Part II of a two-part series. To read Part I in the May 15, 2019 issue of BarNews, visit www.nhbar.org/publications/bar-news.(This article originally published in the June issue of the NH BarNews.)
Last month, I wrote that Sedona, AZ presents “at least one compelling case study” on the effect of the short-term rental industry on neighborhood identity. So, what’s up with Sedona?
Well, as referenced last month, Arizona is one of several states that had limited the ability of municipalities to regulate short-term rentals. Sedona, in particular, attracts about 3 million visitors a year, and, in the high season, tourists can outnumber city residents by about 3-to-1.
It is estimated that Sedona had 200 to 300 short-term rentals before Arizona’s law went into effect. Now there are more than 1,000 short-term rentals, which is about 20 percent of Sedona’s total housing inventory.
The rhetorical question that the Sedona City Manager recently posed was: “At what point are the community’s residents so outnumbered that there’s no real community left?” And the housing shortage in Sedona has also made it hard to fill important city positions.
For example, applicants for both chief of police and assistant city attorney declined job offers after they were unable to find housing. Similarly, Sedona’s turnover rate among city employees is about 20 percent. Lastly, Sedona closed one of its two elementary schools in 2018 after enrollment in the district dropped from 1,300 students in 2009 to 766 in 2018 (a drop of about 41 percent).
Sedona is emblematic of why many localities are starting to regulate short-term rentals.
Paris, Amsterdam, and Japan (discussed last month) are not unique to be sure. Even Arizona has changed its stance since last month’s Bar News issue.
On May 21, 2019, Arizona Governor Doug Ducey signed HB 2672, which prohibits short-term rentals from being used to hold special events that would otherwise require a permit or a license and also requires property owners renting out their homes to provide contact information to local authorities in case of a complaint.
Additionally, those offering short-term rentals will have to get a transaction privilege tax license and will be subject to fines for violating tax-related rules.
Closer to home, New England is sharing (pun intended) in the legal activity surrounding the short-term rental industry.
In Maine, for example, a recent legislative response to increasing citywide restrictions (such as one that passed in South Portland by a vote of 6,375 to 5,378) was the introduction of a bill that would prevent municipalities from prohibiting or restricting short-term rentals except for narrowly tailored regulations for the protection of public health and safety. The bill has since been killed.
The South Portland restriction that sparked the attempted legislation prevents owners from offering short-term rentals in residential areas if the property is not the owner’s primary residence. The full South Portland regulation can be found at: https://www.southportland.org/files/8815/3635/3801/09_-_Ordinance_22-Ch_14_amendments_as_adopted_07-17-18.pdf
In Massachusetts, a new law will go into effect on July 1, 2019 that will be the first state law to create a statewide registry for short-term rentals. In addition, the new law will impact taxation: depending on the locale, the maximum tax imposed on a short-term rental stay could be 17.95 percent, and the tax will apply to the total rent paid (including service fees, cleaning fees, and other fees).
The law will also require hosts to carry liability insurance of at least $1 million to cover each rental. The MA law can be found here: https://malegislature.gov/Laws/SessionLaws/Acts/2018/Chapter337
In Vermont, a law went into effect on July 1, 2018 that requires short-term rental hosts to comply with general health and safety standards and to register with the Department of Taxes.
An earlier version of Vermont’s short-term rental legislation would have required hosts to pay an annual registration fee of $65. Hosts will be assigned meals and rooms tax numbers, and they will be required to post the numbers on the websites where they advertise their rentals.
Of note, Vermont’s Joint Fiscal Office had estimated that short-term rental operators were failing to remit a cumulative $2 million in meals and rooms taxes to the state each year.
Here in New Hampshire, Airbnb reached an agreement with the State back in 2017 to collect NH meals and rooms tax; however, not all of Airbnb’s competitors do so. State Rep Ed Butler (D-Hart’s Location), who is also an owner of The Notchland Inn, has sponsored HB653 (retained in committee) that would make hosting companies “primarily responsible for payment of the tax…”
Butler also intends to reintroduce a bill on “disorderly houses” which could address the circumstances of short-term rental properties being filled with unduly loud partiers or otherwise vexing vacationers. The question, as is often the case, may be one of definition. Last session, a consensus on the definition of “disorderly houses” could not be reached.
Another bill pending in the Senate Election Law and Municipal Affairs Committee, SB69, would grant affirmative authority to municipalities to implement the licensing of short-term rentals and to charge a fee to defray the cost of such licensing.
SB69 also seeks to eliminate two inspection exclusions that apply to private dwellings to:
Given that one of the distinctions in the short-term rental industry is between more corporate-like hosts who buy multiple homes and rent them out for profit and home-owners that rent out extra space in the home where they live to pay their bills; another legislative option could be to require certain short-term rental hosts to pay NH Business Profits Tax (BPT), which tax revenue could be used to develop affordable housing options.
On the opposite end of the tax spectrum, and in lieu of the various short-term rental restrictions that have been implemented all over the world, one creative approach suggested on NHPR’s The Exchange by Jac Cuddy, executive director of the Mt. Washington Valley Economic Counsel, is to provide a tax incentive to property owners who use their properties for long-term rental housing instead of as short-term rental properties.
The current regulation enforcement approach in Laconia is complaint-based enforcement. Last October, the City Council decided that it would only recommend enforcement under its zoning ordinance (which only permits “boarding/ rooming/ lodging house” use in its shorefront residential and commercial resort zones) when neighbors or others,
such as the police or code enforcement officers, complain. Failure to comply could subject property owners to fines of $275 per day.
Facing increasing scrutiny and regulation, what has Airbnb done to protect its business model? For one, it has made multiple agreements, such as the one it made with New Hampshire, to collect the appropriate, applicable lodging taxes. It has also increased oversight.
Additionally, Airbnb has recently partnered with real estate company Century 21. Now, for example, Parisian renters can request an Airbnb-friendly lease, which explicitly allows a renter to sublet an apartment on Airbnb. In return, Airbnb will still get its transaction fee, the landlord will get 23 percent, and Century 21 will get 7 percent of the host’s rental fee. One might say it’s a win-win-win-win-win.
Airbnb is also partnering with developers to create home-sharing based communities such as Niido (https://www.niido.com/), which currently has communities in Nashville and Orlando. These communities are officially “powered by Airbnb.”
Residents in these communities who sublet their units on Airbnb pay the company a percentage of their home-sharing rental income in return for access to the same amenities that visitors will have. These Airbnb partnerings may be as much politically motivated as business-related, creating advocates and political allies that may help keep increasing short-term rental regulations and prohibitions at bay.
By way of brief update to the New York City litigation referenced in last month’s BarNews (read at www.nhbar.org/publications/bar-news), just after the issue went to press, Airbnb agreed to turn over redacted information for more than 17,000 listings.
A couple days later, Airbnb was court-ordered to turn over information on even more listings and also to provide less anonymized information.
So, with all that is going on in the world of home-sharing and short-term rentals, if you find yourself wondering what will become of the home-sharing concept and services like Airbnb; the answer, which ultimately may have to be a creative one, is likely to begin with that almost axiomatic legal phrase: “it depends.”
And it will likely depend on a well know real estate agent mantra: “location, location, location.”
