How Do Short-Term Rentals Affect Affordable Housing?


The link between short-term rentals and affordable housing.

The effect of short-term rentals (STRs) on affordable housing is at the core of the STR debate. In this article, we’ll dive into this contentious issue by reviewing trends in the housing and rental market and discussing how to identify the impact of STRs in your community and align policy with community goals.

What is a short-term rental? A short-term rental is the rental of a residential dwelling unit for periods of usually less than a month. These rentals are commonly booked through online sites like Airbnb and VRBO.

How big is this market? In the U.S., there are more than 2 million short-term rental listings that represent 1.6 million unique rental units. From this, we know STRs units are being listed on multiple sites to get more returns and better revenue. A listing is a post or advertisement of a short-term rental unit or rental property.

STR Listings in the US

For local governments, short-term rentals must be managed according to the needs of an individual community. A one-size-fits-all approach won’t work. Every community has a different STR market with different impacts created — both positive and negative — and different, overarching community goals. What one community has decided to be appropriate may not be successful for another. Jurisdictional scans are a helpful tool, but regulations and enforcement must be localized. Once you understand what’s happening with STRs in your market, you will be best suited to enact policies that ensure STRs are a positive addition to your community.

Understanding the underlying dynamics

As short-term rentals have become more professionalized, the industry has trended towards looking at housing as a commodity or investment tool, putting pressure on long-term renters and smaller homebuyers. The gap between long-term and short-term rental income can give you a clear sense of where the pressure is coming from. As short-term rental income increases, so does the incentive to create more STR opportunities. The nicest neighborhoods are often not the most desirable for STR investment because of their high cost. Generally, more affordable neighborhoods near amenities and tourist destinations are more sought-after locations for STR investment — which is where the pressure lies.

When affordable housing is flipped into short-term rental properties, it can have a devastating impact on residents in need of an economical place to live long-term. Research has proven that it’s always easier to protect affordable housing than it is to try to revert STRs back to long-term dwellings. Instead of fighting against the tide, try to get ahead of the issue by actively working to protect affordable housing in the onset.

STRs, however, are rarely the sole cause for affordable housing issues.

Strategies to protect affordable housing

Prevent the conversion of long-term housing to short-term housing. This could be accomplished by establishing a primary residency requirement, a geographic or zoning-based ban, or requiring license caps, or on-site operators.

While not ideal (or easy), rolling conversions back from STR operation is still an option. Mountain towns in Colorado and desert towns in Arizona, for example, do this by offering STR hosts subsidies to incentivize the conversion back to the long-term market. It’s an expensive process that can be heavily affected by inflated STR housing assessments that drive up comparable residential housing costs in the area. But you can work with your assessors to try to avoid those problems by defining or assessing STRs in a different way, for example.

STRs can also be leveraged to build (or preserve) other kinds of housing, often by way of fees or taxes that are later used as a dedicated housing funding source. This is a great means of recapturing money from the STR industry to put towards other kinds of housing goals.

Using primary residency as a tool

Establishing a primary residency requirement is the most direct tool used to address housing issues. It ensures that the property is used as a residence primarily and an STR secondarily, which will inherently limit the number of operators; particularly at the hands of larger corporations. If the unit is also a primary dwelling, accountability related to quality-of-life concerns are built-in as guests will be more thoroughly vetted and monitored. Within this model, tourist money stays local and enforcement and permitting is a bit easier to manage because it’s all tied to the same address.

Be creative as you think through how to prioritize housing for residents and discourage housing loss to STR activity. STRs aren’t going away, and with a bit of planning, you can ensure they add to the fabric of your community.

Granicus helps local governments with short-term rental compliance challenges, from address identification, permitting and licensing, instant reporting, tax collection, and ordinance consulting. If you’re interested in meeting with Jeffrey to talk about your short-term rental regulation situation, we’re more than happy to help.

About Jeffrey Goodman, AICP

Jeffrey Goodman, AICP is an urban planner and designer whose work has made him one of North America’s leading authorities on short-term rentals and how they impact communities. Jeffrey has spoken about short-term rentals across the country, including the APA’s National Planning Conference. He’s written extensively on best practices for cities and he’s the author of a featured article in Planning Magazine and in the New York Times.

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