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Podcast Episode #303
Real Estate Investing News

Short-Term Rental Debate Heats Up

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Learn > [REN #303] Short-Term Rental Debate Heats Up

Published: July 12th, 2017

The short-term rental debate is heating up everywhere! Cities across the U.S. are adopting regulations in response to community feedback and other concerns. In the middle of this tug of war are property owners who say they are being unfairly impacted by rules that infringe on their property rights.

Like any good argument, there are always at least two sides to consider. In the case of short-term rentals, there are the pros and cons plus the impact of any restrictions.

People’s primary complaints about short-term rentals are typically associated with increased activity, noise, and traffic. Some people complain about safety issues. You also have the housing shortage issue and concerns that short-term rentals remove badly needed units from the long-term rental supply. And then there’s the voice of the hotel industry which argues against what it calls an unregulated business model that unfairly cuts into their bottom line.

On the other side of that coin, short-term rentals increase tourism by offering a wider variety of accommodations that are often less expensive than the local hotels for travelers on a budget. They are can also be more interesting for people looking for something different than the cookie-cutter hotel room. Short-term rentals also increase tax revenue for the city or municipality where they are located, and they bring additional tourist dollars to that community. For property owners, they can provide a source of income, and for many they help defray the cost of a primary residence, or secondary “vacation” home.

People who have invested in short-term rental properties say the rules infringe on their property rights, and diminish the value of their properties and can destroy an already established business, causing financial hardship for the owners. They also say that regulations can reduce the number of potential home buyers who can only afford to buy a first or second home if that home can also generate an income.

Cities Adopting Restrictive Rules

The nation is becoming divided on these issues, some residents don’t want strangers in their neighborhoods, while others like the idea of hosting people from other parts of the country and around the world. Many cities are trying to strike a balance, but for property owners, it may not feel like a balanced approach when a source of income is suddenly, and unexpectedly, curtailed.

Los Angeles is in the middle of a big debate over a proposal that would set a 180-day limit per year on the number of nights a host could rent a room. It would also limit short-term rentals to a primary residence which means that hosts must live there, and could “not” own additional properties for the sole purpose of short-term rentals.

LA city officials got an earful the other night. Hundreds of people turned out for a hearing, both for and against the proposal. There were stories of people who were able to pay their mortgage only because they rented rooms in their homes. Some said they avoided foreclosure during the downturn because of short-term rentals. Many said they also provide lodging for travelers who cannot otherwise afford a pricey Los Angeles hotel room.

The Los Angeles Daily News cited one woman who said: “With all due respect, please do not make hasty restrictions that will adversely affect thousands of constituents and divert millions of dollars out of South Central Los Angeles’ community, but rather take time to decide how to work with Airbnb to make changes on the platform.” She also told city officials they shouldn’t compare short-term rentals with two small rooms for rent with massive hotels.

A site that promotes rules for short-term rentals calls itself “Fairbnb”. Many people in the hotel industry identify with the group. Hospitality employees claim that short-term rentals put their jobs at risk, and are arguing in L.A. for a lower cap of just 90 days a year.

The rules vary greatly from city to city. In Malibu, where short-term rental rules are still being discussed, the city manager is recommending a complete vacation rental ban except during the summertime and winter holidays from around Thanksgiving into January. As reported by the Malibu Times, city officials say it would be very difficult to regulate a cap on nightly rentals so they would prefer a seasonal approach. They say many residents are also traveling during the summer months and winter holidays, so they are not using their homes. The penalty they are considering for violators is a stiff fine of $1,000 a day.

In Vancouver, Canada, the city is considering rules that would allow Airbnb-type rentals but hosts would need a license. They would also be limited to a primary residence. City officials are estimating that about 1,000 short-term rental units that are “not” primary residences would be returned to the long-term rental supply.

While some cities have various limits on short term rentals, others have banned them altogether. The Ventura County city of Ojai is one of them.

Ojai began enforcing its short-term rental ban in the middle of last year. Some residents had complained of vacation “party houses”. They said the increased activity and noise made them feel like they lived in the middle of a commercial district and not a family-friendly neighborhood.

The Ventura County Star reports that the city identified 62 potential short-term rentals last November, that were apparently defying the ban, and has shut down almost all of them. There are reports that short-term rentals are still operating at a low-profile within the city. The Star reports that in January, there may have been more than 300 of them. Some hosts apparently get around the rules by advertising their rentals for more than 30 days but renting them for less, or they list their rental with a property manager who doesn’t use the typical short-term rental websites.

Some property owners say the ban has them caused great hardship as they depend on the extra income to pay their bills. The Ojai Music Festival also draws a lot of out-of-town visitors during the summer, and organizers are worried that visitors, musicians, and staff members won’t find the accommodations they need.

Property Owners Fight Back with Lawsuits

Some property owners are fighting back with lawsuits including a group of property owners in San Diego County. They own property in the city of Del Mar and filed a lawsuit on June 1st, alleging that the city’s ban on short-term rentals is blocking the public’s access to the beach.

The city adopted a ban in April that limits short-term rentals to residential/commercial mixed use areas. The ban made many long-standing rentals illegal as it retroactively prohibits short-term rentals that were established decades ago. The owners vowed to sue. They call themselves the “Del Mar Alliance for the Preservation of Beach Access and Village” and argue that the ban violates the California Environmental Quality Act and the California Coast Act. They claim that the ban robs them of their property rights without giving prior notice or acknowledging their due-process right.

Airbnb is also fighting back against the hotel lobby by accusing them of “price gouging” and “flip-flopping” on policy stance. Airbnb’s head of Global Policy and Public Affairs, Christopher Lahane, sent a letter recently to the American Hotel and Lodging Association, saying the hotel industry has a long history of charging exorbitant rates when customers are looking for a place to stay during big events and holidays. He also accused the Association of changing its position — at first supporting the occasional renting out of a room or home and then later amending it to say the homeowner should always be present during the guest’s stay. Lahane asked if the organization believes that “middle-class people should have the right to share their home when they leave town for work or vacation” and whether hotels that own short-term rentals should be subject to the same rules.

Wherever you are in this debate, it is something that is changing often and rapidly. If you are thinking of buying property as a short-term rental, investigate the city’s attitude, existing rules, and its potential for new regulations. Some cities that consider themselves a destination for tourists will have more lenient rules, but beware that the situation may also change without a whole lot of notice.

Short-term rentals may be struggling for relevance in some areas, but they are also part of the new “sharing economy” which is gaining momentum. The sharing concept is not going away anytime soon, but investors sinking money into short-term rentals could be impacted by people who don’t currently “share” this vision. Be sure to investigate your business plan fully, if you are getting into the short-term rental business.
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Kathy Fettke

Kathy Fettke

Kathy Fettke is the Co-Founder and Co-CEO of Real Wealth Network. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best-seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch.

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