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Fine Balance Needed between Property Rights, Regulation of Short-term Rentals

By Press Release | May 14, 2016

WASHINGTON (May 13, 2016) – Mobile and online technology and evolving consumer tastes are changing the dynamics of renting property, and the debate on whether the regulatory response from state and local governments clashes with individual property rights will likely continue, according to speakers at a panel discussion on the current issues surrounding short-term rentals at the 2016 REALTORS® Legislative Meetings & Trade Expo.

The timely conversation on the increasing popularity of short-term rentals and whether or not they infringe upon property rights was debated by a panel consisting of prominent, but differing, voices in the industry. Providing their insights were Matt Kiessling, director of coalitions and grassroots for the Travel Technology Association; Craig Kalkut, vice president of government affairs at the American Hotel & Lodging Association; and Brian Blaesser, a partner at law firm Robinson & Cole LLP.

According to co-moderator Christopher McElroy, a Realtor® from Colorado and chair of NAR’s State & Local Issues Policy Committee, owning property comes with a “bundle of rights,” which includes the ability to rent an owned property to another individual. However, in recent years, advancing technology has expanded choices for consumer travel and changed rental market time frames from what was traditionally six months or longer to much shorter periods. In addition to obstacles related to taxes and regulation, issues can arise when rentals are used in ways that aren’t in alignment with the character of a neighborhood.

“The increased popularity of short-term rentals puts additional pressure on availability and affordability [of lodging options] in tourist communities, and now local governments are looking at ways to tax them in a similar way as hotels or bed-and-breakfasts,” said McElroy.

Blaesser, who leads the real estate development practice at his firm’s Boston office, explained that local governments are seeking to regulate rental housing in various ways, including through registrations and inspections. He said a disturbing trend is that communities are placing limits and being more restrictive. “Fundamental property rights state that you should be able to buy, rent or sell a property. Limiting renting is taking away one of those three rights, and further regulations beyond registration and inspection can be dangerous.”

Kiessling and Blaesser both agreed that renting out a home for less than 30 days is a residential use. Homeowners are simply taking advantage of popular platforms that allow them to rent out their property for supplemental income. As long as nuisance isn't a problem, the right for them to rent out their property – regardless of the timeframe – is their choice.

Kalkut, acknowledging that seeking out residential properties for vacation and weekend getaways is becoming more popular among travelers, stressed that there needs to be a legal and level playing field between the lodging industry and the many short-term rental platforms available today. In some cities where these rentals are very popular, it is currently illegal for a homeowner to rent out their property for less than 30 days if they aren’t home. Another issue is the equal payment of taxes. Whereas hotels are very heavily taxed – paying up to 15 percent or more in occupancy taxes to state and local governments – the same cannot be said for some of the social rental platforms.

Added Kalkut, “There's also mounting evidence that people are buying multiple properties just to rent them out for short-term purposes. This in turn drives up home prices for traditional buyers and brings up the question on whether this act is a commercial activity.”

From Kiessling’s perspective, he stressed the overall need for continuity and a level of fairness among state and local governments. Inciting laughter from the crowd, he joked that restricting short-term rentals is a law from a bygone era, and regulations need to change to support short-term rental activity. “We should be creating laws with purpose,” he said emphatically.

Blaesser believes the regulatory response regarding short-term rental issues is not going away any time soon. The growing appetite to both rent and rent-out properties for short-term purposes will cause state and local governments to review and potentially introduce more regulations that may threaten personal property rights.

Data from NAR’s 2016 Investment and Vacation Home Buyers Survey proves Blaesser’s point that short-term rentals are becoming more popular. According to the survey, 42 percent of recent investment buyers did or tried to rent their property in 2015 for less than 30 days and plan to do so again this year.

Blaesser advised Realtors® to read the recently released white paper on residential rentals prepared in consultation with NAR. The paper analyzes the issues raised by different regulatory approaches, provides Realtors® with ways to address short-term rental obstacles, and outlines best practice approaches to rental housing that Realtors® can use in discussions with local government officials.

“Ultimately, as long as nuisance isn't a problem, the person coming in or out the door doesn't matter,” concluded Blaesser. “Realtors® should use this argument as their starting principle when discussing short-term rental issues with their clients and local officials.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

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