One of the biggest players in what’s been dubbed the “sharing economy” is Airbnb, a peer-to-peer lodging platform that makes it easy for homeowners or renters to open up their homes to strangers in the form of short-term lodging. For many of the families renting their homes or rooms in their homes on Airbnb and other sites, the income from a short-term rental can provide a financial cushion, and may be enough to make ends meet. One study commissioned by Airbnb found that a typical single-property host makes an average of $7,530 for renting an average of 66 days per year.
Since its launch in 2008, over 50 million people around the world have booked stays through Airbnb. The summer of 2015 alone accounted for over 17 million bookings. Today, Airbnb offers more rooms than mega hotel groups like Hilton, InterContinental and Marriott, and makes up between 10 and 20 percent of hotel room supply in New York, London and Paris. Sites such as VRBO, HomeAway, onefinestay and FlipKey offer similar services and also contribute to the growing short-term rental market, which represents approximately 8 percent of the total U.S. travel market.
Despite their popularity, short-term rentals are illegal in many major cities. In Denver, for example, local regulations ban short-term rentals of less than 30 consecutive days altogether. Though many of these regulations are enforced only haphazardly at best, fines may be steep – violations of New York City’s regulations can result in charges of over $1,000 for the first offense.
Short-term rentals may also be subject to lodging taxes at rates of up to 15 percent, but it’s not always clear if and when the lodging tax applies, particularly to relatively inexperienced operators. According to one study, unlicensed short-term rentals cost the state of Montana almost $4 million a year in uncollected taxes. In its early years, Airbnb simply argued that lodging taxes did not apply to its services, but in recent years has started collecting lodging taxes on transactions in cities like Portland, San Francisco, Amsterdam and Chicago.
In response to the ambiguity surrounding the legality of short-term rentals, Austin, San Francisco, Portland and Seattle have enacted legislation aimed at providing clear regulatory standards for short-term rentals and capturing unpaid lodging taxes. San Francisco will even create a new city office dedicated to enforcing its short-term rental laws. Several other markets have enacted similar laws, and Denver, Boulder, Santa Monica and Santa Fe are among the cities currently considering how to approach the issue. Typical regulations address any number of issues related to short-term rentals, including licensing, permitting and notification requirements, spacing and intensity standards, types of permitted short-term rentals (e.g., entire home compared to single-room rentals), residency requirements, inspection and safety standards, and of course, taxes.
Vacation and resort towns in which a significant portion of the housing market consists of second homes have particularly high potential for rental income. In Colorado, numerous mountain towns have enacted short-term rental regulations. For example, Aspen’s regulations enacted in 2012 prohibit single-room rentals, but permit other rentals throughout the town with no limit on the number of rental properties. These regulations require that the property be properly licensed and obtain a permit from the town, and also require designation of a “local representative” if the homeowner resides elsewhere. Durango similarly requires a city-issued permit, but issues only a limited number of permits in certain zones within the city. Durango has also implemented spacing requirements that prohibit high concentrations of short-term rentals in small areas.
Given the diversity of local regulations addressing short-term rentals, anyone interested in joining the millions offering their homes as short-term lodging should review any applicable local regulations, including zoning and tax laws, to determine whether and to what extent the home municipality permits and regulates short-term rentals. In addition to local laws, potential hosts should also review privately-imposed covenants, conditions and restrictions and lease agreements, which may provide additional restrictions or outright bans on short-term rentals.