Understanding the History, and Changing the Future of VR Regulation.
What Can We Learn From London, San Francisco, Barcelona and New York?
What is the biggest concern for vacation rental property managers? Regulation. Even minor changes in the law can have a destructive impact on the potential revenue of any vacation rental business. And, as the vacation rental industry is undergoing a period of intense growth and change there has never been more pressure on authorities to put in the right regulation. Cities have the power to dictate their own rules and regulations so your business prospects can vary hugely, even within the same country. It is more important than ever to learn about the current laws, and what is likely to happen next in your community.
This means not only checking and complying with law and regulation, but also finding out how to become a voice in the development and refinement of these restrictions. To do this, we’re looking at four examples of how cities have debated, applied and structured vacation rental regulation. Using the example of how hotel regulation has been applied, we’re going to look at why there is a need for regulation of short-term rentals.
We’ll also be talking about what you can do as an individual to make your voice heard amongst the noise and what seems like mounting pressure to legislate against short-term vacation rentals. This post will give you real evidence that you can use to argue your case about the economic, touristic and social benefits that a bustling and competitive vacation rental industry provides. Finally, we’re going to look at what’s next for the cities that remain undecided.
How San Francisco, London, Barcelona and New York Set The Benchmark
There has been a problem that the vacation rental industry sprung up quicker than we could measure its impact. Regulation had to be put in place that was based more on anecdotal evidence than fact. This lead to concerns from major travel businesses and disrupted residents being pitted against the financial success of a handful of individuals - the fight was always one sided, far more weighted toward those who opposed vacation rentals than those in favor. We’re looking at the current regulation in major cities and what it means for the cities that are yet to apply their laws and regulation.
San Francisco is the home of Airbnb and has been a focal point of American legislature. It is the cradle of the home sharing economy. On October 7th 2014 the city finalised its regulation, allowing short-term rentals of less than 30 days to continue. However, there are some restrictions. You be a permanent resident of the city, only rent out your property for 90 days of the year, pay 14% hotel tax and have $500,000 worth of liability insurance. The penalties for not complying with these rules can be as much as $1000 a day.
With 23000 short term rentals already said to be operating in London, their regulation seems to be coming quite late. In a similar move to San Francisco, Londoners can now rent out their primary residence for 90 days of the year. The move was viewed as a victory for short term rentals but for professional hosts with numerous properties in the city, it was a real blow to their potential yearly revenue.
What is notable in the restrictions in London and San Francisco is that there is no distinction made between home sharing and professional vacation rental properties. HomeAway even appealed the ruling in San Francisco, describing it as unfavorably weighted towards Airbnb and its users. It was not successful and the law still stands.
In Barcelona, property owners are legally allowed to rent out their property for short term rentals providing that they acquire a tourist license from the local council after an inspection and paying the required fees. However, the city has suspended the issue of new licences in the city, effectively ending the possibilities for any property that does not already have a much sought after licence. This is good news if you have licensed property in the city as it has effectively closed competition for you. However, flats that are rented out without this licence are not uncommon. Barcelona’s efforts to control the impact of mass tourism are well documented and can be applauded as an effort to focus on the needs of the residents but with new hotels cropping up frequently, it is not hard to see where the loyalty of the authorities lie.
The law in New York is different again, and it’s even more complicated. It varies from building to building, banning rentals of less than 30 days in Class A buildings, which are multi-unit developments. All rent controlled and rent stabilized apartments are out, too. You can check the eligibility of your building on their website:
According to the Attorney General of the state of New York, as of 2014, 72% of available rentals violated the laws.
What the examples show here is that regulation is being formed by various motives:
- There is the desire to protect tourists and guests from low quality or unsafe properties
- To collect the rightful taxes
- Protect the customer base of the powerful hotel industry
- Ensure there is available and affordable housing for long-term residents
To choose just one of these end goals would be easy to regulate for, but to ensure standards and enforce taxation you have to allow rentals, meaning the hotel industry is angry and local residents may complain about being squeezed out by rising rents. To prohibit means to effectively create a new criminal industry that has no enforceable standards or safety and no collectable tax base, bar the amount in fines that authorities are able to collect from prosecuted offenders. There is not yet one solution that covers all four of these goals.
The tax from New York alone makes a powerful argument for permitting official, regulated vacation rentals in the city.
