selc city policies for short-term rentals [draft].pdf

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City Policies for Short-‐Term Rentals by the Sustainable Economies Law Center

March 11, 2015

Table of Contents I. INTRODUCTION...................................................................................................................................2

Crafting Short-Term Rental Policies for the Common Good .............................................................. 2

II. BACKGROUND ....................................................................................................................................3What is a Short Term Rental?.......................................................................................................................... 4 STRs are Not New ................................................................................................................................................. 4 STRs are on the Rise............................................................................................................................................. 4

III. POSITIVE AND NEGATIVE IMPACTS OF SHORT TERM RENTALS .....................................4

IV. CURRENT LAW ..................................................................................................................................6

V. SELC’S RECOMMENDATIONS..........................................................................................................6 1. BASIC COMPONENTS OF AN STR ORDINANCE.................................................................................................7A. Establish Clear Definitions........................................................................................................................... 7 B. Require Registration and Recordkeeping ............................................................................................. 7 C. Establish a System for Setting Limits on Rental Nights or Income ............................................ 9 D. Protect the Wellbeing of Guests...............................................................................................................10 E. Establish Oversight, Complaint, and Sanction Procedures ..........................................................11

2. REGULATING STRS TO PROTECT THE COMMON GOOD ..............................................................................13A. Regulating the Housing Supply for the Common Good .................................................................13 B. Ensuring that Travelers’ Dollars Benefit the Common Good......................................................15 C. Neighborhoods for the Common Good..................................................................................................17

3. SOME CREATIVE APPROACHES ........................................................................................................................19

VI. SUMMARY........................................................................................................................................ 21

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I. Introduction

Every city in the United States, sooner or later, will be forced to adopt policies that address the rapid spread of short-‐term rentals facilitated by online platforms such as Airbnb. The Sustainable Economies Law Center (SELC) offers the following recommendations to help policymakers draft local short-‐term rental ordinances. SELC’s goal is for these ordinances to generate inclusive opportunities for local wealth-‐creation, while balancing the needs of all members of the community. This policy brief recognizes that each city must regulate short-‐term rentals according to its unique circumstances and priorities, and should do so through open dialogue with diverse stakeholders. Ideally, the result will be an equitable policy that protects public interests such as housing affordability, health and safety, and municipal revenues, and retains reasonable latitude for city residents to host and earn money from short-‐term guests.

Crafting Short-‐Term Rental Policies for the Common Good It’s important to begin with a reality check: It may be impossible to craft a short-‐term rental ordinance that fully achieves equity and justice. A ban on short-‐term rentals could deprive underemployed people of an important source of supplemental income needed to meet the rising costs of living. At the same time, completely de-‐regulating short-‐term rentals could also intensify wealth inequality by exacerbating a scarcity of affordable housing options. The growing popularity of online platforms for short-‐term rentals is, to some extent, a red herring of a much deeper problem: The failure of our economic, political, and legal systems to ensure an adequate supply of housing and opportunities to make a livelihood. Within a fundamentally imbalanced system, it’s impossible to craft perfectly equitable laws.

Nevertheless, an ordinance to regulate short-‐term rentals offers cities a lever for change. Cities can use their power as regulators to ensure that certain vital resources are stewarded for the common good. The resources in question are 1) housing and land, 2) travelers and the wealth and work opportunities they bring

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into a city, and 3) neighborhoods and public spaces, such as streets and sidewalks. How can cities ensure equitable access to and long-‐term stewardship of all three resources?

Initially, it may sound strange to view travelers as a “resource” that can be managed for the common good. But it helps to compare travelers to another key resource that nourishes us as it falls or flows into cities: water. Like water, visitors can percolate throughout cities and nourish communities by bringing in essential resources from outside, such as income, ideas, opportunities, and cultural exchange. At a time when jobs have dried up in many neighborhoods, short-‐term rentals present an opportunity to spread the wealth and benefits in ways that can replenish income-‐parched neighborhoods.

Cities already make policies and regulate markets in order to ensure fair access to vital resources. Cities protect access to affordable housing through planning, inclusionary zoning, and rent control, for example. Cities also attempt to steward the long-‐term vitality of neighborhoods and public spaces through zoning, nuisance laws, and public works. Cities even seek to recapture and spread the wealth brought by travelers by collecting a hotel tax and spending those funds on city improvements. Without such tools, a city’s land, housing, and other resources could be disproportionately shaped by unregulated markets, privileging the highest bidders, and concentrating wealth in the long term.

