Short-term rental rules made in Denver will play out in other markets
The Denver Post | Jason Blevins
May 6, 2016
The short-term rental business — born in Aurora in 1995 and having grown into an $85 billion-a-year worldwide industry — is fighting for its life in Denver.
With new regulations poised to upend the traditional model of renting out an entire home to visitors, HomeAway, VRBO and its parent, Expedia, are girding for a final stand, hoping to sway Denver City Council members toward rules that would regulate — not eliminate — the increasingly popular pursuit of offering private homes for short stays.
HomeAway executives warn that the city’s proposed short-term rules would make the city look anti-business and antiquated, making it less appealing to innovative job creators while influencing other cities to follow suit.
“What Denver does here will make a difference to other employers in their decision to come here or grow their companies here as a technology hub,” said Matt Curtis, the director of governmental relations for Austin, Texas-based HomeAway, which includes VRBO and was acquired last fall by Expedia for $3.9 billion.
Curtis was in town last week to host a roundtable talk with vacation-rental businesses and homeowners who rent on the short-term market. His team also planned to meet with City Council members who next month will vote on proposed regulations that would make short-term rentals legal in the city but would allow only full-time residents to offer their homes on the short-term market.
The primary-resident rule — by far the most controversial part of the proposed regulations that include licensing and tax collection — would cripple VRBO in Denver, where the website lists about 600 properties for rent.
Setting the rules
While the upstart and wildly popular Airbnb largely has focused on renting rooms within a home, VRBO has, for more than 20 years, allowed property owners to rent their entire homes. The number of Denver homes listed there represents less than a half-percent of the city’s houses.
Two years ago, Curtis sat down with City Council members who were pondering regulations. He said he welcomed regulatory oversight that would push short-term rentals out of the shadows, where the industry has thrived in Denver despite a city law prohibiting rentals of less than 30 days.
Curtis urged easy-to-follow rules to encourage home owners to sign up, saying “we want to achieve the highest rate of compliance.”
He said council members told him then that renting entire homes was not an issue. But they said the explosion of home sharing, via sites like Airbnb, was problematic because of its potential to limit the availability of affordable homes and rooms in Denver.
Still, Curtis wasn’t expecting trouble from any new rules. But VRBO, which was founded in Aurora, was a little shocked by the proposed rules and hearing that they had been influenced by Denver’s overheated rental market.
“It still feels shocking to us to understand the corollary to affordable housing,” Curtis said. “There is nothing but benefit here in providing a traditional short-term rental for a family looking to come to Denver for a period of time.”
The architect of the proposal, Councilwoman Mary Beth Susman, also was meeting with neighborhood groups, particularly the zoning and planning committee of Inter-Neighborhood Cooperation, which represents more than 80 Denver neighborhood associations, business improvement districts and community groups.
“We worked on this with Mary Beth for two years,” said Margie Valdez, the co-chairwoman of the cooperative’s zoning and planning committee. “She’s come back and talked to our committee three or four times in the last year.”
Members of the committee didn’t want to legalize short-term rentals at all. But they compromised, Valdez said. And they won’t compromise on the permanent-resident rule.
“That’s a deal killer. If they drop the primary resident rule, I think it encourages us to go to the ballot. It’s fundamental,” Valdez said. “If they drop it, it changes everything. Short-term rentals have the ability to change the fabric of Denver neighborhoods. This is not about people trying to make a little money. It’s about investors making more money at the sacrifice of Denver’s neighborhoods. At some point, the city has to protect the people in the neighborhoods.”
Fact vs. “fear”
Short-term-rental advocates — read: property owners renting on the short-term market — argue the facts have been lost in hyperbole. At the four community meetings Susman hosted before finalizing her proposal, outnumbered opponents mentioned brothels and fraternity parties popping up next door to families.
Valdez said a man was shot in a short-term rental home in her neighborhood. “And it’s still available for rent,” she said.
“There is an opposition that is very much the minority, but they have really been effective at speaking to the fears associated with the unknown,” said Shahla Hebets, the founder of the Denver Short Term Rental Alliance. The group of roughly 100 property owners, mostly second-home owners, organized in response to Susman’s primary residence rule. “A lot of the opposition we come up against are neighborhood groups that have not been affected by short-term rentals. There aren’t enough of these in the city to be causing direct impacts.”
Hebets said issues related to affordable housing, better scrutiny and oversight of guests or a growing number of disturbances are all hypothetical problems not supported beyond anecdotes. Her group surveyed 447 Denver voters and asked them if they supported a framework that would allow short-term rentals in the city. She said more than 70 percent of respondents supported regulations without a permanent-residence requirement.