The vacation rental industry provides a service that immensely popular with the consumer, has a real economic impact in terms of taxes collected and on a smaller scale for the hosts that are able to earn an income. With regulation, governments have a difficult choice to make because there are real advantages for a lot of people in allowing short term rentals to continue.
This leads us onto the next point, the people that WANT regulation.
Why Hotels Want Regulation
"We are not against competition per se, just distorted competition," says Alexandre Loisnard-Goyeau of the hoteliers' union Synhorcat. "The distortion comes because on our side we have all the taxes and the legal obligations concerning security and access for the disabled and so on. And the flat-owners have none of it."
Hotel companies are some of the biggest advocates of regulation for vacation rentals. They see them as having an unfair advantage over the same customers in an uneven marketplace. And it is true that there far more restrictions for the owner of hotels. They must have fire safety, disabled access and face regular inspections. Hotels cannot even choose the guests they allow, they must provide shelter to any guest if they have it to offer.
Having to adhere to these regulations is an expensive business and is undoubtedly why hotel accommodation is frequently more expensive than comparable vacation rental properties. Where regulation is split is, whether to attempt to ban, or attempt to make vacation rental properties adhere to the same standards as hotels.
Success Stories and Examples
So what can you say? How can you defend the interests of property managers that extend past the profits of your own business? If you’re going to have a voice in the debate regarding the regulation of vacation rentals then you need to come correct and have information that can refute the concerns of the people trying to legislate the industry out of existence.
There is nothing more persuasive than facts and proven figures. To quote from the HomeAway study into the economic impact of UK vacation rentals:
The holiday rental sector plays a growing role in the UK’s wider tourism economy...Owners of holiday rental properties in the UK received gross income of around £950 million in 2014 and spent about half that amount on expenses related to the property—including £120 million employing staff, creating about 6,000 jobs. They paid approximately £100 million in tax on their holiday-rental businesses.
This is a dramatic boost to local and national economies.
As well as cold, hard figures there are human stories to consider too. Airbnbnyc.com has taken the step to collect real stories from people that have benefited from becoming property managers, even at a small scale. It shows how people have managed to keep their homes, start their own businesses and contribute to the economic base of their city.
And, it is not just property managers and local governments that are benefiting - many city regulations are ignoring the voice of the consumer. With 23000 listings in London all finding sufficient demand to operate before it was even legal, the lack of regulation of vacation rental is not something that is putting of a large section of consumers. As a product, people enjoy being able to local neighbourhoods and avoid the tourist hotspots that many inner city hotels are confined to.
So, if we understand that allowing regulated vacation rentals has benefits for owners, provides more options for tourists and travellers and adds significantly to the local economy then we are just left with the issue of vacation rentals offering unfair competition to existing accommodation options. Something we have said before is that vacation rentals are not hotels. Whilst there may be some overlap between their target customers, they are different industries and can co-exist.
To use information from Airbnb’s study into their economic impact we see that the conflict in terms of customers and territory is not as large as one might think:
This report offers the idea that allowing short term rentals is not the same as simply taking guests from the rooms of existing hotels. It argues that it diffuses guests around new areas of the city, reducing the social impact of mass tourism in hotspots and more evenly distributing the economic advantages that come with it.
At this point, you may rightly say that this information is vague and it is in the interests of Airbnb to promote the information that shows them, and other short term rentals, in a positive light. So, for a more empirical approach we looked to The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry by Georgios Zervas,Davide Proserpio and John W. Byers of Boston University. This report studied data from Airbnb in Austin,Texas between 2008 and 2014, it then compared this with statistics from 4000 hotels in the area, dating back to as early as 2003.
What they discovered in Texas was that for every 10% growth in short term rentals resulted in a 0.35% reduction in hotel revenue.
So, there is an impact. It does affect the hotels in a negative way. But, a 0.35% reduction in revenue, not net profits, revenue - is just not that much. It shows that the overlap between the customers of hotels and short term rentals is not as great as you might imagine. The vacation rental industry could expand and plateau in Texas whilst only contributing to a single-figure drop in hotel revenue. If this was any other industry, would we be as concerned about the effect a new and effective business model was having? When email scythed through the business model of the post office, did it stop anyone? Because the positives were so clear, we continued and simply told the post office to diversify.
