REPORT FROM THE U.S.—Santa Monica, California’s rallying cry against short-term rentals? Companies that engage in such activities are striking a blow against affordable housing.
Santa Monica, California’s City Council on 12 May unanimously voted to ban short-term rentals of fewer than 30 days when the owner is not present and to continue its outright ban on vacation rentals. The ruling effectively hamstrings sharing-economy companies such as HomeAway and Airbnb. The rationale behind the move: Sharing-economy companies take too big a bite out of affordable housing options in the city.
The move might represent another way for municipalities and the hotel industry to win back share from the sharing economy. The hotel industry has been feeling an impact from the space and calling for a level playing field when it comes to such issues as taxes, and now concerns over sharing-economy companies putting the squeeze on affordable housing has come to the fore.
Carl Shepherd, co-founder and chief strategy and development officer at HomeAway, said he doesn’t buy the housing argument.
“There are many reasons why that’s a red herring,” Shepherd said of the tactic used by Santa Monica. “The amount of properties offered by short-term rental companies in any one market is an infinitesimally small number of the total housing units. That’s because the people are doing something with properties they already own and are already using full time. It’s not going to come back on the market.”
Shepherd also pointed to the average home price in Santa Monica being well north of $1 million. “Citing affordable housing is a very broad umbrella,” he said.
Officials within Santa Monica’s development department did not respond prior to press time. On its website, the city said the law will become effective by 15 June.
Cities call time-out
Beau Benton, president of LBA Properties, said he expects to see more cities enact at least a temporary ban on short-term rentals. Companies such as Airbnb and HomeAway have grown so quickly that the cities likely will use the tactic to buy some time to figure out how to handle the growing trend.
Supporting this thought: Laguna Beach, California’s City Council last week enacted a 45-day moratorium on new short-term rentals.
“You’ve got a little bit of that knee-jerk reaction,” Benton said. “Let’s stop it, and then we’ll figure out how to control it and bring it back more slowly under some guidelines that look a little bit more like the hotel industry.
“In a destination community like Santa Monica,” he added, “it can explode so quickly you have to shut it down.”
That is not a good strategy, Shepherd said.
“Our first reaction is that across the country and across the world, we have seen bans on vacation rentals be a completely ineffective way of regulating rentals,” he said.
Shepherd said sooner or later, municipalities are going to have to come to terms with the fact that short-rentals are a permanent fixture in the communities.
“It’s important to local economies,” he said. “And if they’re not regulated properly and fairly, you will be driving them further and further underground making it more difficult for cities to profit.”
Grace Yang, a shareholder at Tampa, Florida, law firm GrayRobinson, has seen her fair share of the fight by cities against the sharing economy. She said that where she lives in Florida, the beach cities also are trying to crack down.
“It’s been a problem for a while,” she said. “Enforcement is very hard.”
Yang said she is unsure how much headway cities might make against the sharing economy using the affordable housing argument. The sharing economy, in her opinion, is here to stay.
“I’m just not optimistic,” she said. “I think it’s an uphill battle for the cities to have to enforce this.”
Regulation
Shepherd said HomeAway typically does not engage with city officials over how the company’s actions should be regulated.
“We don’t own the supply; we don’t manage the supply,” he said. “We are the marketplace where supply meets demand.”
Shepherd said he understands some regulation might be needed to prevent abuse of short-term rentals. As an example, he mentioned someone converting a 60-unit apartment building into a full-time hotel as something that should be looked at closely by city officials.
Yang said cities are going to have to pour a lot of additional money into enforcement if regulation is going to become a realistic option because new renters are coming online each week.
“The big challenge is enforcement,” she said. “How do you discover who all of these property owners are who are renting out their properties on a short-term basis?”