Unless the new laws are overturned or materially modified in the very near future, there is a lot of risk in continuing to run a short-term rental business in DC.
October 05, 2019
Home-sharing platforms, such as Airbnb and VRBO (Vacation Rental By Owner, now owned by HomeAway), have dramatically increased in popularity over the past ten years and have completely changed the shape of the short term rental market in Washington DC.
This drastic rise in the popularity of vacation rental sites has caused ripples through the DC housing market, and regulators have taken notice. How will this impact landlords and tenants in DC?
Local lawmakers have enacted new restrictions on short term housing which will have a direct impact on homeowners who are using Airbnb and similar short-term rental platforms in DC. These new regulations took effect October 1st, 2019.
If you are a homeowner who is currently renting out a property in DC via Airbnb, please read below for a full breakdown of what to expect from these regulatory changes.
In high cost-of-living urban areas like Washington DC, lawmakers have argued that short term rental platforms like Airbnb absorb inventory that would otherwise be available for traditional 12-month leases. This ends up restricting the housing supply and causing rental prices to climb higher.
In expensive cities where the average rent prices are already unaffordable for the average resident, additional restriction of the housing stock will create issues for local residents and will have an impact on the local economy. As it currently stands, there remain very few affordable neighborhoods in DC, and limiting the housing supply would push rent prices even higher.
The rapid gentrification of many neighborhoods in DC has displaced thousands of residents who can no longer afford their rent as it continues to climb year after year.
As more landlords opt for a short-term rental option instead of offering a unit for a traditional lease, demand will continue to outpace supply and we’ll see even more residential displacement over time as platforms like Airbnb continue to grow in popularity.
In 2019, there were reported to be over 7,800 short term rental units listed on home-sharing platforms in the District. Of those, 85% were listed on Airbnb alone.
Airbnb is also under attack from the hotel industry, who is losing market share due to the rise of home-sharing platforms.
The American Hotel and Lodging Association (AHLA) has spent over $1.6MM on lobbying this year, arguing that the short-term rental market has caused a loss of affordable housing as residential units have been converted into transient accommodations for tourists.
From the perspective of a tourist in DC, Airbnb is an excellent option compared to the traditional hotel model as it affords more flexibility when traveling.
In major cities throughout the US, local lawmakers have started to take action to limit the impact of home-sharing on the local housing market.
Washington DC recently passed new short-term rental restrictions that are effective as of October 1st, 2019.
The Bill, “The Short-Term Rental Regulation Act of 2018”, was passed by DC Council in the Fall of 2018 by a 9-4 vote.
The bill sets forth a new set of laws governing the short-term housing market in DC, and these new comprehensive regulations are much stricter than what landlords adhered to in the recent past. Here are the key points to know:
1) The new laws go into effect October 1st, 2019
2) Property owners in Washington DC will only be allowed to rent out one home as a short-term rental, and this home must be the landlord’s primary residence.
3) To legally operate a short-term rental, landlords (or “hosts”) must register with the city.
4) If you want to rent out an entire property (as opposed to renting out a single room), you’ll need to obtain a “vacation rental” license from the city.
5) The maximum number of times you can rent out an entire property as a vacation rental is 90 nights per year.
6) Hosts will still be required to collect the city’s 14.95% sales tax on accommodations from guests, and will be required to pass it on to tax authorities.
7) All short-term rental hosts are required to register for tax collection with the DC Office of Tax and Revenue (OTR) and must file regular sales tax returns.
8) Property owners who do not adhere to these new restrictions and requirements will be subject to fines ranging from $500 to $6,000.
Many commercial investors have purchased single family and multifamily product in Washington DC with the intent of renting it for short-term stays through Airbnb or similar home-sharing platforms.
These investors stood to see large gains through the short-term rental model, due to the high volume of tourists and other short term guests in the District—when you rent out a home on a per-night pricing model, you can charge more than if you were to rent it to a longer term tenant.
In light of these new regulations, this investment model may no longer be possible in DC. Unless the new laws are overturned or materially modified in the very near future, there is a lot of risk in continuing to run a short-term rental business in DC.
The fines would dilute your returns, and the DC government has funded a new initiative to enforce these laws beginning October 1st, 2019.
To protect your investment against legal complications under the new regulations, the safest move is to convert the property to a traditional long-term tenant lease model. The level of risk involved in operating an illegal short-term rental would render the investment untenable.
Despite the higher gross potential revenue that can be generated on a short-term basis, there are quite a few benefits to a traditional long-term-tenant model for homeowners and investors. Given the recent regulatory restrictions on short term housing, now is the best time to make the switch. Here are the key benefits of converting an investment property into a long term lease model:
1) Much Better Income Stability – you can lock in stable fixed income over a 12-month or 24-month lease. This fixed-income approach allows you far greater leverage of the asset.
2) Lower Turnover Rates – with fewer tenants (or “guests”) coming and going, you’ll have less wear and tear on your property. Longer term leases help support the property’s longevity from a maintenance-cost standpoint.
3) Actual Passive Income – once a tenant is in place for a long-term lease, you don’t need to worry about handling the day-to-day activities involved with constant guest bookings.
4) Legal Compliance – you’ll be in good legal standing with the city, and don’t need to deal with the stress of operating an illegal short term rental.
The DC regulatory landscape is constantly evolving, and it is crucial for all stakeholders to stay up to date on these changes. The new short term rental laws will have an impact on landlords, tenants, visitors, and potentially the local housing market as a whole.
Published at Sat, 05 Oct 2019 00:00:00 +0000