The Way Communities Use Residential Property Has Changed

Helping Your Community Find the STR Threshold That’s Right for Your Area.

By Nick Del Pego

Whether your area is urban or rural, it is being impacted by the growth of tourism and short-term rentals (STRs), such as those listed on Airbnb and VRBO. And the impact on your infrastructure may be greater than you think.

STRs are a cottage industry no more. The short-term rental industry had an estimated worth of $85 billion in 2015, according to Rentals United, and was already becoming one of the world’s fastest growing industries. By the end of 2018, its estimated global market valuation was $169 billion. Of 86 million single family residences in the U.S., it is estimated that 1.3 million STRs are available on any given night, with more than 2 million available over the course of a year.

With many of these accommodating 5 to 10 people nightly, the impact on trash, parking and streets is greatly increased. What data do local governments need to know to make better policy decisions for their communities when it comes to STRs and infrastructure to support tourism?

Unlike hotels, STRs can pop up anywhere. You must know where.

Studies have shown that STRs, unlike hotels, have been resilient in the pandemic. As travel began to re-emerge, many chose to stay in places where they could easily social-distance, stay longer and have more living space. Well-known tourist communities may be particularly impacted, with an estimated 1 in 22 homes being used as STRs, despite a proliferation of hotels.

Rural areas tend to be less desirable for big hotel chains to invest hundreds of thousands of dollars, especially if tourism is cyclical from seasonal changes or special events. However, these areas are often desirable for investors. Often the areas in which these STRs pop up are not zoned for, and may be without, the infrastructure for tourism that ebbs and flows.

Tourism can bring in needed funding, but only if taxes from bookings are paid into the region.

Hosts with multiple units have become a key driver of this STR economy, according to analysis released by CBRE Hotels’ Americas Research because short-term rentals routinely yield 30% more profits for investors than long-term leases.

As it’s difficult for local governments to nail down the exact addresses of properties on rental platforms, owners may also skirt short-term rental occupancy taxes (hotel tax, short-term accommodation tax or transient occupancy tax/TOTs) that go toward roads, schools, fire departments and other important services. Simultaneously, renters of STRs may introduce increased noise, wear and tear on infrastructure, and requirements for greater trash pickup or policing.

Tracking the certifications of STRs and ensuring owners are paying taxes requires data on when and where people are staying. Working with Deckard Technologies, La Quinta, California discovered more than 2000 units were listed as STRs on rental platforms but only 1360 had approved licenses; approximately one third were unlicensed and not paying the 10% occupancy tax, resulting in a huge loss. Subsequently, the county put a moratorium on new STR permits while it minimized unlicensed rentals. It leverages analytics to better anticipate visitors, so as to advise restaurants and other businesses.

Ensuring that taxes are properly allocated is another challenge. Placer County, in the Lake Tahoe area, used data to correct properties on its border from being misidentified by rental platform operators who were sending tax revenues to the wrong county.

STRs can have unexpected financial impacts on infrastructure.
As the number of STR guests increase, so does their impact on infrastructure and tax equity. This includes trash – in some cities, hotels and businesses pay higher fees for trash over homeowners, as it stands to reason hotels contribute larger volumes of waste. With STRs and residential homes used for business, this may not be equitable.

Roads – with more trash comes the need for more heavy trash vehicles, with 300X the impact of cars, causing greater wear and tear on roads. Parking – most residential communities are planned for no more than 2-3 cars per home.

Waste treatment – higher home consumption may have 2-3 times the impact on wastewater, heat and electricity. We saw these increases by remote workers during the pandemic; now we’re seeing this further impacted by STR tourism.

Residential housing – STRs might contribute to rising home costs, with even small percentage decreases in vacant home stock making a huge impact on prices. Often, the same types of homes that first time buyers might find desirable – good value, in more rural, up-and-coming communities – may be valued by cash-rich STR investors.

Unfortunately, non-resident owners may have less incentive than long-term inhabitants to ensure they (or renters) are preventing an excessive number of people from occupying the property and taxing resources.

Big Bear Lake learned this firsthand. While the area is known for tourism year-round, nothing could prepare it for visitor highs in the pandemic. Larry Vaupel, Director of Tourism Management, recalls, “There are 27 million people within a three-hour drive of Big Bear. It seemed like all of them came to visit us in 2020, which was a real stress test for our community.” In an area that is typically a weekend destination, many stayed throughout the week during the pandemic, greatly impacting local infrastructure, says Vaupel.

His city has since increased code enforcement staffing, implemented technology to forecast STR rentals, and put increased regulations in place, including requiring renters to sign a good neighbor policy during in-person check-ins.

Past and future forecast data is necessary to make the best decisions.
While no two communities are exactly alike, governments can be surprised to learn the true impact of STRs on parks, recreation, water treatment, safety, roads and more.

While it may be tempting to ban STRs overall, these actions simply lead to activity going underground. Consider New York City, with 50,000 STRs illegally operating, and the local government unable to close them down.

The way communities use residential property has changed. It is important to anticipate the community’s needs and put a plan in place that enables cities to deal with these impacts today and into the future. Access to accurate data on STRs, including where, when and the number of people who will be in the area for the next 3-6 months, is necessary for code enforcement and compliance, and other departments also benefit from it to set policy decisions and protect residential areas.

Nick Del Pego is CEO of Deckard Technologies, a mathematician, U.S. SpecOps Veteran, seasoned corporate senior leader, avid outdoorsman and father. His mission, and that of Deckard, is to provide software, analytics and insights for communities to create tax equity and fairness. He can be reached at nrd@deckard.com