With this in mind, short-‐term rentals should similarly not be allowed to operate in a completely unregulated market. A smart short-‐term rental ordinance could protect neighborhood livability and housing supply while providing income-‐earning opportunities to many who need them.

II. Background

What is a Short-‐Term Rental? A short-‐term rental (STR) refers to a room or housing unit that is rented to a person or group for a short period of time, typically under 30 nights. STRs are distinct from long-‐term rentals in the sense that the room or unit is rented on a nightly basis, rather than on a monthly or yearly basis. Therefore, STR occupants are typically transient occupants such as travelers who would otherwise stay in a

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hotel or similar accommodation. Long-‐term rentals, on the other hand, typically house individuals who work, attend school, or otherwise wish to “permanently” reside in the city.

STRs are Not New Short-‐term rentals are getting a lot of attention these days. So are the online platforms that facilitate connections between guests and hosts, including Airbnb, VRBO, Homeaway, and Craigslist. But hosting short-‐term guests is not a new phenomenon, nor was it invented by these platforms. Indeed, before these platforms became available, travelers who wanted a different type of vacation experience opted to stay with locals rather than in hotels, in order to more fully experience the culture, food, and lifestyle of the region. Locals who host backpackers, “couch surfers,” pilgrims, and touring cyclists often do so in exchange for money or skill trades, to be an ambassador of their locale, or simply to interact with visitors from faraway places.

STRs are on the Rise Within the past several years, both the number of properties available for short-‐term rental, and the frequency with which they are rented, have skyrocketed. STRs have gone from a casual and occasional practice to an increasingly pervasive activity in many places. Online platforms have played an important role, enabling millions of people around the world to list and browse rentals, and to connect, coordinate, and transmit payments through one interface.

III. Positive and Negative Impacts of Short Term Rentals

STRs can have a positive impact on cities, in that they can:

• Contribute to local wealth by enabling local residents, and not justabsentee hotel owners, to earn money from hosting tourists,

• Make efficient use of space that might otherwise be unused,

• Prevent economic hardship and displacement by allowing some residentsto use STR revenue to make ends meet,

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• Provide both tourists and hosts with valuable social and culturalexchange, and

• Spread tourist dollars beyond typical hotel and tourism districts byattracting travelers to less frequented neighborhoods where they canpatronize local businesses.

At the same time, STRs can have a negative impact on cities, in that they can:

• Incentivize property owners to keep rooms and units vacant or evenevict tenants in order to make higher profit from short-‐term renters,

• Take long-‐term rental housing units off the market, creating a scarcity ofhousing options, and pushing up prices,

• Unfairly compete with established hotels, inns, and bed and breakfastswhen short-‐term rentals are not subject to the same level of taxation orregulation,

• Reduce “hotel tax” revenues for the city when short-‐term rental hostsevade the tax or avoid remitting the tax on the grounds that they are notoperating a hotel,

• Violate residential zoning codes that are intended to limit noise, traffic,parking shortages, and activities incompatible with the character of aneighborhood,

• Adversely impact community cohesion because vacation rentals house arevolving circuit of transient occupants who are not invested in thecommunity, and

• Reinforce class, gender, and racial inequities, because online platformsmake it easy for hosts to act on biases when selecting guests, and becauseSTRs, like everything else in the economy, disproportionately privileges theprivileged.

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IV. Current Law

Many municipal codes prohibit residents from hosting short-‐term guests in exchange for payment unless residents comply with all regulations applicable to commercial hotels and bed and breakfasts. These laws tend to require zoning approval, compliance with health, building, and safety laws, and payment of a transient occupancy tax (TOT), also known as a “hotel tax.” Given that such laws are generally designed for commercial hotels, in the absence of a local ordinance that tailors such laws to STRs, many cities have laws that effectively ban STRs.

Meanwhile, a handful of cities have crafted local ordinances that both legalize some STRs and impose limitations and regulations that protect public interests. When formulating an ordinance, policymakers grapple with the impact STRs have on housing affordability, tax revenue, health and safety, parking, and the quality and character of neighborhoods. Interestingly, of the dozens of new STR ordinances around the U.S., no two regulations are exactly alike. Indeed, the differences among them may lend valuable insight into each city’s political priorities, social and economic values, and in some cases, their most influential stakeholders. Each city will likely want to calibrate a short-‐term rental ordinance to its particular social and economic concerns, but there are several basic considerations that all cities should take into account when drafting such a policy.

V. SELC’s Recommendations

SELC believes that cities can benefit from adopting more nuanced regulations that simultaneously lift any implicit ban on STRs, channel STR opportunities to those who need them, and restrict STRs in ways that reduce negative impacts.

