REPORT FROM THE U.S.—The sharing economy continues to make headlines as cities introduce legislation in attempts to regulate the space.
San Francisco Mayor Ed Lee in late October signed into law legislation to legalize and tax short-term rentals in the city, according to The San Francisco Examiner. The law, which will take effect in February, stipulates several regulations of short-term rentals of less than 30 days, including:
- Only permanent residents can offer short-term rentals.
- A new city registry for hosts will be established.
- The 14.5% hotel tax must be paid on the rentals.
- Entire home rentals are limited to 90 days per year.
- Each listing is required to carry $500,000 in liability insurance.
- Guidelines for enforcement are established by the city’s Planning Department.
Reaction to the legislation has been mixed across different groups.
Kevin Carroll, executive director of the Hotel Council of San Francisco, said the city’s legislation is a step in the right direction.
“We as a hotel industry wanted to make sure that there was equal taxation,” Carroll said. “So the biggest effect for the hotels is now that there is a regulation in place it allows for an easier collection of all the hotel taxes.”
Airbnb has largely praised the legislation. “This balanced and sensible legislation will help San Franciscans share their homes and the city they love and earn a little extra money to pay the bills. We look forward to working with everyone to make this city an even better place to visit and call home,” according to a company statement. Further requests for comment from the company were declined.
HomeAway, whose business model thrives on vacation rentals of second homes, has challenged the San Francisco legislation by suing the city.
"In a community known for promoting equality and an entrepreneurial spirit, it is shocking the supervisors passed a law that, in our opinion, stifles opportunity in such a discriminatory manner,” Carl Shepherd, co-founder of HomeAway, said in a statement.
Rick Swig of San Francisco-based hotel advisory RSBA & Associates said other cities will follow suit with similar legislation, but they will pay attention to the holes in the San Francisco law.
“The city legislators rushed it through. Other cities, when they see the rush-through, when they see where the holes are, they will close the holes when passing their legislation,” he said.
Legislation has been on the books in New York since 2010, as part of the state’s multiple dwelling law. The law prohibits rentals of 30 days or less with class A multiple dwellings, such as apartments, co-ops or condos, unless a permanent resident is present during the rental period. Part of the law’s intention was to address illegal hotels in New York, according to Austin Shafran, representative for the Share Better coalition. The group comprises more than 100 elected officials, housing advocates and members of the hotel industry who are part of a campaign against illegal hotels and Airbnb in New York City.
Shafran said the San Francisco legislation is “clearly a step in the wrong direction.”
“New York has a strong foundation of a law that prevents the kind of illegal activity that Airbnb is trying to get legitimized. So we want to see that law enforced, strengthened where necessary and make sure that illegal hotel operators are held accountable so they can’t continue to blatantly violate the law,” he said.
New York Attorney General Eric T. Schneiderman released a report in mid-October that showed approximately 72% of private short-term rentals booked on Airbnb in New York City violated the law. These rentals, from 20,835 hosts in 25,532 units, generated $304 million in revenue.
Portland, Oregon, requires hosts to have “accessory short-term rental permits,” which also requires an inspection from the Bureau of Development Services to ensure the rooms meet building code requirements, have a smoke detector and are located on a floor that has a functioning carbon-monoxide alarm. Hosts must also pay the occupancy tax that hotel operators pay.
On Monday, the Chicago City Council Finance Committee approved an ordinance to make it possible for home-sharing platforms to collect and remit the 4.5% hotel tax on behalf of hosts and guests in the city. The ordinance will move to the full Chicago City Council later this month. Chicago already has legislation on the books since 2011 that requires a vacation rental license.
Bashar Wali, president of Portland, Oregon-based Provenance Hotels, said Victoria, British Columbia, Canada, is also talking about collecting hotel taxes on short-term rentals.
A level playing field?
With cities paying more attention to the collection of hotel taxes from short-term rentals, many wonder whether the playing field is beginning to level for the sharing economy and hotels.
Swig said the field hasn’t leveled.
“It’s the same business; it’s just (hoteliers) haven’t recognized they are in the same business. It’s too early in the game,” Swig said. “Has the short-term transient lodging alternatives had impact on the hotel segment? Yes. Has the hotel segment recognized that impact? No.”
He said the hotel industry has been “spoiled” because it has the ability to see its day-to-day pulse thanks to data from STR (parent company of Hotel News Now), whereas the alternative-accommodations segment can’t take its own pulse from similar data.
Provenance’s Wali said that, generally, hoteliers are not paying enough attention to the sharing-economy issue, often discounting it as noise.
He said there are two camps of hoteliers: those who embrace the sharing economy and recognize it as the future and those who are totally against it.
Wali said that as the sharing economy grows, it will become more of an issue in terms of hotel competition and will become meaningfully visible to the industry.
“The sharing economy, because of millennials, is the way of the future,” he said. “… Consumers want it, and they will speak with their wallets.”
“Will this alternative lodging go away? No,” Swig said. “It’s here to stay. Now it’s legitimized. It’s whether the cities can legislate and normalize it.”