Establishing the Rules

The First of the 3 E’s to Bring Short-Term Rentals into Compliance

The fast-growing popularity of online short-term rental (STR) platforms such as Airbnb and VRBO has created a rapid surge in unregulated rental properties and visitor traffic to many municipalities. If you are a city planner, you know your residents are raising concerns about noise, congestion and safety issues, but you may be hindered from taking action because your local ordinances were drafted before online STRs disrupted the travel industry.

If this sounds like your situation, you may be in the first stage of an ongoing process of bringing the STRs in your municipality under compliance. We call this stage – the first of 3 E’s – “Establish the Rules.” Even though your residents may be eager for you to crack down on the party house next door, your finance department is calculating how much tax revenue is being lost to anonymous renters, and your fire department is reminding you that unregulated STRs can be dangerous, you need to have a firm legal foundation before you can move forward. After the rules have been established, your city can move to the second stage of Enforcing Compliance, and finally reaching the Endgame of having most STRs under compliance.

Before you can begin drafting ordinances to address STRs, you need to get input and involvement from as many relevant stakeholders as you can. Adding their insight at the beginning stages of planning will help to create a more balanced, comprehensive plan that will need fewer adjustments later. Try to include staff participants and outside stakeholders who are involved with:

• Planning or Community Development, so that the ordinance is in guideline with the City’s short- and long-term objectives
• Code enforcement, regarding how these rules are going to be enforced in the field
• Finance department regarding taxation
• Communications and outreach, so that they can direct citizens to the right resources
• IT, so that they can assist with infrastructure for citizens and city staff
• Community leadership, such as neighborhood groups which are usually pro-regulation
• STR operator advocacy groups
• Hotel and motel associations, which typically ask for a level playing field regarding taxation and inspection
• Tourism, which can assess the impact on the tourism economics

If your region has more than 1,000 STRs listed with an online platform, try to negotiate with that platform directly. Short-term rental platforms like Airbnb may be willing to work out a tax deal, although you should also prepare for some resistance.  However, such deals involve lump-sum payments over a broad time interval, and the platforms will not identify individual host names or addresses.  Those gaps will have to be filled by identifying rentals, exactly the service Harmari STR provides.

With your team assembled, you can begin to pursue the goals of the first stage of STR compliance.

1. Create a well-defined ordinance. If your municipality does not already have a plan in place, research the ordinances other cities have created for inspiration. Talk with your group about would work for your region and what wouldn’t. Another option is to take our free STR survey, which will give you valuable insights and links to ordinances from cities similar to yours based on your answers.  Take advantage of our free STR Ordinance Tool, which helps you compose a new ordinance from 5 different Model City ordinances with the ease of drag-and-drop.

Listen to the input from each member of your team, even if some seem to be on opposite sides of an argument. Try to keep your common goals in mind. Every stakeholder may need to compromise somewhat in order to create an ordinance that will protect quality of life issues, keep travelers safe, allow STR operators fair use of their homes and recover lost tax revenue for the municipality.

This phase should also include a period of time where the public can review the proposed ordinances and make comments. These comments would then be evaluated and incorporated into the final draft.

2. Educate STR operators of the need for regulation and compliance. Ideally, they had representatives on the team that drafted the ordinances and an opportunity to participate during the public review period. Once the regulations have been approved, make them easily accessible to the public and promote them thoroughly. Make it easy for operators to find the information they need. The city of Denver government web site serves as a good example, as it has a complete copy of its STR zoning code along with an easy-to-follow FAQ section.
3. Figure out the budget and personnel requirements for increasing compliance. Tracking down and contacting non-compliant STR operators will take the most time and effort in the early stages when properties are being recorded for the first time. The additional expense of compliance can usually be offset by the recovered lodging tax revenue. Unregistered taxpayer rates in many cities run from 6.7% to 20%. Reclaiming the tax revenue from these properties can lead to a ROI of 300% to 1,000% for a new program.

Remember that the identification costs in the early stages of your program will be greater than the monitoring costs you will incur in later years as you go into maintenance mode and only need to investigate new listings. If you are hiring your own staff, plan for their hours to decrease after the first year or so. If you are outsourcing the job, make certain that the annual cost in the contract will go down as the amount of enforcement work decreases.

4. Post clear instructions and forms online. The goal is to make compliance as easy as possible for your STR operators. Your site should include all the forms operators would need to fill out plus an easy and secure means of submitting those forms and making payments online.

With these first-stage goals met, your city will be in a good starting position to legally enforce a well-planned STR ordinance.