The following are key considerations for a balanced short-‐term rental ordinance. We emphasize that it is essential for cities to consider these recommendations within their unique local contexts, and to involve a diverse set of stakeholders in developing regulations that fairly and accurately reflect local needs and priorities.

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1. Basic Components of an STR Ordinance

A. Establish Clear Definitions We recommend that cities establish clear definitions that distinguish between “Hotel,” “Bed and Breakfast,” and “Short-‐Term Rental,” and that further distinguish types of short-‐term rentals. For these purposes, we provide the following suggested definition of STR and STR subcategories:

Short-‐Term Rental (STR) is the short-‐term occupation of a residential unit or portion thereof for a period off less than 30 nights, and in which the guest pays compensation to an owner or lessee of the unit.

Hosted Primary Residence STRs: In a Hosted Primary Residence STR, the host occupies the dwelling unit as a primary residence for the majority of the year (often defined as a minimum of nine months). The primary resident hosts short-‐term guests in a bedroom or some portion of the unit while the resident simultaneously resides in the unit and is present for at least 6 hours out of any 24 hour period.

Un-‐Hosted Primary Residence STRs: In an Un-‐Hosted Primary Residence STR, the host occupies the dwelling unit as a primary residence for the majority of the year, but leaves his or her unit for a period of time – for example, over a weekend, when traveling for work, or while on vacation – and in his or her absence rents out all or part of the unit to a short-‐term guest.

Vacation Rentals: A Vacation Rental is a unit that is not used as someone’s primary residence but is instead rented on a short-‐term basis.

B. Require Registration and Recordkeeping

Proof of Primary Residency:

We recommend that STRs be limited to primary residences. As defined above, a primary residence is a housing unit in which a renter or owner resides for the majority of the year. By definition, a person may have only one primary residence, and it follows that a person may have only one STR address. An STR

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registration process could require hosts to provide records demonstrating that the unit is their primary residence. . We recommend that cities follow the example of San Francisco, CA, and require hosts to provide at least two of the following documents in order to register: motor vehicle registration, driver’s license, voter registration, or a utility bill.1

Registration: Enforcing the provisions of an STR ordinance, particularly caps on the number of units per host, rental nights per year, payment of transient occupancy taxes, and other recommendations outlined below, necessitates that hosts be accountable to some local oversight office. By requiring short-‐term rental hosts to register with the Planning Department or some similar office, cities will identify a point person for complaints and a party who will be held liable for violations. We suggest that cities keep the registration process relatively simple. A primary objective of registration should be to collect basic information from hosts and to open a line of communication between hosts and the city. As discussed below, we do not recommend that approval of registration be contingent on inspection.

Cost of Registration: We suggest that cities keep registration costs low enough to make registration economically feasible even for someone who plans to host guests only one or two weeks out of the year. Both registration and subsequent renewal fees should be aimed at simply covering the administrative cost of processing registrations, as in Anaheim, CA.2 The cost of fielding complaints and enforcing the ordinance should be factored into setting the fines and tax rate, rather than into registration costs. That way, people who host guests on a casual and infrequent basis will not bear the cost of oversight and complaints for more frequent hosts.

Registration Renewal: Registration renewal could be required yearly (as in Anaheim3 and Dana Point,4 CA), every two years (as in Portland, OR5 and St. Helena, CA6), or follow a model

1 S.F., Cal., Administrative Code ch. 41A, § 41A.5.(g)(3)(A) (2015). 2 Anaheim, Cal., Municipal Code ch. 4.05, § 4.05.090 (2014). 3 Anaheim, Cal., Municipal Code ch. 4.05, § 4.05.070 (2014). 4 Dana Point, Cal., Municipal Code ch. 5.38, § 5.38.055 (2013). 5 Citation needed

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like Maui County, HI,7 where permit renewal is required every two years, but will be required yearly for hosts subject to complaints.

Recordkeeping: To assist the city in enforcing ordinance requirements, a city may want to require hosts to keep records of guest names, guest contact information, dates of stay, indication of the host’s presence or absence during the stay, and revenue earned. Cities already requiring this level of detail in recordkeeping include Madison, WI8 and Portland, OR, the latter requiring hosts to maintain guests’ license plate numbers (if traveling by car) and a record of the room assigned to each guest.9 Cities should require hosts to maintain the records for at least two years and make them available to the city for inspection upon request.

