Finding compromise on Seattle’s short-term rental rules

Finding compromise on Seattle’s short-term rental rules
The Seattle City Council has proposed a new tax on short-term rentals in an effort to fund affordable housing projects. The move is supported by vacation home managers hoping to avoid regulations that have harmed the industry in other cities. Photo: Homeaway

Less than one percent of Seattle’s housing is used for short-term rentals. Nevertheless, the Seattle City Council aims to impose a new tax on these renters and require them to get a business license, all in the hopes it will improve housing availability.

The three proposed ordinances (1, 2, and 3) are the product of negotiation and compromise with a vacation home advocacy group and other business owners that are eager to avoid harm to their industry – as has been done in other West Coast cities. Yet, some real estate experts warn the move by the city will only encourage investors to shift their focus to the Eastside.

“One of the things I know people in our industry have been saying is that we would prefer a tax-revenue-based solution as opposed to more restrictions,” Heidi Stuber said. She is the business director for Sea to Sky Rentals, a vacation rentals business owned by Michelle Acquavella that offers 65 units..

If approved, the proposed ordinances would do the following:

  • Implement a tax of $10 per night, starting October 1, 2018 to fund affordable housing projects;
  • Require short-term renters to get an operator’s license, which costs $75 annually;
  • Mandate that short-term renters such as Airbnb obtain a “platform license”; and
  • Restrict short-term rental hosts to two dwelling units, though hosts operating in certain neighborhoods would be grandfathered in and allowed to have four.

It’s a slightly more optimistic scenario for short-term renters like Acquavella than it was in 2007, when she successfully took the city to King County Superior Court over whether vacation rental use is allowed in any residential area. Acquavella now heads the Seattle Short Term Rental Alliance, a group of vacation rental owners and property managers.

The city’s proposal is also an improvement for vacation rental property managers over the original version introduced last year, which would have restricted hosts from renting out a non-residential home for more than 90 nights annually as part of a short-term rental, though hosts renting out units in their primary residence would be able to do so year-round. The intent of this was to force more non-residential homes onto the long-term rental market and increase housing availability.

However, Stuber said 76 percent of the non-residential homes they manage are used by the owners at least once a year, making this impractical.

“They would not sell them,” she said. “They would just sit empty. It’s not a good solution for the city and it’s not a good decision for affordability. Here in Seattle, we have a lot of legitimate players who have been paying our taxes, following business regulations and have been a positive part of this industry for years.”

It’s why they prefer a nightly rental tax over new regulations, she added. “We see it as an acceptable compromise. It allows the homeowners to continue to use the property the way they see fit. Properties don’t sit empty.”

Darik Eaton, owner of Seattle Oasis, shares a similar view. “The original bill would have put me out of business. It would have been very hard without staffing cuts. It is kind of a nightmare scenario.”

It’s a scenario that’s played out in other West Coast cities such as San Francisco and earlier this year in Portland. Fear of seeing it replicated in Seattle is perhaps driving much of the industry’s collaboration with the city on the ordinances. “To take people that are legally operating vacation rentals and force them into long term or other things…doesn’t exactly sit right with me,” Eaton said. “It’s not worth eliminating us altogether. Let’s be a partnership.”

The new tax and business license requirements would also affect residents who use HomeAway, VRBO and Airbnb to rent out parts of their homes. Some observers note that the new tax could help provide companies such as Airbnb with legitimacy already afforded to hotels and other lodging establishments.

In 2015, Airbnb announced it would collect state and local taxes for the state Department of Revenue (DOR) on behalf of hosts, which includes:

  • state and local retail sales tax;
  • special hotel/motel taxes; and
  • convention and trade center taxes.

However, hosts are already required to report their rental incomes as part of an excise tax to DOR.

There are an estimated 3,818 Airbnb listings in the city, with 66.6 percent renting out an entire home or apartment.

In an email, Airbnb Northwest Public Policy Director Laura Spanjian wrote that “the current proposed regulations strike a good balance between allowing our hosts to continue sharing their homes to make ends meet, while addressing the city’s concerns.”

“Sixty two percent of Seattle hosts say their Airbnb income helped them afford to stay in their homes last year,” she wrote further. “We support adding a short-term rental tax that goes toward affordable housing in Seattle, but we want to make sure there’s a level playing field so small mom-and-pop hosts are not taxed at a rate that is higher than what the big hotels are paying.”

However, William Hillis says the city’s expected move will do the opposite of its intended purpose. He is a broker and research editor at Realogics Sotheby’s International Realty. In a recent column for Seattle Magazine, he wrote that “these disincentives will raise the risk of hosting short-term rentals, but will not necessarily leave these homes on the low-income housing market. The Council cannot prevent investors from buying properties for lease to higher-end tenants, or for that matter, keeping the properties vacant.”

“The short-term rental market in Seattle will be seriously damaged by the regulations,” he warned. “Hosts will prefer to invest in properties outside city boundaries.”

Two of the ordinances were passed in the Affordable Housing, Neighborhoods, and Finance Committee, while the third was reviewed by the City Council at its October 2 meeting and re-referred to the Planning, Land Use, and Zoning Committee.

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