“We know the facts don’t support the current draft regulations,” Hebets said. “And that’s a really dangerous precedent, I think, to set regulations around a minority of people based on fear. Let’s embrace regulations based on fact.”
Short-term rentals are under fire across the country. After almost a decade of huge growth and free rein, municipalities big and small are laboring to address the suddenly everywhere short-term rentals.
Mountain towns are seeing more homes hosting tourists, pinching the supply of worker housing. Major cities are outright banning short-term rentals. Even HomeAway’s hometown of Austin has modified rules once heralded by the industry to prevent absentee owners from renting their properties for less than 30 days.
Curtis and his team, which is scrambling from city to city to put out regulatory fires that could burn their business, point to cities they say have done it right: Nashville, Tenn., Galveston, Texas, and the smaller cities in California’s Coachella Valley have adopted rules that require easy-to-get licenses and easy-to-pay taxes. Those places — which include Breckenridge, Crested Butte and most Colorado resort communities — have a vast majority of short-term-rental owners signed up and paying taxes. New York City has banned short-term rentals, but websites still list thousands of homes available to travelers.
Cities such as San Francisco and Portland, Ore., have imposed more onerous regulations, and compliance in those cities is below 20 percent, Curtis said. San Francisco is escalating its battle to regulate short-term rentals and recently proposed steep fines for hosting companies, like Airbnb and VRBO, that would require the platforms to enforce local rules. The city has enrolled fewer than 2,000 homeowners since installing a complicated regulatory framework in February 2015 — including a permanent-residency rule. Rental websites list more than 10,000 homes available for short-term rent in the City by the Bay.
“How much you care”
San Francisco is an example of how not to formulate rules, Curtis said. Make the rules too strict and you push the industry underground, he said.
Curtis points to the 2012 U.S. Conference of Mayors, where the nation’s municipal captains urged cities to embrace short-term rentals with fair rules and warned that “onerous regulations of short-term rentals can drive the industry underground, thus evading local regulations and local hotel taxes.”
Homeowners in cities that have passed a permanent-residence rule like the one proposed in Denver have simply inked 31-day leases with every guest, Curtis said, and then terminated the leases when the guest left after a brief stay.
“That means the activity will still exist. And Denver will suffer because they won’t be gaining the taxes, and the industry will go into a noncompliance,” he said. “And it won’t be good for anybody.”
Curtis enlisted three short-term-rental owners for the roundtable to offer their take on the industry. Grant Swanson lives in Sunnyside and has a rental in Berkeley. Last year he paid a local woman and her daughters-in-law more than $5,000 to clean the home between guests. He also hosted new grandparents for six weeks. They wanted to be close to their grandchild — but not guest-room close — while also being able to cook meals.
“They would not have been able to do that in a hotel,” Swanson said.
Janelle Kenny hosted a wedding in the backyard of her Overland home, where she lives in the basement and rents the top floor to visitors. One of her guests is a family that comes from Sweden each year so their autistic child can see specialists at Craig Hospital.
Steven Shopmann converted two of his family’s 18 long-term rentals over to short-term rentals in the past year and has hosted more than 100 guests.
“It doesn’t matter if you are a long-term renter or a short-term renter. It matters how much you care about the property you own,” Shopmann said. “This is something that is forcing me to be a much better landlord for both my long-term and short-term renters.”
There is a real fear at HomeAway that other cities could quickly mirror Denver’s primary-residence rule. Aurora is poised to approve strict regulations that include a permanent-residence requirement.
“People look at Denver as a city that sets the tone for the region and really is an innovative place,” Curtis said. “A lot of people will want to reflect the regulation that is created here. So let’s not look at mirroring similar regulations that have shown a catastrophic failure in compliance.”
Evolve Vacation Rental Network co-founder and CEO Brian Egan called the primary-resident rule “an arbitrary fault line.” His LoDo company employs 80 people who help manage 1,700 short-term rental properties in 250 cities.
With guest reviews driving the industry — and playing a much larger role in owner behavior than local city laws — the short-term-rental business is largely self-regulating, he said. Owners invest to impress guests, which improves properties.
Often, Egan said, short-term-rental homes are the nicest on the block. You can’t say that about long-term rental homes, he said.
Egan said he’s heard from several groups that the city’s proposed primary-residence regulation is the most conservative approach to governing the explosive industry.
“I would argue that it’s the opposite. It’s taking a leap in regulating and legalizing short-term rentals in Denver for the first time by eliminating your core group of constituents who have been in this business and done more of these transactions than anybody. To cut them out of the equation is not conservative,” Egan said. “It’s actually a riskier approach to introducing short-term rentals on a regulated basis in Denver.”