Advertising: To assist with enforcement, a city should require that hosts include the STR registration or permit number on all advertisements. Cities with such a requirement include Dana Point, CA,10 Maui County, HI,11 San Francisco, CA,12 and St. Helena, CA.13 Cities should follow Maui County’s lead and require online advertisements, such as those on STR platforms, to include or link to the jurisdiction’s short-‐term rental policies.14

C. Establish a System for Setting Limits on Rental Nights or Income

Cities have a powerful lever to protect various city interests and resources: Setting caps on number of STRs per person, STR nights-‐per-‐year per household,

6 St. Helena, Cal., Municipal Code ch. 17.134, § 17.134.060(F) (2012).

7 Maui County, Haw., County Code ch. 19.65, § 19.65.070(A) (2012).

8 Madison, Wis., Code of Ordinances ch. 28 § 28.151 (2014). 9 Portland, Or., City Code & Charter ch. 33.207, § 33.207.060 (2014). 10 Dana Point, Cal., Municipal Code ch. 5.38, § 5.38.080(a)(8) (2013). 11 Maui County, Haw., County Code ch. 19.65, § 19.65.040(A) (2012). 12 S.F., Cal., Administrative Code ch. 41A, § 41A.5(g)(1)(F) (2015). 13 St. Helena, Cal., Municipal Code ch. 17.134, § 17.134.040(N) (2012). 14 Maui County, Haw., County Code ch. 19.65, § 19.65.040(B) (2012).

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and/or caps on STR-‐sourced income per household. As described in greater depth below, we recommend that cities allow all units to engage in a limited amount of STR activity, and that the limit be customized to the neighborhood, based on the interests the city is aiming to protect. Austin’s ordinance limits STR density by capping the number of permissible STR units per census tract.15 We do not advocate for caps on the number of permitted STR units allowed because it would put a haphazard limit on who can benefit from renting to short-‐term guests. Rather, we recommend that cities mitigate negative impacts by limiting STR units to primary residences and capping the number of nights that any individual can host short-‐term guests, or income that they can earn in doing so.

Below, in Section 2, we describe several considerations each city may factor into the caps it sets.

D. Protect the Wellbeing of Guests

Health and Safety Standards: Cities should require STR hosts to adhere to basic standards for health and safety of their guests. Basic requirements could include a mandate that all bedrooms have a working smoke detector, carbon monoxide detector, and an evacuation plan that identifies all exits. A city may also want to require that hosts provide guests with basic information, including proof of STR registration, a list of the minimum safety requirements, instructions for lodging a complaint, and the name and contact information for the host and/or another responsible party that could assist guests with any problems that arise during the stay.

Inspections: Municipalities such as Austin, TX,16 Tillamook County, OR,17 and St. Helena18 and Dana Point,19 CA require inspection by the Fire Department, Planning Department, Bureau of Development Services, or a building official. Some of these cities provide a building and safety self-‐check list for hosts to prepare for the inspection.

SELC would not advocate for an inspection requirement, but might urge cities to

15 cite 16 cite 17 cite 18 St. Helena, Cal., Municipal Code ch. 17.134, § 17.134.040(F) (2012), and at § 17.134.080(B). 19 Dana Point, Cal., Municipal Code ch. 5.38, § 5.38.080(a)(3) (2013).

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create a self-‐inspection checklist that hosts can submit along with registration. Inspections would greatly raise the administrative costs for the city and hosts, creating undue barriers particularly for people who would only host guests during one to two weeks per year. A city may, however, wish to require inspections when guests file health & safety complaints.

In the case of STRs arranged through online portals, it is also important to acknowledge that the safety and wellbeing of guests is partially supported by the guests’ access to information and reviews of the hosts, which, in turn, give hosts incentives to provide safe and clean accommodations in order to maintain a good reputation in the review and rating system.

Insurance: To ensure that guests have recourse in the event that they are injured during an STR stay, cities should require that hosts carry general liability insurance or a homeowners’ insurance endorsement that covers injuries to STR guests or other losses or damages that could result from the operation of an STR. San Francisco requires that hosts carry liability insurance for claims up to $500,000, including defense and indemnification of the building owner and any tenants in the building.20 Dana Point, CA requires proof of general liability insurance with a minimum of $1,000,000 in coverage, along with an agreement to indemnify and hold the city harmless for any liability claims.21 Further, the city of Dana Point requires STR permit holders to provide current proof of general liability insurance during each annual permit renewal.22

E. Establish Oversight, Complaint, and Sanction Procedures

Oversight: Enforcement of an STR ordinance can present challenges, particularly in enforcing a cap on nights rented. Without access to transactional data from online STR portals, cities must rely primarily on hosts’ own self-‐reporting, complaints by neighbors, and investigations of suspected violations. As such, a city could potentially require online STR intermediaries to release, regularly or upon the

20 S.F., Cal., Administrative Code ch. 41A, § 41A.5(g)(1)(D) (2015). 21 Dana Point, Cal., Municipal Code ch. 5.38, § 5.38.050(d) (2013). 22 Dana Point, Cal., Municipal Code ch. 5.38, § 5.38.055 (2013).

