Debate over short-term rental regulation continues

Wednesday morning the Affordable Housing, Neighborhoods and Finance Committee continued its discussion of how to deal with the explosion in short term rentals.

A quick recap (read my earlier post for a more complete look): AirBnB, VRBO, HomeAway, and other Internet platforms that allow people to rent out their properties for short-term stays have had some very positive effects in Seattle, most notably putting some extra money in the pockets of people with an extra room in their house, a mother-in-law apartment, or a future retirement home that sits empty much of the time. But they have also had negative effects: they take some amount of long-term rentals out of the housing market in a city that is dealing with a housing crisis. And in more attractive areas of the city there are condo buildings where as much as 50% of the units have been converted to short-term rentals which has dramatically changed the community of people living in the building for the worse and in some cases made it difficult for existing owners to sell their to move elsewhere. And it has created a new class of small businesses managing short-term rentals in neighborhoods spread across the city that dodge existing lodging taxes and regulations and violate zoning laws that prohibit commercial lodging activity in residential neighborhoods.

So it’s no surprise that the City Council (led by Council member Tim Burgess) and the Mayor are looking at how to regulate the short-term rental industry to curb the negative effects. The hard part is how to craft those regulations so as not to limit the good aspects.

Burgess’s first proposal put no limits on an owner renting out a room or space in their “primary residence” where they live. If they did so for more than 90 days in a year they would need a special license, but that would not be a big deal to acquire. But a non-primary residence could only be rented for no more than 90 days per year; longer would be strictly prohibited. And to make it work, it required platform operators such as AirBnB to give quarterly reports of how many nights each owner had booked their property for.

This proposal generated much positive support, but of course the people who would face limits or prohibitions came out in force to voice their opposition. People who had been renting out their second homes were well represented, with a smattering of small business owners running multiple properties. Representative of the platforms raised a ruckus about possible privacy violations, which were largely unfounded given the policy didn’t ask them to provide any details about customers – just operators.

In response, Burgess et al revised their proposal. Their new version eliminates the 90-day rule for people renting on their primary residence; however they all need an additional license no matter how many days per year they rent. People renting a secondary residence who have been “good actors” (getting a business license and paying taxes) would have that second property grandfathered in for up 10 years or until they sell the property, and can rent it for as many days of the year as they want (eliminating the other 90-day rule). Platform operators would need a special platform license, but otherwise would not need to give details on operators’ bookings. As city staff pointed out Wednesday, this simplifies the scheme in many ways, and protects many of the people who have been operating in good faith – focusing much more on the people creating the biggest problems: the operators of multiple properties.

And those were the folks who showed up on Wednesday to comment on the new proposal, along with their employees. They decried the proposal as a “job killer” and claimed that there was no real evidence that they were having a significant impact on the local long-term housing market. Of course, as Council member O’Brien explained later in the meeting, the industry is growing quickly and the Council for once is trying to head off a problem early before it becomes a bigger problem; though staff analysis uncovered that 20% of the rental inventory in San Francisco is short-term rentals, and in Seattle that figure is currently 12.5% — so it’s clearly a growing issue as more long-term housing is converted to short-term lodging. As for the “job killer” argument, it’s certainly true that making it illegal to operate multiple short-term rentals spread around the city, which violates neighborhood zoning and circumvents lodging regulations, would eliminate some jobs (though by their own admission they are not a big industry). But arguably what they are doing now, apart from being illegal, eliminates some jobs in the hotel industry – and prohibiting it might shift those jobs back. Representatives of several platform companies showed up, as well as a spokesperson for the Internet Association, to say “we want to work with you to find a reasonable solution” while making it clear that they had no intention of cooperating with any form of regulation that would require them to do work or would place limits on their industry.

Those who favored stronger regulation also showed up, including two residents of Belltown Court (where 50% of the units are now short-term rentals) who spoke to how their community had been “decimated,” and how short-term renters had no respect for their community and were frequently disorderly and disrespectful. Council member Herbold also noted that her office had received a report of a “party house” listing on AirBnB which claimed to house up to 30 people – her staff worked with neighbors and the Department of Construction and Inspections to get the listing taken down and a notice of violation issued to the owner.

The Council members, for their part, seemed happier, though not satisfied, with the new proposal and raised several questions and issues. Council member Herbold was concerned with what would happen to people who didn’t meet the “grandfather” clause criteria, and didn’t like that their only three options looked to be selling their property, converting to long-term rental, or leaving the property vacant. On the other hand she would prefer to further restrict the grandfather clause to short-term renters who had never been a long-term landlord; by her reckoning, anyone who had proven capable of being a long-term landlord in the past should go back to that rather than be allowed to continue as a short-term renter.

Johnson inquired about how the 10-year number had been chosen for the length of the grandfathered-in properties. According to HomeAway’s analysis, it was explained, 50% of the short-term rental properties listed in 2012 were no longer listed by 2105. So the city staff’s belief is that 10 year is enough time for the apparent natural churn of the industry to allow all current short-term renters of non-primary residences to exit at a time convenient to them without undue pressure.

Herbold wanted to know more about how the city could crack down on problematic short-term rentals like the “party house” or disruptive people in multi-unit buildings. She wondered what the role of community members should be, and whether the city could do more to strengthen condo and homeowner association rights. Burgess explained that the association issue is complicated because many don’t prohibit short-term rentals; the ones that do seem to be fine and aren’t participating in the ongoing conversation.

Johnson voiced his desire to explore revenue-based approaches to the issue instead of regulatory ones. Some of the industry participants have argued that they would much rather be taxed, up to the amounts of the current lodging taxes, rather than be regulated out of business, and those tax proceeds could be used to pay for affordable long-term housing and deal with other ecosystem-related issues (such as inspections of short-term rentals for building code violations).

O’Brien noted the difficult balance that they are trying to strike regulating the market before it grows into something unmanageable. He explained that they like the innovation and entrepreneurship represented in the short-term rental business, but they also need to protect the long-term rental inventory in the city (noting the San Francisco and Seattle statistics). He also noted that there are also innovation and entrepreneurship opportunities in the long-term housing business.

Burgess wrapped up the conversation by emphasizing that this was still just a conversation; they have been listening to all the feedback and reading all the emails sent to them, and they intend to take the time to do this right rather than rushing into a bad policy.