Enforcing Short-Term Rental Regulations by Adam Manaa
Enforcing Short-Term Rental Regulations
by Adam Manaa
The growing popularity of short-term rentals has presented a host of new regulatory challenges to cities across the United States. Beyond the initial debate of determining whether regulating the practice of short-term rentals, typically defined as rentals of thirty days or less, will be beneficial to their communities, cities have struggled to establish effective enforcement mechanisms for these regulations.
In Michigan, HB-4722, a law restricting local governments’ abilities to limit short-term rentals, recently passed the House and is awaiting consideration from the Senate. 1 The arguments for and against the bill are part of what has become a familiar refrain echoing throughout city halls and state legislatures that have enacted similar regulations around the country. Opponents of short-term rentals decry the practice as an abasement of the character of their neighborhoods, while proponents proffer claims of increased economic activity and greater local tax revenues. But implicit in the latter claim is the notion that localities will be able to enforce these ordinances and collect the transient occupancy taxes that typically accompany them, an exercise that has proven to be far more challenging than anticipated for many cities.
Noncompliance with registration requirements is commonplace within cities that require operators of short-term rentals to obtain business licenses and/or permits. Fayetteville, Arkansas legalized short-term rentals in April of 2021, but even after a six-month “start-up” period that provided incentives for operators who applied for permits, only 240 applications were submitted for the estimated 500-600 short-term rental properties in the city. 2 Similar signals of noncompliance have come to pass in Dallas, Texas, where an estimated 60% of approximately 2,000 short-term rental properties are not registered with the city.3
Not only do these unregistered properties circumvent the occupancy taxes cities are entitled to levy upon them, but they create additional risks of nuisance and unsuitable living conditions. In Dallas, the city’s director of code compliance is seeking to address these concerns by advocating for a more formal regulatory structure of short-term rentals that will require property inspections and a designated agent to manage each property. In Honolulu, Hawaii, despite the abundance of complaints from local residents about rampant noncompliance with short-term rental regulations, there is no formal infrastructure for dealing with such complaints, and enforcement continues to be an issue. 4 To address these complaints, the city council is currently considering a proposal that would provide funding for a new team dedicated to enforcing short-term rental laws.5
As cities across the country continue to grapple with the growing presence of short-term rentals, they would do well to remember that enacting regulations without a proper enforcement apparatus provides little upside regarding increased tax revenues, while providing all of the downside of compromising the character of local neighborhoods. Although a successful enforcement model has yet to emerge, cities must be willing to allocate the necessary resources to enforce these regulations to make them worth the disadvantages they pose to local residents.
1 Carolyn Muyskens, Lakeshore townships oppose short-term rental bill, The Holland Sentinel (Nov. 9, 2021), https://www.hollandsentinel.com/story/news/politics/government/2021/11/10/lakeshore-townships-oppose-short-term-rental-bill/6351016001/.
2 Todd Gill, Fayetteville seeks to extend start-up period for short-term rental operators, Fayetteville Flyer (Nov. 8, 2021), https://www.fayettevilleflyer.com/2021/11/08/fayetteville-seeks-to-extend-start-up-period-for-short-term-rental-operators/.
3 Dallas Code Compliance Director Pushing For ‘Regulatory Structure’ Over Short-Term Rentals, CBS DFW (Nov. 8, 2021), https://dfw.cbslocal.com/2021/11/08/dallas-code-compliance-director-pushing-for-regulatory-structure-over-short-term-rentals/.
4 Eddie Dowd, City council considering bill to crackdown on short-term rentals in Honolulu, KITV Island News (Nov. 7, 2021), https://www.kitv.com/story/45136075/bill-aims-to-crackdown-on-oahu-short-term-rentals.