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city’s request, information about the number of nights per year that any listed unit in their city was rented to short-‐term guests and the income received by the host. The city could mandate that intermediaries do all reporting electronically and in a standardized format to make it easier for cities to aggregate data from multiple platforms.

Complaints and Grievances: A city should establish an accessible system for guests, neighbors, and other stakeholders to bring to the city’s attention any host that is in violation of the ordinance or otherwise creating a nuisance or health and safety risk. Prior to resulting in sanctions, the grievance process should give hosts a reasonable opportunity to respond to the city to demonstrate compliance and/or explain measures the host will take to eliminate the concern.

In addition to creating such a grievance process, a city may also consider creating a private right of action giving certain stakeholders standing to bring a complaint in court. Although we express no opinion on the pros or cons of creating a private right of action, it is worth noting that at least one city, San Francisco, has done so. Following determination that San Francisco’s STR ordinance has been violated, either the city or an interested party (defined as a permanent resident of the building, homeowners association, unit owner, the city, or a nonprofit organization focused on housing preservation or improvement) can bring civil suit against the host for monetary and injunctive relief. In such a suit, the interested party is entitled to attorney’s fees if it prevails in the suit.23

Sanctions: We recommend that cities create a graduated scale of sanctions for hosts that are in violation of the ordinance or that are the subject of multiple complaints.

Sanctions might include:

• Reduction of the total number of nights that a host may have STR guests.• Prohibiting un-‐hosted nights (particularly where neighbors have complained

that guests have created a nuisance).• Inspection of the unit and a requirement that the host pay for costs of

inspection.

23 S.F., Cal., Administrative Code ch. 41A §§ 41A.4; 41A.5.(d) (2015).

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• Suspension or revocation of the registration/permit.• Fines that increase with the number of violations. For example, Dana Point,

CA may penalize a host $250 for a violation. If, within a single year, the hosthas multiple violations, the fines rise to $500, then to $1,000, and eventuallyresult in revocation of the STR permit.24

2. Regulating STRs to Protect the Common Good

As regulators, cities have the opportunity to manage resources to ensure equitable distribution and benefit to the common good. An STR ordinance can impact at least three key resources: 1) housing, 2) income from visitors, and 3) neighborhoods/public spaces. Below, we make recommendations that help to ensure that a city can protect all three resources, even while allowing community members to host STRs.

A. Regulating the Housing Supply for the Common Good

Protecting the Supply and Affordability of Housing: In order to protect the supply of housing for lower-‐ and middle-‐income residents, we urge most cities to cap the number of nights that any unit may be used for an STR and/or cap the amount of income that any household may receive. There may be situations where a city will want to refrain from capping STRs in any form, such as in a city wanting to encourage tourism and where housing is in relatively abundant supply. However, in the absence of adequate protections for housing affordability, STRs will escalate housing costs and ultimately drive out lower-‐income and even middle-‐income residents.

How STRs Escalate Housing Costs: STRs can escalate housing costs in at least two ways: 1) each room or unit regularly used for STRs removes from the market a room or unit that might otherwise have been offered to a long-‐term tenant, and 2) the ability to derive income from a housing unit raises its value, raises the tenant’s ability to pay for expensive housing, and thereby raises prevailing housing prices.

24 cite

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San Francisco: a Case Study

San Francisco’s Effort to Protect the Supply of Units: It’s helpful to use San Francisco as an example of both what to do and what not to do. We believe that San Francisco has addressed half of the first issue by preventing units, but not rooms, from being removed from the market. San Francisco’s short-‐term rental ordinance, which went into effect on February 1, 2015, limits STRs to primary residences and places a 90-‐night cap on the number of un-‐hosted nights per year that a unit may be rented to short-‐term guests. In cities where low-‐income and middle-‐income households experience difficulty finding affordable housing units, we recommend that a city strictly limit or even ban Vacation Rentals. San Francisco effectively did this by allowing Un-‐Hosted Primary Residence STRs only 90 nights per year in each unit. This allows residents to leave home 90 nights per year while renting their unit to short-‐term guests.

