Many Airbnb ‚Äėrentrepreneurs‚Äô are taking advantage of the sharing economy and making money in ways unimaginable a few years ago. Since August of 2008, when Airbnb launched, people have¬†taken advantage of the company‚Äôs platform to offer up everything from a space to crash on a couch, to full-blown castles, for a short-term rental fee.
As consumers become more comfortable with the sharing economy, the number of available short-term rental properties has taken off; as has the number of people who choose the Airbnb platform to book their travel accommodations over a traditional hotel. And with growth enters an uncertain future as city legislators, globally, move short-term rental regulation to the top of their agenda.
There’s no doubt that the problem is complex, one that involves a wide range of issues such as individual property rights, public safety, affordable housing, and economic stimulus. Every city seems to be taking a different approach to balancing the priorities and of the local residents and business owners. The result is a patchwork of new restrictions and penalties to gain control over the proliferation of new rental properties.
Globally, cities are implementing licensing requirements to limit the number of new rentals and better monitor the activity of existing ones. But, licensing requirements are only as effective as the compliance the cities are able to achieve. Our findings show that strict usage laws, taxes, and cumbersome registration processes have driven most Airbnb hosts underground, finding ways to hide their addresses and identify to avoid onerous new restrictions and taxes.
AirDNA identified 365 cities around the world that had some sort of licensing requirement. Of those, only 3 cities (0.8%) had a majority of the Airbnb rentals with a displayed license number.
Here, we look at the top 25 most compliant cities and the revenue that goes uncollected for each municipality when considering the non-compliant listings.
Non-Compliance Impact on Top 25 Cities*
|City||Country||Active Listings||% w/ Registration||Uncollected $M|
|Lloret de Mar||Spain||1475||44%||$0.50|
*Revenue numbers for mainland United States are based on reported tax rate collected. For¬†all other countries and Hawaii, we assumed an 8% tax rate.
To start, we dug into Chicago, New Orleans, Denver, and Barcelona – 4 of the cities with the highest license percentage – to better understand regulations and ordinances, compliance with those ordinances, how much each city has cracked down on non-compliance and the root of the desired control.
The Approach to Ordinance Compliance
Chicago and New Orleans: Strict Enforcement, But Easy to Comply
In Chicago and New Orleans, 92% and 91%, respectively, of active Airbnb listings either have a license or have applied for a license. Both cities have strict enforcement their short-term rental ordinances, but each has its own method of enforcement.
For many cities, the question regarding how to enforce rules and gain compliance is tricky, but Chicago has been innovative in its enforcement. Rather than hosts applying for their licenses directly through the city, Chicago passes the onus onto Airbnb and other ‚ÄúRental Intermediaries.‚ÄĚ This means the city will not take direct requests from hosts for licenses. Licenses will only be issued from the city to a host when Airbnb has requested the license on behalf of the host.
New Orleans, on the other hand, has charged seven city staff members with managing permitting and infractions of the ordinances – and are arguably pursuing infractions more aggressively than any other city in the U.S. As of March, more than 400 notices of infractions have been issued and in August 2017¬†$75K in fines for illegal short-term rentals had been handed down.
One ordinance New Orleans doesn’t mess around with is that short-term rentals in the French Quarter are strictly prohibited unless they‚Äôre in the Bourbon Street entertainment district. The city is hoping to incentivize landlords to invest in improvements of upper floors along Bourbon street with this rule.
Neither city is afraid to enforce the possible fines when a host is in violation.¬†
Denver: High Tax, Low Fines & Outsourced Enforcement
With 47% of active listings holding licenses, Denver‚Äôs registration compliance rate is notably less than that of New Orleans and Chicago. What‚Äôs the reason? Denver has taken an approach to compliance that relies heavily on outsourced software that’s failed to deliver on its promise. In 2017, Denver budgeted for $70.4K annually to allocate toward host compliance software which claims to be able to identify addresses and owners of short-term rental properties but has failed to deliver on that promise.
The cat and mouse game of Airbnb hosts dodging steep taxes by obfuscating their property‚Äôs location and true host identity sees no end in sight.
The lower registration percentage rate could also have to do with Denver‚Äôs taxes being at the high end of¬†other cities¬†in the United States with a tax rate of 14.75%.
But we wonder if it‚Äôs possible that Denver spent a lot of money on a software system that takes more maintenance than the city planned for.
Barcelona: Unstructured and Angry
With 42% of its active listings registered, Barcelona‚Äôs relationship with short-term rentals and the Airbnb platform has been a contentious one. For a long time, Barcelona refused to recognize independent short-term rental properties differently than commercial vacation rental spaces and held hosts to the same standards. Commercial standards include obtaining a registration with the Catalan Tourism Register, keeping records including a copy of the passport for each guest and registering each guest online with the city within 24 hours of check-in.
In 2016, the city raised the maximum amount of fines for apartments that were rented but not properly registered, from 60K Euros to 600K Euros. Barcelona also fined both Airbnb and HomeAway 60K Euros each, for advertising homes that weren’t registered. ¬†However, in early 2017, Barcelona changed its take on non-professional home sharing and claims that the practice is a-legal, meaning it is neither legal or illegal and it is unregulated. While the city still claims that Airbnb operates outside of legality, there are no structured regulations for Airbnb to follow currently. Airbnb released data that shows that 1.24 million guests used Airbnb in Barcelona in 2016.
The table below outlines more details regarding city methods for staying on top of short-term rentals in their jurisdiction.
|License Process||Airbnb must submit license application on behalf of host||Hosts apply in person or online through the city||Hosts apply in person or online through the city||Unclear at this time, considered a-legal|
|Enforcement Strategies||Airbnb pays $10K/year plus $60/active listing to pay for ordinance enforcement||City has allocated 7 staffers dedicated to managing permits and infractions||Software that cross-references listings with licenses, neighbor complaints||Fine both short-term rental platforms and hosts|
|Possible Fines||$1500-$3000 per violation, revoke the license for serious violations||Daily fines for every day a violation continues, lien against the property, disconnect electric service, revoke license||Escalating fines:
$150 for first violation, $500 for second violation, $999 for all subsequent violations
|Maximum 600K Euros|
|Host Fees||4.5% Hotel Accommodation Tax
4% Vacation Rental & Shared Housing Surcharge
|4% Hotel Sales Tax
$.50/rental nightHotel Occupancy Privilege Tax
$1/rental nightCity Neighborhood Housing Improvement Fund
|10.75% Lodgers Tax
4% Sales Tax
|Unclear at this time|
Best Practices for Municipalities Considering Legislation
Municipalities wishing to be Airbnb-host-friendly will have implemented the following best practices for better compliance:
- Make Airbnb host compliance ordinances and fees clear, easy to find and easy to follow.
- This includes making all things available online such as registration applications and payment options.
The easier the process, the higher adoption rates will be as long as high tax rates do not continue to drive hosts underground. The higher the tax rate, the more people will determine the risk of getting caught outweighs the amount they would have to pay to be in compliance.
All-in-all, thriving municipalities will have focused on making it simple for inhabitants to understand and comply with the City‚Äôs rules, taking advantage of economic growth opportunities like the shareconomy, all while maintaining the city‚Äôs integrity.