By Jordan Ferguson.
Municipalities from New York to San Francisco are cracking down on the vacation-rental industry.
Each city has approached the situation in a wildly different manner, but one factor remains the same: Restrictions on these hard-to-track rentals present serious enforcement challenges. It is a principal obstacle facing local governments as ordinances are implemented to rein in home-sharing websites like Airbnb, VRBO and HomeAway that connect vacation renters to homeowners and dodge the local taxes hotels are subject to paying.
The latest, and perhaps most stringent, regulations have come from the City of Santa Monica, where short-term rentals of less than 30 days were outright banned. The new regulations, which are more permissive only by comparison, remain rigorous.
A unanimous City Council vote reinforced the City’s longstanding distrust of vacation rentals — though previous rules were lightly enforced — but allowed property owners to rent spaces if they live on-site during the guests’ entire stay. This more permissive home-sharing usage comes with a caveat. Participating homeowners must obtain a business license and pay the City’s 14 percent transient occupancy tax.
The short-term vacation rental industry is growing exponentially, with an explosion of home-sharing creating housing shortages and providing stiff competition to the hotel industry. Since launching in 2008, Airbnb has amassed more than 1.2 million listings in 190 countries and, as of 2014, had overtaken major hotel chains Wyndham and Hyatt in terms of valuation. Regulatory frameworks may more tightly constrain that growth, as cities struggle to determine how home-sharing effects everything from tourism revenues to zoning regulations.
The Santa Monica ordinance took effect June 12. Though the law’s effectiveness is not yet known, the City has taken proactive steps to ensure its provisions are followed — in contrast to San Francisco’s recently enacted ordinance, which relies heavily on owner-mandated self-reporting.
In San Francisco, residents can rent out their homes as long as they reside in them for nine months out of the year and register with the City. However, that measure is only as strong as San Francisco’s ability to enforce it. Without a clear way to prove an owner’s presence for any stretch of the year, and without the funding and manpower to administer the law, San Francisco’s rules are incredibly difficult to enforce.
On the other hand, Santa Monica’s bold measure provides a solid framework for enforcing municipal code violations that, while expensive — it will cost around $410,000 annually — could be replicated if proven successful. The City has created an enforcement department with three full-time employees to patrol the City for homes listed on vacation-rental marketplaces to identify unlawful rentals and impose the new ordinance.
The regulations are tough, and with them Santa Monica’s staff estimates 80 percent of current vacation listings will be barred. According to a staff report, tourist-targeted units account for 1,400 to 1,700 rentals advertised on the three major rental websites. Santa Monica’s leaders hope some of those units will be returned to the general housing market for full-time renters.
This plan isn’t without challenges. Beyond mandating business licensure and transient occupancy tax collection, Santa Monica’s statute requires home-sharing platforms to disclose the name, address, length of stay and price for each short-term rental in the City—information Airbnb has been reticent to provide in the past. Planning officials in San Francisco are also exploring similar means to require Airbnb to share its booking data.
Release of that data would solve much of the enforcement issue. Without it, it’s impossible for cities to ensure all rentals are registered and local governments are left with no straightforward route for tracking violators.
Only after a back-and-forth subpoena battle with New York’s Attorney General Eric Schneiderman last May did Airbnb agree to release some host records. The request was part of an inquiry to verify if hosts were in compliance with local occupancy and tax laws. Airbnb stood firmly against the subpoena, which a New York Supreme Court judge eventually threw out for being overly broad.
Schneiderman’s office fired back a tailored subpoena to which Airbnb complied. The rental platform released anonymized records, free of host names, exact addresses and tax identification numbers. Airbnb also agreed to hand over identifying information for hosts the attorney general recognized as violators — primarily for the large illegal hotels or commercial users the inquiry sought to identify.
A four-year review of Airbnb’s New York City bookings, as a result of the subpoena, found 72 percent of unique rentals violated state and local laws. The report also found commercial users disproportionately dominated the transient-rental marketplace, where six percent of hosts, offering hundreds of unique units, accepted 36 percent of the short-term bookings.
Enforcement issues in California’s cities could be resolved if Airbnb agreed to share booking data with local agencies. Whether the platform is willing to share records of thousands of private users, most of whom are renting one or two units, is an open question. That lingering uncertainty leaves cities hoping to control online vacation rental marketplaces in an inefficient enforcement limbo.
There may be a resolution yet. A current measure in California aims to make it simpler for cities to collect taxes from homeowners. It’s the first major test at the State level for Airbnb, which has seen its share of local regulatory fights — most recently in Los Angeles. The bill, SB 593, championed by Sen. Mike McGuire, would require home-sharing platforms to regularly report booking information — like the number of guests and length of stay — to cities and counties. It would make the strong disclosure provisions in the Santa Monica ordinance the law of the land across California, allowing cities immediate access to the full scope of the short-term rental issue in their jurisdictions, and making enforcement of potential violations much simpler.
While the bill supports local enforcement issues, it brings up concerns over privacy protections hosts have come to expect from sharing-economy platforms. With its’ users personal information at stake, Airbnb isn’t likely to hand over these records without a fight.
Jordan E. A. Ferguson is an associate in the Los Angeles office of Best Best & Krieger where he provides legal services to cities, special districts and private clients across Southern California. As a member of the firm’s Municipal Law and Special Districts practice groups, Ferguson’s practice involves city attorney and general counsel services. He is well-versed in issues surrounding emerging technologies and the sharing economy, land use and planning laws, conflicts of interest, free speech regulations, privacy rights, sex offender regulations, the Brown Act, public safety regulations and elections law matters. He can be reached at Jordan.Ferguson@BBKLaw.com.