Now we have more facts and information about the regulation of short term rentals - what can you do with this? Can you make anyone change their minds? Well, we think you can:
What VR Managers Can Do to Change the Law
One of the first steps that property managers need to take is to separate themselves from the general idea of homesharing, or as landlords. They needs to be seen as a professional group that offers a valued, worthwhile and popular service. As HomeAway’s response in San Francisco showed, there is a sense of frustration amongst property managers in regard to being viewed as homesharers that all operate under the familiar Airbnb-style business model. The state of New York Attorney General’ report into short term rentals in the city was even called ‘Airbnb in the City’.
Contact your Representative
They are here to serve you. Contact your MP, your counsellor, your congress representative and make your voice heard. The opponents to the vacation rental industry already have their ear so you need to make your side heard.
This is an example of the New York campaign to ease vacation rental regulation. Another petition by the group Peers to legalise short term rentals in New York has over 234 000 signatures. Numbers like these cannot be ignored by the decision makers.
Form Lobby groups
Demonstrate that you are not alone. Collect other professional hosts and challenge what you think is wrong about VR regulation. A group in Venice Beach managed to overturn potential regulation by doing exactly this. This is a tangible result from a group of business owners and concerned individuals. At times, you may feel powerless against the immoveable, slow machine that brings in regulation but there are property managers that have managed to have a real influence, even in the notoriously strict boroughs of Los Angeles.
Write to the media
Nothing can cause change faster than negative press. If you can add weight to the voice of vacation rentals having a positive impact in your community then people will want to hear. It is a divisive topic that the media have taken a great interest in, but they will not contact you. You will have to reach out first in order to add your story to the debate.
This process will be slow and may not ever get you the results you want. Even the litigious might of HomeAway was swept aside when appealing the San Francisco ruling. But, it can be a start. Voicing opposition is the first step to affecting the changes that are set to shape the industry in the upcoming years.
What’s clear is that most major cities and tourist destinations are going to bring in regulation and it is not likely to favor professional property managers. The most common form of regulation we found is a limited amount of home sharing being permitted, providing it is the owner’s primary residence and it is not for longer than 90 days of the year. This favors part-time renters, using the ‘Airbnb Model’ of short term rentals.
Regulation can have the effect of forcing hosts underground, continuing to operate whilst trying to avoid the fines and punishments from the city authority. Also, some managers will always continue to circumvent the restrictions as the laws have been found to be difficult to enforce and the punishment for breaking them varying hugely. This means that some form of acceptance and regulation is going to help create serious, professional hosts that run their business full time, contribute taxes and maintain high standards of quality. The current system where anyone can decide to rent property when they feel like it breeds inconsistency and lower overall standards.
In order to get results that vacation rental manages want, property managers need to make themselves heard. They need to show that their businesses do not offer substandard or inconsistent flop houses, designed to turn a black market profit. They are legitimate businesses that are providing tourists and other travellers with a real alternative to expensive monopoly of inner-city hotel accommodation.
We think that city authorities cannot ignore the benefits that the vacation rental industry can bring to their cities in tax, tourist income and more financially stable residents.
To be fair and effective regulation is going to have to:
1: Address Standards - Ensure all properties adhere to certain standards of habitability
2: Address Safety - Fire safety and evacuation processes
3: Punish offenders of regulation - Remove the right to host for repeat offenders
4: Control the distribution of tourism - Identify areas where residents are negatively impacted and reduce the amount of available properties. Have more properties available in areas undergoing regeneration
Currently, major city regulation is not doing this. The laws regarding vacation rental restrictions only cover a small part of the industry and cannot yet claim to understand the true impact, positive or otherwise, of legal but controlled short term rentals. If you are concerned about regulation in your area, become active and add to the information being distributed.
What existing regulation has not accounted for is that professional hosts are regulated by the consumer. As the industry grew in such a hothoused environment, professional hosts were forced to apply high quality standards and safety precautions in order to ensure repeat business from customers with a lot of choice. The vacation rental industry may have inconsistencies and varying standards but professional hosts want to be given the opportunity to demonstrate that theirs is a quality service that is much sought after. Hosts do not fear that regulation will show up poor standards, they fear that authorities will do too much to maintain the status quo of the travel industry and stifle one of the most exciting travel prospects in decades.