Preparing for the Rise in Short-Term Rental Tourism

Short-term rentals (STRs) saw unique growth during the pandemic. Already gaining in popularity, this alternative lodging option moved from a niche market into an important player in the tourism industry. As hotels placed restrictions on tourists, STRs provided personal tourism options that gave individual lodging choices that appealed to guests that looked for safer alternatives, while avoiding the restrictions of larger hotels.

While the growth of STRs was not a surprise, the impact of 2020 thrust STRs into a larger spotlight. From 2016 to 2020, the number of communities reporting more than 100 STR listings in the U.S. has more than doubled. And that growth shows no signs of slowing.

The Impact of STRs to Governments

As of May 2021, more than 2 million STR listings in the U.S., representing 1.6M unique rental units, are available for rental. And with pandemic restrictions loosening, the impact of increased tourism will undoubtedly push the growth of STR popularity even higher.

Many local governments are already dealing with how best to make sure this burgeoning market not only maintains a level of public safety, but also has a positive impact on tourism revenues as visitors return to traveling. The recent STR Summit, held by Granicus, brought together leaders in the short-term rental and Host Compliance areas to discuss the issues facing local governments and provide insights for moving forward with regulations that balance growth and safety.

“We look at how many communities have more than call it 100 short-term rentals,” said Ulrik Binzer, General Manager of Compliance Services at Granicus. “We’re seeing an explosion in both supply and demand for short-term rentals. And that’s obviously then creating demand for cities, counties, and states to think about how to manage this growth.”

During the STR Summit’s Keynote Session, both Binzer and Granicus CEO Mark Hynes spoke about the role that STRs will have for governments going forward. Hynes pointed out that STRs can impact tax revenues for communities. But how governments manage STR growth can also play a direct role in improving civic engagement.

Governments should look at civic engagement in five areas, Hynes said: Transparency, communication, participation, access — typically in the form of government services — and compliance.

“When you look at that series of principles around community and civic engagement, host short-term rental management really embraces all of them,” he said of the growing market. “Whether you’re a local government that is thinking for the first time about the ordinances and regulations you think are appropriate for a community, you want the tools and the capabilities that manage these processes transparently and effectively with proper participation in a way that touches all the community constituents.”

The release of the 2021 “Short-Term Rental and Government” Survey, compiled by Granicus’ Host Compliance team, clearly focused the lens on what the STR market is poised to do in the coming year. It also provided an alert to local governments to the areas where regulation, or lack thereof, will potentially create problems as this sector grows. Worse, these pain points can mean loss of tax revenue and a negative impact to tourism income for communities.

With 60% of listed properties as single family dwelling units and 90% of listed properties as entire home rentals, STRs are impacting not just communities, but neighborhoods. And with a U.S. average of 1.22 listings per unit, STR operators are posting their rentals on a variety of sites.

As a result, according to data from Airdna, STR lodging is taking a greater and greater share of the percentage of total lodging revenue in the U.S., jumping from approximately 10% to just under 25% from 2019 to 2021. Sparked undoubtedly by COVID-19, this growth has made it easier for STRs to recover from the pandemic economy faster than hotels.

In fact, STR occupancy rates in 2021 are already exceeding pre-pandemic records, with areas in the Midwest and rural areas showing the fastest recoveries. Whether this shift away from larger urban travel destinations continues during a greater return to tourism remains to be seen. But the resilience of the STR sector has been stronger than many expected and the impact in communities has been significant and altering.

What STR growth means for communities

Regardless of the size of the community, building a relationship with STR owners and operators continues to be a game of catch-up. The Granicus survey of over 2,600 communities with STR markets found some common issues and some notable concerns for communities moving forward.

For almost a quarter of those surveyed, identifying short-term rental operators presents the greatest challenge regarding STRs. And with operators posting on multiple sites, the efforts to accurately identify these operators becomes a time-consuming and labor-intensive game of cat and mouse when it comes to ensuring that these properties are being operated in compliance with local regulations.

However, regulation of STRs is an area where many communities are still surprisingly behind. Only 66% of communities in the Granicus survey currently have regulations in place dealing with STRs. With 18% of communities operating with no regulations in place for STRs, the opportunity for more effective enforcement is available, lest an uncontrolled market create safety issues and lost revenue for the community.

Even for those communities that have regulations in place, compliance presents difficulties that could only be exacerbated as increasing tourism pushes the growth of STR listings. Of those communities with some level of regulation in place, only 41% say that those regulations are being followed with high or excellent compliance.

Regulations enforced in these communities run a wide, and somewhat sporadic, gamut. While almost 93% of those surveyed included regulations that required registration with the local government, many other regulations were inconsistently applied. These regulations included:

  • Limiting STRs to certain zoning categories
  • Permitting only primary residents to run a STR
  • Requiring remittance of taxes (such as transient occupancy, bed, or hotel taxes) to the local government
  • Requiring a 24/7 contact to be on file with the local government

These common regulations were applied, at most, only 67% of the time, with some regulations (such as the primary resident requirement) only being applied 32% of the time.

For those communities that do not regulate their STRs, some have not fully identified their STR market (reporting less than 50 units). But other unregulated communities in the survey had an average of 850 units that were not being held to any compliance regulations. When asked why these communities continued allowing the operation of unregulated STRs, common reasons included enforceability concerns, lack of city council buy-in, and lack of resources to assist enforcement.

Embracing the Growth of STRs for Positive Results

The growth of STRs during the pandemic was a surprising, if understandable, response to the need to practice safe traveling during a time of restrictive tourism. Just as travel trends changed in response to the COVID environment, trends will again change as a return to a new normal makes a broader approach to tourism popular again.

But the continued popularity of STRs shows that the change to the lodging and hotel sector will continue to be significant. Rather than wait for the STR trend to die down, communities must embrace this new area and develop the regulations to ensure safe, fair, and equitable tourism in their communities. The impact of regulations can also be significant to community tax revenues as tourism finds this new pace.

Host compliance plays a critical part in regulation enforcement and management of the STR market in communities. With time-savings and efficiencies created through digital tools to track listings and encourage regulation compliance, communities can gain a better handle on STRs in their neighborhoods.

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