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My Life is Your Vacation... Rental

Mountain/resort communities’ different approaches to short term lodging
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When the dot-com boom kicked off around the turn of the century, making entrepreneurs millionaires virtually overnight and upending the status quo, government struggled to adapt laws and regulations to the new market. Now the sharing economy has had a similar effect, catalyzing exponential growth in every industry it touches via ridesharing, home renting, peer-to-peer lending, and more. In mountain and resort communities across the West, short term rental (STR) services like Airbnb and VRBO have exploded in popularity, impacting local communities and forcing government agencies to adapt and react.

The Truckee/North Lake Tahoe region is not alone here — see The Vexing Problem of Short Term Rentals in our August edition. Host Compliance, an STR analytics service that signed the Town of Truckee on as one of its first clients, now serves dozens of towns and cities across the country, to find and then monitor local rentals. Each of these communities has noticed a pronounced growth in vacation rentals over the last few years: a 73 percent annual growth in Jackson, Wyoming; 86 percent in Denver, Colorado; 140 percent in Durango, Colorado (numbers taken from the data analysis site Airdna.com, and only refer to Airbnbs). Truckee’s rental inventory, by contrast, has been growing steadily at 67 percent annually.

Placer County and the Town of Truckee have addressed STRs in similar ways. Both require renters to register their property and pay a transient occupancy tax (TOT) of 10 percent, and both have hired Host Compliance. The Town of Truckee has implemented an additional 2 percent Truckee Tourism Business Improvement District Tax that is allocated to bringing additional visitors to the area through various marketing methods — see Grow Smart in our November edition.

It has been said that there are 100 ways to skin a cat — or regulate a local industry through carefully thought-out town ordinances, if the cat analogy makes you queasy — and we decided to take a peek over the neighbor’s fence, to see how mountain communities across the West are addressing the pros and cons associated with the house sharing economy.

Telluride: Proper Prior Planning

It might have been a good 30 years before online rental services changed the game, but sometimes foresight pays off. The Town of Telluride’s policy toward short term rentals in its multiuse zones is wide open, but in residential zones the Town implemented regulations decades ago.

“I feel like a lot of places that didn’t already have regs in place were kind of blindsided by the whole sharing economy and Airbnb revolution, and are playing catch-up,” said James Vanhooser, planner one for the Town of Telluride, mentioning that the town has had some form of short term rental regulation in place for its residential zone since 1980. “People have always been able to short term rent, but in a limited capacity, and that continues to be the case today.”

All short term rentals in Telluride are subject to a business license fee of $166 plus $22 per sleeping room, sales and excise taxes, and a county lodging tax of 2 percent — similar to Truckee’s 10 percent transient occupancy tax (TOT). Rentals in residential areas, however, are subject to some of the stricter regulations in the West. Homeowners may only rent out their property for a total period of “29 days or fewer in a calendar year,” and for no more than three times.

Vanhooser said they have seen a drop in long term rental availability in multi-use zoned areas that allow for short term renting, but they are not planning on implementing regulations in those zones any time soon because “those zone districts were set up specifically with short term accommodations in mind.”

Durango: Capped and Mapped

Durango, Colorado, addressed the short term rental issue head-on this year, with a series of regulations so extensive that one free-market news source, reason.com, cited the city as “winning the award for the worst home sharing regulations in the state.”

The current regulations, “intended to manage the potential negative impacts of vacation rentals on the stability and quality of life in Durango’s neighborhoods,” take a multifaceted approach to short term rentals. One of the interesting details to Durango’s approach is its use of buffer zones between rentals. In an effort to maintain year-round community in residential zones, Durango does not allow more than one STR per street segment — meaning the space between each road intersection. On top of this, it caps the number of rentals that can operate in each city planning zone and at the time of this article, the 16,887-person city only had 85 legal rentals — all included in a detailed list and Geographic Information System map on the city’s website. A waitlist has also been started, and currently includes 13 rental hopefuls.

Jackson: Taken to Court

Jackson took an even more strict approach to short term rentals, and in 2016 banned them in all but two zones within the town: its Lodging Overlay and Snow King Resort Districts. Further, even those seeking to rent within these zones must obtain a residential short term rental permit at $100, and reside in Teton County, Wyoming, in order to ensure local residency.

Fines can also be levied against property owners who rent short term without a permit, and in one case, a couple charged for renting illegally took the case to court last December. The case itself brings up interesting questions regarding the ability of local government to persecute renters for advertising a rental unit.

Jackson’s ordinance states that advertising a short term rental constitutes prima facie evidence of the operation of an STR, and that the burden rests on the property owner to provide evidence of their innocence. The couple contended that resting the burden of proof on the defendant violates their Fifth Amendment right to silence in order to prove innocence. As of this writing, Jackson has not changed the language of its ordinance.

