The modern world is adapting to an economy that removes the middleman: the sharing economy. It’s one of the fastest-growing sectors of today’s world economy and by 2025, it’s projected to be worth about $335 billion. This popular, new economic format is preferred by most customers today because of its convenience, self-service capabilities, and ability to provide experiences without ownership.
Yet the sharing economy is not without conflict. Its precipitous growth has made it difficult to regulate. This is especially true for short-term rental (STR) markets—one of the most successful sectors of the sharing economy. Governments at every level have had to quickly (and sometimes unsuccessfully) find ways to monitor, tax, and discipline these new types of businesses—but the greenness of the market has made this difficult:
“The regulations used for hotels, motels or bed and breakfasts most often don’t apply to short-term rentals, so governments essentially have to write completely new and different rules for them,” explained Ulrik Binzer, general manager of Compliance Services at Granicus.
But after helping more than 350 communities develop programs for improving STR compliance, Granicus has gathered experience and clarity on what effective STR ordinances do and do not include that any local government can learn from. Here’s what they should keep top of mind when developing STR ordinances:
Too often, governments create ordinances that are not holistic enough to effectively regulate STRs—or, rely on regulations written for traditional lodging rentals for STRs. Either scenario can create accidental loopholes. For example, if ordinances fail to include provisions or language against the advertisement of STRs, online promotions cannot be used as evidence that someone is an STR operator. Code enforcement teams will then have to catch renters in the act (walking through the door of a rental property). But this tactic is costly, time-intensive, and rarely works and, as a result, many STR hosts continue to advertise and rent their properties illegally.
Many governments also do not include language in their STR ordinances that prevents common egregious behaviors. For instance, few local governments monitor for “house-swapping”—another type of STR where two parties temporarily swap homes for credits, rather than money.
Developing procedures to regulate local STR markets is a crucial first step for government agencies, but if the procedures are too cumbersome, they won’t be as successful. The city of San Francisco made this mistake when their Office of Short-Term Rentals developed a new permitting system. The system was designed to help monitor hosts’ compliance, but because the process for acquiring a permit was too complex, it was less effective and served as a barrier instead; hosts would often drop off an application before it was completed. It’s crucial that government agencies create systems that are easy to follow and establish clear lines of communication between themselves and hosts. As always, simplicity is key. Governments need to make sure STR hosts can easily find information about the codes and ordinances they need to follow. Government agencies must also be sure the language used to communicate ordinance details and/or requirements is written clearly.
A lack of coordination between internal departments can also reduce the effectiveness of STR ordinances. For most city or county governments, STR management is spread across different departments, from permitting and finance to the code enforcement office. If all these departments aren’t in frequent communication, or can’t easily exchange information, it is harder for them to tie things like noise, trash, or parking complaints to an STR permit, for example.
“A noise complaint at a short-term rental might come, and a city’s police IT system will label it as just a noise complaint. They don’t think about short-term rentals,” explains Binzer. “So they don’t actually have a way to report this to the proper department.”
Government agencies tend to take a reactionary approach to a lot of STR code enforcement—waiting for citizens to complain before taking action. But this method is largely inefficient and helps discipline only a fraction of a community’s problematic STR hosts. For instance, it can be difficult for code enforcement teams to even pursue violators by requiring an unreasonable burden of proof. Some governments ask enforcement teams to provide evidence like sworn affidavits and witness testimonials that are difficult to gather and consolidate.
There’s also the issue of having too little time to effectively enforce regulations or catch violators. Governments need to make sure that their ordinances allot enough time to pursue non-compliant hosts or rental properties, especially if their community is inviting for seasonal travelers.
“For example, in a ski town it’s easy for hosts to illegally operate a rental property for three months out of the year, and then shut down their listing before the government ever finds out about it or acts on it,” explained Jeffrey Goodman, a planning consultant at Granicus Host Compliance.
To avoid these scenarios, governments need to not only establish more proactive means of enforcement, but they also need to make sure their fines are hefty enough to deter illegal operators—otherwise, STR hosts will see them simply as a cost of doing business.
Many governments try to use online rental listing platforms to monitor and collect data on an STR market, but due to the sheer number of these types of platforms, this can be an impossible task. Most of these platforms also don’t provide address or host contact information either and only give a general idea of a listing’s location, making it harder for government agencies to collect accurate information.
Ensuring up-to-date and accurate data collection is critical to the success of any STR ordinance. Without it, it’s exponentially more difficult to measure the effectiveness of their regulatory efforts or spot changes in the market to inform regulatory updates. A digital solution like Granicus Host Compliance can automate STR address identification, evidence gathering, and communications to hosts.
Local and state economies stand to benefit from the growing STR market and the sharing economy in general, but if these enterprises aren’t following zoning, tax, and safety codes, the positive effects of this emerging market will be negated. Before ushering in a bustling new STR market, governments need to lay the groundwork by creating an effective and enforceable ordinance. Only then will they be able to fully reap the rewards.
To learn more about the short-term vacation rental market in your community, sign-up for a complimentary assessment here.