San Francisco’s Failure to Protect the Supply of Rooms: San Francisco does not, however, limit the number of Hosted Primary Residence STRs, and we believe that this is a significant flaw in the ordinance. Bedrooms for rent within a unit are a key source of affordable housing for single individuals, couples, students, and others who cannot afford to rent entire units. To ensure that STRs do not remove bedrooms from the market, we recommend that cities limit the number of nights or income earned from the short-‐term rental of extra bedrooms while the host is present. If a city does not limit Hosted Primary Residence STRs, people who might otherwise seek a housemate might opt to earn more income by using a room primarily for STRs, thereby removing a bedroom from the housing market.

San Francisco’s Failure to Address Housing Affordability by Limiting STR-‐Sourced Income: In addition to failing to secure the supply of rooms for rent, San Francisco may have also failed to adequately address the problem that any income earned from STRs can raise the cost of housing. In rapidly gentrifying neighborhoods, STRs can fuel a vicious cycle where relatively high-‐income residents earn even more from STRs than hosts in less expensive neighborhoods, raising the cost of housing far beyond what lower-‐ and

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middle-‐income residents can afford.

Capping STR Use and Granting Exemptions on a Neighborhood-‐by-‐Neighborhood Basis Allowing high-‐income residents to earn more income from STRs might cause gentrification, but allowing low-‐income residents to earn income from STRs has the potential to protect people who might otherwise be displaced by gentrification.

We recommend that cities set a baseline cap on Un-‐Hosted and Hosted nights alike, giving all households in the city a basic ability to host the occasional paying visitor. In cities where housing supply and affordability is a concern, this cap could be relatively low, for example, 30 nights per year.

As described in greater depth below, a city could then selectively grant exemptions to the STR caps based on the neighborhood housing market and/or on the basis on neighborhood unemployment rates. Setting caps based on financial need lowers the potential for STRs to automatically drive up the value and cost of all housing in a neighborhood, since it would be hard for speculators to bank on the possibility of STR income.

B. Ensuring that Travelers’ Dollars Benefit the Common Good

Both cities and their diverse inhabitants play important roles in creating a welcoming environment for visitors, and in providing the infrastructure to facilitate travel. Income brought by travelers should reward both the tangible and intangible contributions made by residents and public infrastructure. By taxing hotels and businesses, the city recoups some of this income and uses it to support certain social services. Through regulation of businesses, the city is also highly influential in determining who can generate income through the hospitality industry. We believe that cities should regulate STRs both to ensure that income flows toward city residents who need it and to ensure that the city can sustain its own efforts to make the environment attractive to visitors.

Using STR Regulation as a Lever to Create Income Opportunities: From the growth of STRs, there have emerged many anecdotes of families, senior

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citizens, and other individuals who avoided foreclosure or eviction as a result of income generated by hosting short-‐term guests. Ideally, this potential would not be entirely lost along with limits set on STR activity. STR regulation could, in fact, offer cities a lever to create income opportunities for populations most impacted by unemployment and underemployment. Cities can operate this lever by selectively raising annual caps on STR-‐sourced income or STR nights per year in neighborhoods of high unemployment and/or for households that meet objective financial need criteria.

Granting exemptions to STR caps on a unit-‐by-‐unit basis challenges cities to develop clear objective criteria on which to review applications, and makes the granting of exemptions somewhat more akin to a form of public benefit, like unemployment benefits. An application process might require the applicant to show that he or she has recently become unemployed, recently lost unemployment payments or other public benefits, or recently had a substantial increase in monthly rent. A cap exemption could also be time-‐limited, recognizing that the exemption acts as a temporary bridge for a household seeking to get back on its feet after a financial blow. Any strategy for raising caps on a unit-‐by-‐unit basis should be carefully reviewed for compliance with constitutional due process provisions.

Selectively raising caps on a unit-‐by-‐unit basis would substantially raise the administrative costs for the city, but some or all of those costs could be passed through to residents through added taxes or higher application fees for residents applying for special exemptions.

Raising caps on a neighborhood-‐by-‐neighborhood basis may bring fewer administrative hassles and fewer concerns about due process, but a neighborhood-‐by-‐neighborhood method also does not allow a city to target STR cap exemptions to those most in need. Nevertheless, cities might use Bureau of Labor Statistics data or existing inclusionary zoning maps to decide on how to set the boundaries of caps.

