burgeoning industry better than other cities. Denver has found success implementing regulations through its partnership with Accela, a technology company.
Using an online portal, the city made it easier for short term rental operators to register and remit taxes. The city began regulating short term rentals in 2016, but compliance was only 14%. Now compliance is around 80%, according to the city. This is the highest rate it has been for the past three years.
The online vacation rental portal was Denver’s first major foray in using technology to conduct business with the public. Now, the city has leveraged this technology platform to other services that require permitting or similar interactions.
As part of its efforts to enforce the short term rental rules, Denver became the only U.S. city to ask licensed operators whom it suspects of cheating to sign primary residence affidavits to ensure that the rentals are not being run illegally. The Denver Post reported that this has resulted in a number of operators giving up their licenses.
Other cities like San Francisco, Miami, and Portland have also used technology to boost compliance. These cities have enforced steep penalties for any operator found to be non-compliant.
Besides providing a smoother process for compliance for the operators, the online platform also provides benefits for the city and community.
Cities gain rich data to make better decisions
Cities have used the licensing program to gain access to rich data, such as how many rentals units are in the towns and the frequency in which they are rented, the concentration of such properties in the town, and the impact they have in the long term housing availabilities. With this data, government officials have all the basics they need to create local ordinances and address the needs of the community, and the findings from the data can pave the way for how these rentals can improve local economies.
It is also an avenue for community empowerment
One of the main reasons for wanting to create strong compliance is that the people who neighbor the short term rentals feel powerless when it comes to addressing issues like nuisances and noise. With the strong registration program, neighbors can have their issues addressed directly. They can also use public platforms to see if the rentals near them have the necessary permits and licenses to operate. They can submit their complaints online and enforce action against the non-compliant rentals.
A move towards smart legislation benefits all groups
Since these short term rental portals are public, both customers and residents of the city can check to verify that the cities are working as they should. Compliance improves business activities and gives neighbors peace of mind, knowing that the rentals are compliant with city regulations. This ultimately allows for smooth business running and excellent community policies.