Protecting Affordable Housing through Primary Residence Restrictions on Short Term Rentals

Around 34 of the 100 most populous U.S. cities have primary residence restrictions in their short-term rental (STR) ordinances. That means an STR operator is typically not allowed unless the operator is renting his or her primary place of residence. Getting these restrictions on the books takes work, but the benefit to communities is great, especially with regard to affordable and available housing. This article will review why a primary residence requirement is an important part of regulating STRs.

Protecting Available Housing Stock

Airbnb and other STR platforms have had a measurable negative impact on the availability of affordable long-term housing in the cities with the most STR activity. When there is no primary residence requirement, the number of housing units available to long-term residents decreases dramatically, which in turn increases housing costs in response to the lower supply. Long term residents can find themselves suddenly priced out of their neighborhoods as an influx of tourists come in.

According to Michael Lustig of LetsRegulate.com and short term rental regulation-activist, restriction of Short term rentals to Primary Residencies “helps residents make ends meet, while curbing the proliferation of “commercial units” that deplete housing stock and exacerbate affordable housing shortages”.  The Primary Residency provision helped San Francisco from 2017 to today reduce their short term rental by more than 50%.

The state of Vermont is experiencing this housing crunch, and in response is just beginning to draft restrictions on STR ownership. In tourist-heavy Lamoille County, 9% of the housing stock is made up of STRs, reflecting an increase of 18% between July 2018 and July 2019. Chris Donnelly, the director of community relations for the Champlain Housing Trust, said that increased tourism jobs combined with decreased housing creates a “double whammy” for residents, adding that, “If housing is coming out of the market or is being priced out of people’s means because of these other options, it’s just harder and harder for Vermonters to make a living here.”

A recent study published in the Harvard Business Review confirmed that just a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices in that zip code. The authors note that while these increases seem small, they are compounded by Airbnb’s rapid, average growth of over 44% per year. The study further found that Airbnb listings increase the supply of available short-term rentals and decrease the supply of long-term rentals. Many other studies show similar effects on housing stock, rent increases and mortgage costs throughout several major cities.

(These trends have been disrupted by the current coronavirus crisis. While the drop in rentals has brought more affordable housing back to some markets, the “Airbnb effect” is likely to resume once the pandemic is finally under control. Meanwhile, other markets in more rural areas have seen a boost in rentals from city dwellers seeking a supposedly safe haven from the virus.)

The Debate in Major Markets

• Despite recent pressure to loosen their primary residence restrictions, many Los Angeles officials remain adamant that primary residence restrictions should remain, especially in light of the current housing shortage in the city that is keeping prices high. Although second-home owners argue that they need the additional income from their rentals, Commissioner Karen Mack said, “The constituency I’m most sympathetic to are the people living on the streets in tents.” Furthermore, while opponents argue that the income from non-resident rentals goes mainly to local homeowners, troubling examples prove otherwise. For example, in a complaint filed last December, a Tahoe City-based host owned nine apartments in the Silver Lake neighborhood that would otherwise have been available for long-term residents to rent.
• Nearby Long Beach, California, recently proposed new restrictions on STRs, which include limiting the number of rentals to no more than 1% of the city’s housing stock. However, housing advocates argued that even that low amount took too many units away from local residents, and the proposal had to be rewritten.
• Denver, Colorado, recently tightened its verification process because so many hosts were attempting to cheat on the city’s primary residency requirement. A higher compliance rate was seen as “a critical part of Denver’s effort to have responsible short-term renters and prevent investors from lowering the housing stock by buying up investment properties to short-term rent and operate mini-hotels in neighborhoods,” according to Eric Escudero, a spokesperson for the Department of Excise and Licenses.

The Need for Verification

As discussed in a recent article, establishing a document-based process of verification is necessary to prevent outside owners or multi-unit hosts from trying to cheat local ordinances. A comprehensive list of documents required can include driver’s licenses or State ID showing the applicant’s name and address, motor vehicle registration, Federal or state tax returns or utility bills, among others. For example, in Baltimore, Maryland, STR hosts are required to have a State Comptroller Sales and Use Tax Number, and list a nearby emergency contact to manage nuisances. Enforcing the primary residence restriction brought the number of STRs in the city down from 2,105 to 1,478, even with some second units grandfathered into the ordinances.

Adopting and enforcing primary residence restrictions helps prevent local residents from being priced out of their neighborhoods, while neglecting these restrictions has had a measurable negative impact on areas throughout the country. Establishing clear ordinances will help cities benefit from tourism while also preserving the local character that is drawing visitors in the first place.

Contact Us to learn more about Harmari STR provides Primary Residence Verification through its partnership with LAIS.