Vol. I No. 03 9/1/2020
Let's Start a Conversation About Short-Term Rentals
by Patrick White
Here are the main three recommendations contained below:
- Raise the local option occupancy tax from 4% to 6%
- Monitor and collect data for compliance
- Considering limiting the number of nights per year that properties can be rented when not owner-occupied
If there's one area of the economy that's still booming, it's short-term rentals. Since 2011, the market nationwide for short-term rentals has grown by 1,530%. On Friday, there were 110 short-term rentals listed on approximately 50 websites like Airbnb and Booking.com, with an average rate of $300 per night.
Stockbridge has approximately 1,400 housing units, mostly single-family homes with a smattering of condos and multi-family dwellings. There's about an even split between homes occupied by full-time residents and second-homeowners.
With a median property assessment of just over $500,000, residents often own homes in the lower half of property assessments in town. Residents' houses are often more modest, in the family for years, not as close to the Stockbridge Bowl.
Our residents' homes are exactly the types of homes that investors in short-term rentals look for. You can often make more on an annualized basis from renting a house that cost you $400,000 than one that costs you over a million.
When it comes to short-term rentals, we have a number of issues to address. One is taxes. A second is compliance. A third is fielding complaints from neighbors. And finally, we need to address whether as a town we want to put the brakes on absentee owners' purchases of our housing stock for the purpose of listing the properties as short-term rentals.
What are we not talking about?
This piece is not relevant to either renting a room in your house or renting an accessory dwelling unit, like a cottage or an apartment on your property. I strongly support allowing residents to reduce their cost of ownership by renting out a room or an apartment on their owner-occupied property. I view this as a way to offset the costs of ownership in our town, and to enable our homes to stay affordable for current or future full-time residents. Rather, the topic of this discussion is properties acquired by absentee owners for the primary purpose of renting them on short-term rental websites or through local brokers.
In my opinion, the town has two issues to decide: one, the occupancy tax rate and two, how do we ensure compliance, i.e. make sure that folks pay the taxes due to Massachusetts (some of which are remitted to the town), as they rent their properties?
In 2009, the Legislature increased the maximum local option occupancy tax from 4% to 6%. Traditionally, this applied to hotels like the Red Lion Inn. In 2019, the Legislature passed a law that levies this tax on entire properties that are rented by individuals through services like Airbnb. The tax does not apply to rooms rented in owner-occupied houses.
Unlike our surrounding neighbors, Stockbridge never increased this tax rate. Had we raised the rate to 6% in 2010, we would have generated extra occupancy tax revenue of between $1 million and $1.5 million over the past ten years. That's money that was instead raised through residential property taxes. If more homes are converted to short-term rental properties, we will leave substantially more on the table in coming years. It is my position that we should immediately raise the local option tax rate to 6% to reduce the burden of funding the town's budget via property taxes.
There are a number of headaches that can come with short-term rentals. There can be noise, parking, and trash problems. Some renters will treat properties as party houses. A high density of short-term rental properties can impact a neighborhood's character, and reduce our sense of community. They can negatively impact the affordability of houses to prospective residents. They can be advertised and rented to large groups that far exceed the rating of the septic systems or the bill for sewer that the property is charged. Finally, there can be safety issues such as reduced access for emergency vehicles and the way the property is (or is not) maintained.
Of course, there is also the question of tax compliance. How do we ensure that properties that are rented to short-term guests are collecting and remitting the taxes due to the state and the town?
Finally, there is bandwidth. How we will field complaints related to these issues, and enforce current and future laws to regulate these rentals that we want to put in place?
A company called Granicus automates many of these processes. They provide compliance and monitoring software, real-time data on rentals scraped from over 50 short-term rental platforms, and consulting and advisory services to help us craft our bylaws and policies.
The software isn't cheap: It would cost the town upwards of $20,000 per year based on the current number of rentals we have. One way to pay for it might be, as part of a short-term rental bylaw, to allow the select board to set an annual registration fee for all units listed as short-term rentals on non-owner-occupied properties. An annual fee of approximately $200 would cover the cost of licensing the software.
Fielding complaints and enforcing the law
Already, our town employees are fielding an increased number of complaints related to short-term rentals. Just ask our Police Chief, Fire Chief or Building Inspector. As more properties are purchased for the purpose of short-term rentals, fielding neighbors' complaints will consume more and more of our employee's time and the town's resources. We may need to consider staffing a position that would oversee, monitor and manage the enforcement of the town's laws.
The Granicus platform includes an 800 number you can call to report complaints, reducing the burden on the town in answering and tracking property complaints. The system also features the ability to communicate via the USPS to the property's owners, educating them on the town's policies and notifying them of violations. Such a system can reduce these added burdens on town officials.
Should we limit short-term rentals?
First let's review the numbers. Give or take a hundred, there are approximately 700 homes in Stockbridge occupied by full-time residents. As I mentioned, there are just over 100 short-term rentals listed as of last week. The market for short-term rentals in the United States has increased 1530% in the past nine years, for an average annual growth rate of 158%. Even if the market matures and growth drops to 30% a year, by 2030 over 400 homes in Stockbridge would be absentee owned for the purpose of short-term rentals. In ten years, this could literally cut the number of resident-owned homes by more than half.
This would fundamentally change the nature of the town. Neighborhoods would be less a community and more like a dispersed motel. Folks would be coming and going all the time. Compliance could be a nightmare.
The town needs to seriously consider putting the brakes on short-term rentals. One way to do this is to limit the number of days a rental unit could be rented each year, as Lenox did with its short-term rental bylaw last year. Such a limitation would not apply to residents who also live on their property. Questions of whether to grandfather current rental properties would also need to be considered.
By limiting the number of days that a property can be rented, there is less incentive for an absentee investor to purchase a property, as it becomes harder to make the numbers work. Such a bylaw would preserve our housing stock for full-time residents, protecting the residential character of our neighborhoods, ensuring we can staff our volunteer fire department, and maintain the small-town nature of our community as it has been for hundreds of years.
I believe we should debate these issues in two parts: First, I plan to put forth a bylaw that raises the local option occupancy tax to 6% and puts in place the laws we need to ensure compliance and prevent abuse. Second, we should debate whether we want to defend the residential nature of our community by limiting the number of days a property can be rented and thereby reducing the incentives for properties in Stockbridge to be purchased by absentee renters.
Change is hard. It is far easier to do nothing. Without change, though, we could preside over a permanent change in the fundamental character of our town. Now is the time to decide the kind of town we want to be and take action accordingly.
Patrick White serves on the Select Board and Conservation Commission.