The Home-Sharing Economy

by Manatt, Phelps & Phillips, LLP

Long before Airbnb, short-term home rental platforms, such as VRBO and Vacation Home Rentals, connected individuals looking for hotel alternatives. Recently, however, the notion of short-term home rentals has become a polarizing topic.

Voters in San Francisco, home to the Airbnb headquarters, have rejected a highly controversial proposition (Prop F) aimed at regulating short-term home rentals. Prop F would have required individual hosts and platforms to submit quarterly reports to the city, limited the number of nights a short-term rental could be let to 75 days a year, and allowed an interested person (i.e., a permanent resident living 100 feet from the short-term rental) to bring a private right of action for perceived violations.

San Francisco voters may have rejected Prop F, but the debate and attempt to further regulate short-term rentals will continue to evolve. Moreover, this debate is not unique to San Francisco. Jurisdictions around the nation are also struggling to grapple with the recent surge in popularity for short-term home rentals. Some cities have addressed the concerns with an outright ban, while others have imposed regulations that levy transient occupancy taxes (TOT) and/or mandate onerous permitting requirements.

Regulation of short-term rentals by local jurisdictions is certainly not new, but due to the quickly evolving and increased popularity of home-sharing platforms like Airbnb, cities are now finding themselves behind the curve—governing in a more reactive than proactive manner. Prop F is an instructive example.

If it had passed, Prop F would have created a private mechanism for neighbors to enforce perceived violations of local short-term-rental use restrictions. However, what became increasingly clear in the political and bitter "war" in San Francisco is that creating a private right of action to control or mitigate the alleged negative impacts of short-term rentals would not bridge the discontent between those for and those opposed to the home-sharing economy.

Supporters of increased regulation believe the surge of unregulated short-term rentals has taken much-needed housing off the market and increased impacts to local neighborhoods, ranging from more traffic and noise to parking shortages and other public safety issues. Opponents of increased regulation argue that the elimination or curbing of growth of sites like Airbnb will not solve a jurisdiction's housing issues; the shortage of housing is not something caused by the home-sharing economy, but rather something Airbnb simply helped highlight; and the positive effects, such as the economic benefits to the local businesses, are often ignored.

As jurisdictions continue to search for means to adapt to a world where home sharing seems to be the new norm, potential solutions at the local municipal levels include (i) rezoning neighborhoods to restrict and/or isolate short-term rentals to limited neighborhoods that often border commercial or industrial areas; and (ii) requiring licenses and/or permits to help track short-term rentals, to collect the corresponding TOT, and to recoup a portion of the administrative costs associated with enforcing violations of short-term-rental ordinances.

Ultimately, there is not a one-size-fits-all approach. Every community will have unique demands and different concerns that will have to be addressed. For example, jurisdictions near the beach that benefit greatly from tourism may not want to prohibit short-term rentals completely. In contrast, other jurisdictions may seek to pass zoning restrictions designed to preserve the character of neighborhoods that were planned and zoned as single-family residential in an effort to mitigate higher volumes of traffic.

Regardless of which regulatory structure is implemented, what is clear is that the home-sharing culture is here to stay. Municipalities must learn to adapt and devote more resources to integrating home sharing into their planning and enforcement departments while at the same time being proactive in the consideration of the goals of all applicable stakeholders, including residents, host platform companies, and local businesses. Equally as important, real estate developers, investors and owners must work closely with their professional advisors to fully vet and understand the risks and opportunities with existing and proposed home-sharing regulation. As the fight continues to rage in the courts and at the ballot box, the solution will almost certainly be somewhere in the middle.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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