Preventing Speculation: In order to prevent people from buying or renting units with the goal of earning STR income, a city could require that a resident have occupied the unit for at least one year before hosting STR guests or before the cap can be raised. San Francisco only requires residents to have occupied their unit for 60 days prior to hosting STR guests, which is an insufficient attempt to deter speculation. Requiring at least one year of prior occupancy will also help to ensure that STR

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income benefits long-‐standing neighborhood residents.

Taxing STRs: Cities attract visitors by investing in and cultivating welcoming public spaces, tourist attractions, and basic infrastructure. Cities’ efforts to create welcoming environments for visitors provide substantial private benefit to hotels, B&Bs, and STR hosts. By charging a Transient Occupancy Tax (TOT) or “hotel tax,” cities can recoup part of this benefit and invest travelers’ dollars back into the city. The tax can be a substantial source of income for cities, generating approximately $250 million in annual revenue for the city in recent years.25

Most cities with new STR ordinances require hosts to pay a Transient Occupancy Tax. Due to the adverse effects of STRs on housing affordability, cities should designate all or a portion of TOT collected from short-‐term rental revenues toward affordable housing initiatives and related support services.

Collecting Taxes Through Intermediaries: To ensure payment of taxes, cities may want to require that third party facilitators of STRs collect and remit the TOT, or, at the very least, report residents’ STR activity to cities. Such platforms are in the best position to know who is hosting and how much revenue was earned. Additionally, because these platforms transfer payments from guests to hosts, the platforms are in a good position to withhold and remit the tax. San Francisco’s ordinance is the first to require STR platforms and services to collect the 14% TOT from guest fees and remit the tax to the city.26 The City of Portland and Multnomah County have also required STR intermediaries to collect the 11.5% TOT.27

C. Neighborhoods for the Common Good

Cities play an important role in shaping the livability of neighborhoods, and STRs have the potential to both positively and negatively affect neighborhoods. On the

25 cite 26 cite 27 cite

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positive side, visitors bring income to a neighborhood, both through payments to STR hosts and by potentially patronizing neighborhood businesses. However, many residential areas are zoned with the goal of preserving a quiet "neighborhood feeling” and promoting social cohesion among neighbors. A constant stream of STR guests can undermine both neighborhood character and simple infrastructure, such as an adequate supply of street parking.

Limiting Crowding and Noise: The above concerns may, again, be a good reason for cities to cap STR nights on a neighborhood-‐by-‐neighborhood basis. In addition, cities may want to limit the purposes for which residents may host guests. For example, Dana Point, CA,28 Anaheim, CA,29 and Maui County, HI30 all limit or prohibit hosting of weddings, parties and other similar events. St. Helena, CA further specifies that a party may be no larger than twice the number of guests, with a maximum of 20 party guests.31 Both Maui County and St. Helena also impose quiet hours at night.32

Managing Parking: In an effort to address parking concerns, Maui County, HI33, Dana Point34 and Anaheim35, CA, and Tillamook County, OR36, have all required hosts to provide additional off-‐street parking for STR units. In dense cities where street parking requires a permit, we would also recommend that cities create an option for hosts to purchase on-‐street parking permits for guests. In this way, potential hosts who do not have off-‐street parking will not be completely blocked from hosting STRs.

28 Dana Point, Cal., Municipal Code ch. 5.38, § 5.38.080(a)(7) (2013). 29 Anaheim, Cal., Municipal Code ch. 4.05, § 4.05.100.0107 (2014).

30 Maui County, Haw., County Code ch. 19.65, § 19.65.030(Q)(4) (2012).

31 St. Helena, Cal., Municipal Code ch. 17.134, § 17.134.040(J)(4) (2012). 32 See Maui County, Haw., County Code ch. 19.65, § 19.65.030(Q)(1) (2012), and St. Helena, Cal., Municipal Code ch. 17.134, § 17.134.040(J)(1) (2012). 33 Maui County, Haw., County Code ch. 19.65, § 19.65.030(Q)(3) (2012). 34 Dana Point, Cal., Municipal Code ch. 5.38, § 5.38.080(a)(5) (2013). 35 Anaheim, Cal., Municipal Code ch. 4.05, § 4.05.100.0105 (2014). 36 cite

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Providing Neighbors with a Mechanisms for Addressing Concerns: As described above, cities should create channels for neighbors to file complaints about nuisance or STRs believed to be in violation of rental caps. To make neighbors aware of area STRs, an STR ordinance could require that residents registering their unit as an STR give notice of registration to adjacent neighbors, or the city could, at the very least make available a list of addresses where there are registered STR hosts.