Sedona: Flipped Upside Down

Sedona, Arizona, was caught off guard last year when a sweeping statewide law was passed that allowed short term rentals across the state, and made ordinances against them — such as the ban Sedona has held against STRs since 1995 — unenforceable.

The small Arizona resort city of 10,397 people banned short term rentals more than 20 years ago, but according to Roy Grimm, a Sedona-based real estate broker since 1997, it wasn’t strictly enforced until about a decade later. Grimm said the regulations compounded an already suffering market by taking away a valuable revenue stream from locals who might supplement their income through renting.

As for the recent statewide law, Grimm said it has contributed to Sedona experiencing one of its best real estate years in ages, as well as rising rents and median home prices. One of the big changes regarding the new legislature is the appearance of professional property renters, or investment buyers in Sedona. In one instance, investors from Scottsdale, Arizona, purchased a 14-unit apartment complex in Sedona and evicted its inhabitants, only to find that a city ordinance limits STRs to multi-family housing entities of four units or less.

“Affordable housing is already in limited supply and I believe this new law virtually eliminates Sedona’s chance to mitigate this issue,” said Sedona Chamber of Commerce President and CEO Jennifer Wesselhoff in an interview with Sedona Red Rock News. The power to influence STRs has not disappeared from Sedona, however — it’s simply changed hands. Many local homeowners associations (HOAs) have regulations in place that are enforceable, and have been instituting STR restrictions and amending their policies over the last year. Due to the HOAs, “it [the inability to ban STRs] is not across the board, in fact, the majority of the town still does not allow vacation rentals,” Grimm said. HOAs have similar power in Truckee, thanks to a 2015 California appellate court ruling upholding HOAs’ right to restrict owners’ rental abilities.

Mammoth Lakes: Close to Home

Bringing it back to California, Mammoth Lakes is perhaps the most comparable mountain town to Truckee and North Lake Tahoe, and it has been influenced just as heavily by short term rentals, which the town of Mammoth calls “transient” rentals. In fact, Mammoth takes the cake with roughly 3,500 to 4,500 STRs currently listed online in and surrounding the small town of less than 8,000 residents.

Comparable to our Colorado examples, much of Mammoth’s regulation is zone-based. According to Kim Cook, town assistant planner, transient rentals are restricted from all single-family zoning districts as of a 2015 voter initiative. In all other zones, rentals are allowed, but occupancy is capped at two persons per rental bedroom; an effort to cut back on rentals being utilized as “party houses.”

The town also requires that home owners who want to rent obtain a business certificate, and instituted a transient occupancy tax of 13 percent, up from 6 percent when it was first put in place in 1986. According to Rob Patterson, administrative services and finances director at the Town of Mammoth Lakes, this tax constitutes 60 percent of the town’s general fund. Patterson said that the town is currently looking for a partner to monitor rental compliance, stating that Mammoth has had 90 cases of illegal rentals in the last 12 months. When asked if Mammoth had reached out to Host Compliance, Patterson said that the service was simply too expensive at the time considering the sheer amount of STRs in the area.

Denver: Must Reside to Rent

The City of Denver, population 682,545, can hardly be called a resort community, but it has been dealing with some of the same issues as Truckee/North Lake Tahoe regarding short term rentals, and shown some creativity in its approach. One of the unique regulations it has applied to its 3,386 rentals is a primary residency requirement.

According to Carrie Atiyeh, director of government and community affairs at Visit Denver, the city studied the issue for two years by looking into the effects of STR regulations on other cities and taking into account the local neighborhood voices as well. When most of the locals voiced concern about the potential loss of long term residents and rental options, Denver implemented a requirement that within residential zones, the property must be the renter’s primary place of residence, occupied for more than half of the calendar year.

Atiyeh said that Denver focused on “passing sensible regulations” and “ensuring that regulations passed did not deter people from getting their license.” These objectives were met by providing the entire business license process online, and charging a low license fee of $25. For comparison, the Town of Truckee currently hosts an online registration service as well, but requires no business license, and registration is free. Between the end of 2016 and November 2017, Denver, also a Host Compliance client, increased its compliance rate from 14 to 66 percent, which Atiyeh said is a leading figure in the country.

The woman who started the committee to put STR regulations in place, Denver Councilwoman Mary Beth Susman, mentioned the difficulty in regulating STRs when they provide both hindrances and solutions in the big picture, stating that the added revenue stream of STR’s made housing more affordable to the people renting their primary residence.

“For a primary residence that you might rent out … it gives people another income so they can meet their mortgage or pay their dentist bills, and it seemed very helpful for our affordable housing efforts,” Susman said.

 
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October 11, 2018