The traditional short-term rental market boomed in demand and supply even during the pandemic. However, the urban market has been stifled. Those years have only further fueled the interest of travelers to create memories across the globe. As the lockdown ended, revenge tourism took the front seat. People had to get out of their houses to breathe fresh air!
The first sign of the urban short-term rental industry’s recovery has been the increased travel rate in April 2022, which increased by over 3% for the first time since the pandemic. However, in traditional vacation rental markets, demand skyrocketed as early as the summer of 2020. It is also important to note that short-term rentals had sustainable recovery (and growth) in the post-pandemic world, whereas the demand for hotels decreased by 16% compared to pre-pandemic levels. The global vacation rental market is also forecasted to reach $107.14 billion by 2028 from USD 82.63 billion in 2022.
As the short-term rental industry grows, the benefits and problems of hosting one have also become more apparent. The market has been accused of negatively impacting the local ethos with loud parties and jacking up housing prices. The increased housing prices, zoning restrictions, and rising inflation have not helped locals buy a house.
Along with the struggle to buy properties, locals have had to also worry about tourists disrupting their daily life. They have been organizing random noisy parties, maybe even trashing localities. Short-term rental hosts have also been named for not paying taxes properly. Local authorities have been able to justify short-term rental restrictions.
Regulations are complex. They are applied at the municipal level, neighborhood level, regional level, state level, and even the European Union level. It might be very difficult to cover all the bases within the scope of a single article. However, we’re going to take a dig at it today. Read along to get a fair understanding of what short-term rental regulations are.
What is widely legally considered a short-term rental?
Before we dive into the regulations, we need to understand how municipalities have defined short-term rentals. Though there are various definitions, short-term rentals can be defined as a rental of any residential unit or accessory building for a short period of time. This generally includes stays of less than a month (30 days), but the maximum length can vary depending on the state and jurisdiction where the rental is located.
Short-term rentals are also known as transient rentals, vacation rentals, and/or resort dwelling units or rentals. A short-term rental’s (as would be referred to in this article) definition depends on the location, agency, and/or organization that your property is associated with.
Most municipalities categorize short-term rentals into three major categories:
- Primary Hosted Short-Term Rentals – These short-term rentals must be the host’s primary residence, i.e., the host must stay at the property along with the guest.
- Primary Unhosted Short-Term Rentals – These rentals must be registered as the host’s primary residence. However, the host is not obligated to stay at the property with the guest.
- Non-primary Short-Term Rentals – These types of rentals are the most common. The property need not be the primary residence of the host. The host is free to rent out their second homes and other properties for commercial purposes.
Relationship between short-term rentals and locals
We need to understand the intrinsic value of a short-term rental to a neighborhood.
- Short-term rentals provide authentic local experiences to tourists in places that usually do not cater to them. They would be able to immerse themselves in the local culture.
- Short-term rentals provide additional income to people living in such ‘urban tourism’ destinations.
- Short-term rentals are an ecological alternative to hotels. These accommodations consume less energy & resource and produce less waste.
- Short-term rentals promote neighborhood suburbanization by promoting local businesses and the local economy.
The image below symbolizes the symbiotic relationship between hosts, guests, and the resulting economy. Hosts and guests always conflict with the neighbors while contributing to the local economy.
Researchers of the residential real estate market have theorized that tourists can displace local residents, as property owners seeking a profit can turn housing stock into short-term rentals. A report suggested that a 1% increase in short-term rentals resulted in a 0.018% increase in rent and a 0.026%increase in home prices in the neighborhood.
The general suburbanization of properties has fueled the growth of smaller, rural markets. Tighter Covid restrictions in larger, urban cities and the widespread remote working policies have made many tourists turn to rural areas, where hosts earned more than $3.5 billion in 2021 than in 2020. Investors followed this trend and began to purchase real estate in rural areas.
The conspicuous lack of affordable housing worldwide has called for public policies. Governments are trying to ensure people’s ‘right to housing’ where the short-term rental industry is booming. Municipalities have placed the requirement of a license for annual fees, limited short-term rental operational days, specification of properties allowed to host STRs, special taxation, and sometimes outright bans. These are being employed to ensure equality in the real estate market.
Regulations on short-term rentals
Researchers have studied various American and European cities to understand the patterns in the regulations being applied to short-term rentals. They have categorized them into 3 broad categories:
- Full prohibition
- Limitations on specific channel managers
Laissez-faire is hardly considered any form of regulation as it creates no concrete measures to regulate or curb the adverse effects of short-term rentals. Prohibition implies the total banning of short-term rentals. It is important to remember that most of these regulations or bans are intertwined with the other category – Limitations.
There are three types of limitations:
- Quantitative restrictions – limiting the amount of STR accommodation, amount of allowed visitors, and the number of times a vacation rental home can be rented out per year.
- Locational restrictions – confining short-term rentals to specific locations according to residential real estate zoning.
- Qualitative restrictions – restrict short-term rentals to specific types of accommodations (for example, an apartment versus a cabin).
While cities don’t usually embrace any one strategy, they usually apply a mixture of strategies. To understand short-term rental restrictions in your area, you can review Airbnb’s responsible hosting pages. However, you must consult official city pages or contact your local authorities for further accurate information.
Worldwide short-term rental restrictions, regulations, and permits
There are a few restrictions and regulations that might help hosts. When used properly, they can help make hosting more secure for hosts.
Nashville has set up a 24-hour hotline to ensure they hold hosts and guests accountable. This is aimed at preventing illegal parties and disturbance to neighbors. The city has also set up noise level restrictions. Chicago has banned one-day stays to prevent parties.
Even though local governments would be missing out on the economic benefits of short-term rentals, few have deemed it right to ban short-term rentals altogether.