For cases where neighbors are disgruntled about STR activity, but a host is neither in violation of an ordinance nor creating an objective nuisance, we also recommend that cities help fund community mediation services, to give neighbors low-‐cost conflict resolution mechanisms.

3. Some Creative Approaches

A. Municipally-‐Managed STR Booking Platforms

Some cities might want to consider the creation of a municipally managed platform for registration, listing, booking, reporting, tax remittance, and license renewal for STRs. Cities could then require that residents use the municipal platform to book STR guests. There are many benefits to this, but one key benefit is that the 10% to 20% fee paid to platforms like Airbnb would be redirected to cities. This would direct billions of traveler dollars back into cities, instead of toward corporations owned by wealthy shareholders. Additionally, such a platform could increase the city’s access to information about STRs, simplify the STR registration process, assist with compliance, and address many of the challenges that come with enforcing a short-‐term rental ordinance.

Creating a City-‐Owned Software Cooperative: A single city or group of cities could finance the development of STR booking software with all of the functionality of Airbnb.com. This software would be owned by a cooperative, the only members of which could be city governments. Assuming that multiple cities will eventually want to use the platform and pay a fee for such use, the cities that created the platform could recoup the funds they invested to develop the software. To cover ongoing administrative costs, cities could either pay a flat fee for the use of the platform or the cooperative could keep a small percentage of

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each transaction. As a cooperative, it would distribute any surplus income back to each city on the basis of each city’s patronage.

B. Sharing Economy Trust

Another unique solution is for a city to create a permanent trust for the collection, investment, and distribution of revenue from STR bookings, much in the same way that the Alaska Permanent Fund pays all Alaska residents annual dividends from mineral, gas, and oil revenues. Such a trust would ensure that all city residents benefit from the economic wealth brought by tourism and travel, and the trust could also align residents around the goal of ensuring an adequate supply of housing. We were inspired to include this idea after reading Peter Barnes’ book With Liberty and Dividends for All, which describes strategies for creating trusts that distribute dividends and create sources of universal income.

To illustrate how this might work with STRs: Imagine that the City of San Francisco charters a corporation called the "San Francisco Sharing Economy Trust." The stated purpose of the Trust is to support the long-‐term creation and preservation of an adequate housing supply for a socio-‐economically diverse city. Separate from the 14% hotel tax already collected by the City, the Trust would be empowered to collect an additional percentage of all revenue from STRs. The City would need to mandate that all bookings be made through a nonprofit or cooperative booking platform, rather than a for-‐profit platform like Airbnb. As such, the 10% to 20% fee, normally collected by companies like Airbnb, could go to the Trust. The Trust could then raise and lower the fee based on the Trust’s assessment of housing unit supply in the city. When housing is in short supply, the Trust might raise the fee as high as 30% of 40%, thereby giving STR hosts an incentive to put a room back on the market for a long-‐term renter. Since higher fees could ultimately bring higher dividends to City residents, residents will directly benefit from the Trusts efforts to preserve the housing supply.

There are at least three options for the management of the Trust funds:

1. The Trust could then retain all STR booking income and invest it (in theform of loans) in affordable housing developments in the City. When theloans begin to pay a return, that income will be divided equally among allCity residents and direct-‐deposited into their bank accounts.

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2. The Trust could distribute STR booking income as dividends to residents,without the intermediate step of investing it in affordable housingdevelopment.

3. The Trust could strike a balance between the two options above, investingsome STR booking income and making direct distributions of the rest.

Like Alaska, the Trust could create an online system enabling City residents to register to receive the dividend deposit, and could set similar eligibility requirements, such as requiring that someone have lived in the city for at least one year prior to receiving a divided.

Similar to the municipal platform described in section A, above, this approach would also rely on cities collaborating to develop a software platform to use across cities.

VI. Summary

The above recommendations are aimed at helping cities adopt regulations that balance the interests and concerns associated with STRs. When crafting a local ordinance, each city must consider its own needs for housing affordability, tax revenue, economic opportunity, and neighborhood cohesion. Cities may, in fact, vary widely in how they ultimately adopt such regulations, depending on the unique needs and concerns of the city. We urge all cities, however, to think of an STR ordinance as an opportunity to create inclusive opportunities for local wealth-‐creation, and balance the needs of all members of the community. If regulated reasonably, we believe that the overall impact of STRs can be greater economic stability for city residents, greater variety of local tourism and travel options, and more inclusive local economies.

selc city policies for short-term rentals [draft].pdf

Documents

shortterm rental policies

city policies

rental nights

current law

setting limits

table of contents

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