Homeowners who rent out some or all of their home to short-term guests are dragging down their local economies, according to a recent report by the Economic Policy Institute.
Services like Airbnb — and others include Tripping, FlipKey and HomeAway — have become a major part of what is termed the “sharing economy.” Proponents of these services say they help regular homeowners gain more income out of property they don’t plan on living in on a regular basis. It also makes traveling less expensive, as these accommodations may be a less costly alternative to traditional hotels.
But there are disadvantages, too, including:
- taking away business (and jobs) from the hotel industry;
- keeping potential long-term rental homes off the market; and
- the potential disregard of neighborhood rules and conduct by transient occupants.
The Economic Policy Institute study considers these positive and negative economic impacts of short-term rentals (STRs) and finds the costs significantly outweigh the benefits. The biggest economic cost results from the loss of local rental housing stock, as long-term rentals are converted into STRs even as demand for long-term rentals continues to rise. This demand-and-supply imbalance causes rents to rise proportional to the growing presence of STRs.
Short-term rentals in California
In California, STRs are of particular concern as the rental shortage has reached a crisis level in recent years. Rental vacancies remain low, averaging 4.4% in 2018, below the state’s benchmark for a healthy vacancy rate of 5.5%. At the same time, construction has increased at a glacial pace since the rebound from the 2008 recession, falling behind rising demand. The result is significantly higher rents for tenants.
Laws for STRs vary significantly across the state, as local cities may make their own restrictions.
For example, Sacramento, a city with relatively high rental inventory and modest economic performance, is fairly friendly to STR operators. The city requires owners who rent out their primary residence to acquire a permit, pay an annual hotel business tax of $50 and collect and pay transient occupancy taxes from their renters. Owners who rent out their secondary residence for more than 90 days in a year follow similar rules.
At the other end of the spectrum, STRs are prohibited altogether in Anaheim, a city marked by its low rental housing inventory. A ban on new STRs, pushed through by hotel industry lobbyists, went into effect in 2016, and current STRs are in the process of being phased out.
Somewhat in the middle, STRs in San Luis Obispo are only allowed for owner-occupied residences. Additionally, there are rules for parking, the proximity of responsible operators, business licenses and payment of the transient occupancy tax.
These are just a sampling of the laws restricting STRs in California. To learn the laws in your area, visit your local city or county’s website.