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Denver officials will now fine short-term rental companies $1,000 for each illegal short-term rental transaction, City Council determined 11/20. Littleton also passed a new ordinance to regulate short term rentals. Is the new focus on nightly rentals unique to cities? Why the recent surge in nightly rental regulations? What does this mean for real estate?
Denver’s new nightly rental regulation.
Denver officials will now fine short-term rental companies $1,000 for each illegal short-term rental transaction, City Council determined Monday. Council approved the proposal unanimously on a consent agenda, signaling a lack of controversy surrounding the issue with city officials. In short, starting Feb. 1, the rule change will fine booking service providers like Airbnb $1,000 for each violation.
“Denver has been asking the major platforms to prevent bookings at unlicensed short-term rentals since 2017 to help us achieve our compliance goals, but we have not seen any voluntary compliance from these platforms,” Escudero said. “Thus, the law is necessary to ensure such booking service providers are accountable if they are profiting from illegal activity.”
You will no doubt see litigation from the nightly rental companies Airbnb and VRBO to try and delay the law implantation. Unfortunately, it will merely delay the implantation as there have been similar cases in LA, NY, and various other cities where VRBO and Airbnb have lost the fight.
The new Denver law will end the wild west of nightly rentals as the city will now be able to track every rental and confirm proper licensing and further regulate the industry.
Littleton jumps on the bandwagon
Littleton, a suburb of Denver, has also started implementing a nightly rental regulation to get ahead of the issues caused by nightly rentals. Littleton City Council unanimously passed a short-term rental licensing ordinance on Nov. 17, though councilmembers acknowledge many issues must still be dealt with. The new ordinance represents a major step in regulating short term rentals — often rooms in private homes, or entire houses, rented through sites like Airbnb or VRBO — since city council narrowly shot down a stricter ordinance in early 2019. Among other rules, the new regulations cap the number of guests at two per bedroom to a maximum of eight per dwelling, require at least two off-street parking spaces, and require owners to provide guests and neighbors with contact information of someone who can respond to problems within two hours.
Although Littleton’s ordinance is not nearly as strict as Denver’s, it is noteworthy that a suburb is jumping on the bandwagon of regulation that were primarily the focus of larger cities and resort destinations.
Mountain towns not far behind
There was recently a protest in Breckenridge where restaurants were shut down and yet nightly rentals were allowed to stay open. Many residents were not happy to say the least:
Cooper, who works at Myla Rose Saloon and has a child in elementary school, was upset about the impact of the restrictions on her life as well as the effect on small businesses and other locals.
“Schools are shut down,” Cooper said. “I can’t even go see my therapist because offices are shut down. My work closed — which is my livelihood — but tourists are flooding in, and it’s not OK. If you’re going to close everything else down … and then let tourists come in to short-term rentals … it just seems incredibly unfair.” (Steamboat Pilot).
Many mountain towns were inundated by visitors this summer and winter looks to continue this trend. Based on the protests and comments from residents, I anticipate a substantial shift to much tighter regulation of the short-term rental industry in all the resort communities.
Colorado not unique; National shift towards tighter regulations
Colorado is not unique. The issue of tourism/over tourism has hit a boiling point in many places like Lake Tahoe where over the summer there were weekly protests to stop the amount of tourists “invading” Tahoe. Local residents feel overrun by tourists and are demanding sever restrictions and/or outright bans on nightly rentals. The mountain resorts communities are not unique, in almost ever major city from LA to NY there are calls to severely limit nightly rentals and or ban them in certain areas. Throughout the United States both in major cities and resort communities there is a new movement to tighten regulations on nightly rentals.
How will nightly rental regulation impact real estate?
In many resort communities, properties are being priced based on their income potential. What happens when the income potential is severely restricted or eliminated? For example, Crested Butte banned nightly rentals in certain areas. Durango has followed a similar path to cap the number of nightly rentals. If you bought a property based on the rental projections, then you could have some severe financial implications.
As nightly rentals are regulated more, it will likely cause a slowing of the “feeding frenzy” in many markets as many prospective buyers could be priced out without the rental income. Fortunately, there is so little supply in these same markets and desire to live there that prices will likely not fall, but merely slow the buying pace.
Coronavirus has brought substantial change to the way people travel, recreate, and spend their disposable income. This has in turn brought housing issues and tourism / over tourism issues to the forefront including nightly rentals. The trend of regulating nightly rentals will not go away; the opposite will occur with further regulations coming down the pipe especially in cities and resort communities.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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