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Regulating (and taxing) short-term rentals: a Q & A on an ongoing controversy

On Behalf of | Jul 28, 2016 | Local Ordinances

The sharing economy is a double-edged sword, creating both opportunities and issues.

The recent agreement between Los Angeles and Airbnb on the collection of lodging taxes on short-term housing rentals (STRs) is a case in point.

In this post, we will update you on this agreement, using a Q & A format.

Why are short-term rentals so controversial?

Proponents of STRs point to multiple benefits, including economic stimulus for neighborhoods and tax revenue for the city. For hosts, there is the chance to help make their mortgage payments and perhaps share a bit of their lives with travelers. And for travelers, STRs create more options.

Critics contend that widespread use of short-term rentals results in de facto unregulated hotels in residential areas, creating noise problems and taking much-needed housing stock off the market. Critics also believe STRs hurt hotels and bed-and-breakfast establishments (who pay lodging taxes) by putting them at a competitive disadvantage.

What are the current rules on STRs in LA?

Renting out a home or even a room for less than 30 days is not allowed under Los Angeles’s current rules. But the city struggles to enforce this restriction, with many homeowners renting out homes or rooms for shorter stays through sharing sites such as Airbnb or Homeaway.

Los Angeles is seriously considering changing the rules. The proposed rules are fairly complicated, but generally they would legalize and regulate STRs.

The new rules would allow homeowners to rent out a primary residence for up to 180 days a year. Activists concerned about the effect of STRs on neighborhoods contend that is too long.

The Planning Commission approved the new rules last month. The LA City Council, however, has yet to act on them.

How do LA’s rules compare with other cities?

Let’s take two examples, one nearby, the other up the coast.

San Francisco, where Airbnb was founded, has adopted an ordinance by which STR hosts who don’t register with the city could be fined. The fines would be hefty: $1,000 a day. Airbnb has filed a federal lawsuit, seeking to block the ordinance.

Santa Monica also has new rules in place. Santa Monica’s rules are among the most restrictive in the U.S., prohibiting homeowners from renting out an entire residence for less than 30 days.

What about the tax aspects of STRs?

The tax aspects are a story within the larger STR story. Los Angeles and Airbnb recently worked out a deal by which LA will collect lodging taxes from STR hosts.

As the LA Times pointed out in an editorial, this has put the city in an odd position. Given how restrictive LA’s current rules on STRs are, Airbnb will in many cases be collecting taxes on illegal activity.

The bottom line

In short, regulation of short-term rentals is an evolving issue that will affect the real estate industry in Southern California for a long time to come. If you are uncertain about how the emerging rules may affect you, it makes sense to discuss your specific situation with a knowledgeable attorney.