In Singapore, all stays on private property for less than three consecutive months are illegal. Unless planning permission is obtained, Londoners are restricted to renting their property short-term for a maximum of 90 nights in a calendar year. Airbnb automatically blocks the calendars of properties in London after the 90-day mark.
San Francisco also caps short-term rentals at 90 days when the host does not reside at the property. Barcelona has a more strict restriction with a 31-day maximum while the host is present 24/7 at the property. Only primary-hosted short-term rentals in LA are allowed for 120 days a year. Paris has a similar restriction.
Mallorca in Spain bans short-term rentals in apartment buildings only. Charleston, SC, and Santa Monica, CA, have marked all rentals for under 30 days illegal. Hosts can rent individual rooms on a short-term basis if they are present at the property at all times. New York City and Toronto have deemed listing an entire apartment for less than 30 days illegal. Hosts can be fined up to $7500 if found to violate the law.
Each government has a different policy surrounding short-term rental restrictions in its locality. From noise to trash regulations, few governments have decided to go lenient on the industry that helps hosts and guests with mutual trust.
Another essential facet of short-term rental regulations is the permit system. Almost all municipalities require hosts to be registered with the local authorities. Some provide free authentication, while others put a charge on it. For example, in LA, it costs about $89 to $1000, depending on the rooms on your property.
Europe, North America, South America, EMEA nations, and APAC nations have their own short-term rental restrictions. Countries in Europe have to follow their own restrictions and the European Union’s restrictions. Each of the 50 states in the United States of America has its own form of restrictions. Understanding your locality’s short-term rental restrictions and regulations is important before investing in an Airbnb property.
Short-term rental restrictions on online travel agencies
Airbnb has not long enforced any short-term rental restrictions or short-term rental regulations on its hosts. They had put their foot down and banned parties from their platform. It is now illegal to book stays for parties through Airbnb. Vrbo has also joined the revolution. If you’re under 25, you wouldn’t be able to book properties without a list of positive reviews. Booking.com has also enforced restrictions such as displaying the license number of the property if the law makes it mandatory.
The platform is making small but steady steps in the direction of regulating the bookings they receive. The online travel agency has also agreed to provide government data to formulate appropriate short-term restrictions. European Union and the European Cities Alliance are pushing for more data transparency from online travel agencies.
Long-term and mid-term rental preference
When you analyze the various regulations, you realize that authorities are bending towards long-term and mid-term rentals in their locality. After all, regulations are being applied to solve the global housing crisis (as authorities state).
How does this help?
- Many people have been forced out of their residential accommodations due to sheer unaffordability. Providing more affordable homes for them through long-term or mid-term rentals helps keep a roof over people’s heads.
- This also reduces the burden of house ownership on the already overburdened millennials. It is becoming tougher to own a house in the current market. The residential real estate market has been steadily increasing in price while the median income of workers has not increased in at least a decade.
- When entering a long-term or a mid-term rental, the guest would be asked to sign a rental agreement. This rental agreement is not necessary or even the bare minimum regarding short-term rentals. It becomes easier for illegal activities to go untracked. A rental agreement would help the host maintain neighborhood ethos and protect themselves from liability.
Hosting amidst regulations on short-term rentals
The area you rent your property in might has a combination of short-term rental regulations and short-term rental restrictions for hosts to follow. There might be stringent rules or lenient rules. Remember, the lesser your negative impact on your neighborhood, the less likely you will be affected. There are various Airbnb hosting tips and tricks that you can follow to provide a good hosting experience amidst short-term rental restrictions.
Hosting Tips Amidst Short-Term Rental Restrictions
- Research the local laws and regulations. You must be aware of the local short-term rental regulations to protect you from liabilities. Research online and talk to local authorities to understand the nitty-gritty of the law.
- Communicate with both your guests and the neighbors. Make it clear to your guests about the various short-term rental regulations that might be in place in your locality. They must be aware of it for it to be appropriately implemented. At the same time, make sure the people in your neighborhood know the type of property you are maintaining. They should be aware of the rental so they can help you maintain the laws of the neighborhood.
- Screen your guests. When you are in a locality where vacation rental properties undergo various short-term rental restrictions, you should screen your guests appropriately. You should be able to identify a squatter, a person booking your property for illegal activities, etc. Thoroughly check their identities, and ask for security and identity proof.
- Appropriately market your property. While talking about your property anywhere on social media or in the digital world, remember to mention the limits of your locality’s restrictions. If you end up promising more than you can provide through vacation rental marketing, you might receive bad reviews, negatively impacting your property’s performance.
- Provide an excellent experience to your guests. While following these numerous restrictions, it is easy to forget to provide an exceptional experience to your guests. Follow the various hosting tips you can find on the internet, or connect with other hosts in the various forums on social media or in person at the various vacation rental events.
Before investing in an Airbnb property, hosts need to analyze everything! Various restrictions envelop short-term rentals, from COVID to real-estate restrictions. Every host needs to take their time to read through the law or consult with someone who understands real estate law.
Once you’ve done due research about restrictions and regulations about the properties you’re looking to invest in, you can use PriceLabs’ Market Dashboard’s market data to help pinpoint the types of properties that would be profitable for you to invest in. You can use the dashboard to judge which listings are a good investment. Market dashboards are fully automated personalized dashboards that help you track vacation rental data anywhere in the world. You would also be able to analyze the market trends for short-term and mid-term rentals.
It is essential to analyze and research your competitors because only then would you be able to understand the things being provided to your potential guests. When you know what you have to compete against, you can also make strategic decisions on what you can provide. This goes from pricing to the marketing campaigns you might want to carry out.