Revenue

What Short-Term Rental Legislation Means for Extended Stay Hosts

The impact of the short-term rental business model can’t be overstated, but not everyone is thrilled by the changes caused by this facet of the sharing economy.

In recent months, cities across the globe have begun attempts to regulate or deter lessors from renting out their houses and units for periods shorter than thirty days. Whether it’s through higher taxes or a hard limit on the number of units a single operator can rent out, the message being sent by our legislators is the same: it’s time to rethink the status quo.

How this plays out will affect everyone from the cities to the suburbs, and it’s important to keep aware of the facts behind such an expansive issue. With that having been said, this article will discuss how things got to this point, current efforts at legislation, and what all of this means for the future of extended stays.

The Long and Short of Short-Term Rentals

The rise of short-term lodging was meteoric to say the least. To put things into perspective, AirBnb now boasts over half a million hosts spread out across nearly two hundred cities around the world, and a total worth of around $31 billion. Since their founding in 2008, they’ve successfully connected at at least 140 million people to their listings, and in some parts of the world, their hosts and guests comprise 20 percent of the local population.

Other players in the industry such as VRBO and HomeAway can claim similar success, raking in hundreds of millions of dollars playing the real estate game, all without ever once relying on their own properties for lease. The industry has generated millions in revenue, and provides employment for hundreds of thousands of people worldwide--a definite social good, all things considered.

However, the downsides of short-term rentals have become increasingly apparent, at least for members of communities where the business model has taken off. Complaints about noise, disruptive behavior, and other problems for people close to rental units began to grow along with the size of the companies connecting lessors to tenants.

NoMoreShortTermRental.jpg

Taken from Change.org

However, the growth of the industry also (and perhaps, inevitably) led to major changes in the local markets of popular destinations. As hosts began making the more lucrative decision to free up their units to accommodate a heavy stream of short-term guests, people living in busy urban centers complained of evictions, with some being priced out of their apartments to make room for tourists. Things came to a head in 2015, when Airbnb’s headquarters in San Francisco was occupied by citizens protesting the adverse economic impact of their operations.

At this point, it’s well worth noting that numerous advocacies have taken up the cause in defense of the short-term rental industry. Movements like Save the Rentals Santa Barbara and the Short Term Rental Alliance of California are leading the charge to dispel what they identify as myths surrounding the business model. The assumption that short-term rentals drive up housing prices, for example, are hotly contested, and benefits such as the thousands of jobs provided by the industry are often restated.

The Running Impact of Legislation

Efforts to tax, limit, and otherwise regulate the operations of spaces for rent are dotting the United States from coast to coast. Major examples include the City of Seattle, which recently passed a measure limiting the number of units that a single host can offer for short-term leases down to two for new providers. This was on top of a new tax program for short-term operators, which had been passed only a month prior.

Seattle Approves New AirBnB Regulations

Taken from GeekWire.com

Violators of the growing number of policies around the U.S. can expect different penalties depending on their location, with Miami Beach levying the steepest fines at $20,000 for the first offense.

The City of Berlin is the prime European example of the trending crackdown on short-term rentals, having banned the model save for a sparing few exceptions. It’s been noted that the cities of the world have been waiting and watching for a first-mover to take a stand against the industry, and many speculate that Berlin’s policy may become the benchmark after the law is fully implemented. At least one high-ranking administrator within the city is in talks with counterparts from Amsterdam and Barcelona, so it’s only a matter of time before we see the model’s future in Europe begin to take form.

What is clear as of the time of writing is the impact on long-time and budding hosts: a pivot away from the short-term model towards monthly leases. Medium-term rentals offer a convenient middle ground for city residents and administrators, and hosts aiming for higher turnovers.

What This Means for Extended Stay Hosts

Short-term rental companies and hosts are in for a tough ride if present trends continue, which is good news for their market alternative: extended stays.

There’s more than a fair chance that prices across the industry will rise, especially given the new federal tax laws. The new mortgage cap is set to lower the demand for homeownership, negatively affecting the supply of both private homes and homes for rent. As a result, an increase in demand for medium to long-term rental spaces won’t only lower demand for the kinds of setups offered by HomeAway and Airbnb, but might add more fuel to the growing sentiment against them.

This sets a great backdrop for the medium- and long-term rental models. For one thing, there are far fewer regulations imposed on rental arrangements lasting longer than 30 days, making costing friendlier for both hosts and visitors. Second is the fact that people will still need affordable travel options should the proposed legislation take wing --options provided by units pegged for longer stays (no problem for many of today’s business and leisure travelers) at the same friendly rates.

Insofar as stability is concerned, communities are less likely to have a problem with extended stays, since long-term visitors are naturally less likely to engage in the kinds of behavior that causes property damage, disturbances, and other unpleasant by-products of the short-term model.

1 Burnett Avenue North Unit

The last and most compelling good to come out of a pivot away from short-term housing, however, has to be its impact on the demand side of long-term leases.

The largest share of people calling for tighter regulations were city residents in need of stable housing (which is to say, the vast majority of any given city’s population). A market flooded with short-term listings will naturally leave some people wanting, but medium-term arrangements cater to both an area’s visitors and its residents.

If it leads to a bigger share of citizens with a roof over their heads, then you can bet that city administrators won’t be aiming to clip the growth of medium-term rentals any time soon.

Conclusion

No one can say for sure whether the short-term rental industry will make it past the wave of regulations looking as healthy as it did before, and it looks like it’ll be a while before the dust settles on this issue.

In the meantime, firms like 2nd Address have taken up the strategy of playing for both sides: satisfying the demand for temporary rental space, while, at the same time, causing no problems for the market for permanent residents and long-term rentals. Betting on medium-term appears like the path to compromise, and while the demand for short-term will never go away (hence our decision to offer listings starting from 7 nights), perhaps it’s a business best left to hotels.