The Impact of Short-Term Rentals on Neighborhood Dynamics and Community Costs

Discover the hidden tensions simmering within your own neighborhood as I tackle the rise of short-term rentals and their effects on community dynamics. This solo episode peels back the layers of homeowner associations, revealing how Airbnb and Vrbo have revolutionized—and sometimes rattled—the foundations of local neighborhoods. Through an examination of the governing documents, such as the CCRs, bylaws, and rules and regulations, you'll grasp the complex rights and limitations that renters face in HOAs.

Today, we're examining the concept of 'lemon socialism' and its relevance to the socialization of maintenance costs and liabilities amidst the privatization of profits. This narrative threads through the discussion on how these rental services can exploit communal assets, stretch local resources thin, and contribute to the hike in housing costs. With a lens on urban responses, from New York's outright ban to San Francisco's 90-day annual cap, I provide an essential analysis for those invested in the fate of their communities against the backdrop of the booming short-term rental market.

Transcript

Speaker 1: 0:01

Hello everyone. Today is April 13th, 2024. I'm here alone on the podcast today and I'm going to speak about short-term rentals in communities and kind of what the implications are and what is the relationship between short-term rentals and communities. And, um, yeah, we'll go from there. Um, to start off, let's talk about short-term rentals. You know what are they? Uh, what is a short-term rental? That definition could vary, but it's usually any rental that is 30 or fewer conservative days, so quite common in condo developments, especially if you're near attractions and restaurants in transit. Family developments also have some short-term rentals.

Speaker 1: 1:07

Short-term rentals, it really depends on the community. You can't just start renting your condo out on Airbnb or start renting your townhome out on Airbnb If you purchase into an HOA. You purchased into a business and that business runs around according to a certain set of governance documents the CCRs, the bylaws, the rules and regulations, as well as the articles of incorporation. But that doesn't define the renters. The CCRs and bylaws are really where the renters you know. The CCRs and bylaws are really where the renter is going to understand what they can and can't do. Also, the rules and regulations. But the CCNRs will be where the dialogue for any sort of policy or ban on short-term rentals will be for an HOA.

Speaker 1: 2:11

And so communities. You know this can be distressing. You know I've heard multiple residents in various communities talk about how distressing short-term rentals are to them. You have people coming in, coming out their vehicles, they themselves, they might use the commons excessively for the amount of time they're in there. And I found out a great term, and that term is lemon socialism. I'd never heard of that term, but the concept of that term is your profits are centralized in the individual but the maintenance costs, the liability, is socialized. And that is a very important term for community associations to know, because there are many things that can be taken advantage of in that sort of way and it's the job of the board and the manager, in accordance with the general community, to make sure that they're not being taken advantage of in these sorts of ways. You don't want to be paying someone else's business costs.

Speaker 1: 3:36

That can go multiple ways. That's not just short-term rentals. Where someone can take advantage of their community, can take advantage of the amenities of the community, the common assets of the community. And when you have short-term rentals and you bring someone into your home, a stranger at that, whose only vetting process was through, whether it be Airbnb or Vrbo, and then possibly in the the rentee, whether it's the owner or an owner brought in a property manager. You're still bringing stranger onto the property and it's a high frequency property and it's a high frequency uh, you know, short-term rentals are high frequency, so you continually have have someone coming in and obviously this, this created issues.

Speaker 1: 4:34

Um, airbnb has issues and you know, with cities, with big cities, and last year, new York completely banned Airbnb and I was reading an article that was defining what other cities have done and San Francisco, the amount of time someone can list their entire residence is limited to 90 days in a year. Amsterdam, 30 nights in a year. Paris, 120 days. Berlin was banned but walked back the decision. Quebec and Memphis, tennessee, require licenses now.

Speaker 1: 5:18

So you know, it's pretty obvious this, you know, one one it drives up costs. So now you're not only competing with other residents for these units, but you're also competing with people that are running businesses, and those businesses rely on the exact same asset that you need to live your home in, to live, and so this is obviously a bad thing. It drove up prices for residential homes and that's not good. That's not good for the local economy. You don't want your residents to be priced out of purchasing because of you know individuals, or you know some real estate mogul who has many, many building many, many units, just being able to buy them up profit off of them, buy more up profit off of them, and and just having these transients come in and you have hotels. I mean, new York City has hotels. That's what they were there for. They were meant to house transient people, you know, transients for a short amount of time and so, and with that, they bake in costs. Like all right, what if this guy comes in and just destroys everything? Okay, we have that baked into our costs. What if they just don't really care and just accidentally break something into our costs? Whereas for a community, you know that cost.

Speaker 1: 7:12

You expect your fellow neighbors in a community association to respect your building, since it's their property and your property. We decided to take on that responsibility of joint ownership. But once you have high frequency vacation or short term rental people, you know they're on vacation, they're out and about, so you can't really expect them to do well to treat the property as respectfully as an owner would. And again, going back to the governance documents, depending on what the documents state. Depending on what the documents state, you know, if you have a ban on your, on your, on short-term rentals in your association and you, as an owner, still decide to rent, rent out that uh, your unit, your property, you're holding yourself liable. I mean, if there's actually a ban, whether that be in the city or whether that be declared by your association, an individual owner who decides to disregard that ban, they can be held liable. And you know associations, depending on the situation. It all is very specific and I'm not a lawyer and none of this legal advice, but you know you have, as an association member, as a resident of the city, you are held to the standards of the city and you're held to the standards of the association you purchase into.

Speaker 1: 8:42

So, with that said, there have been many problems and this has been recognized by the two top uh rental short-term rental platforms airbnb and verbo vrbo. So in 2021, they developed a community integrity program and sharing important information on listings, strengthening action on the community threat posed by repeat party house offenders, whether it's party houses, whether it's a lot of people, people disregarding the property, just too much traffic coming in, maybe you just don't want to allow strangers to come into your neighborhood. That's a legitimate reason You're going to have high frequency strangers come in. Whereas if you have a renter and you know it's going to be 30 days or more and the you know the the agreement is in hopes that it will last even past the just initial year or whatever the lease is, then that's someone who's going to stay on the property for years at a time. They're not just going to leave, you know, at the end of the weekend and, with that there, if they're planning on being here in six months, they're not going to destroy the property. They want to be respectful of the community that they're going to live in. These people who come in you know they don't know anyone else there. They don't have to wake up and walk outside and then see these people like your community members do. So they don't have as much incentive to be, you know, orderly, civil, quiet, respectful not to say they're all disrespectful, but yeah.

Speaker 1: 10:38

So they came out in 2021 airbnb and verbo with their own community integrity tools. Verbo stay neighborly. Airbnb neighborhood support line. So you know you can go and report. So you know you can go and report any issues you're having as a unit owner. You know these tools. I suggest going to your board, going to your manager, having your manager and your board utilizing these tools. That would probably be a lot more effective, you know, having someone with authority over the organization, a beneficial owner, you know, a beneficial owner is anyone with elevated privileges, which board members have elevated privileges and the manager does have privilege, so they'll be able to take this farther. But there are tools available.

Speaker 1: 11:40

By these platforms, you aren't held completely victim to Airbnb or Vrbo, and residents should know that. That's a very important thing because, say, you're distressed because your neighbor just keeps on disregarding or, you know, you don't even know whether or not this is allowed. You know, go to your board, go to your manager, find out the governance on your association, find out if there's anything in your association about short-term rentals and so what if? And so what if there isn't? What if there isn't? Then you can create a policy stating what constitutes a short-term rental, why is a ban in place, who's responsible for enforcing it and what's the consequences for ignoring that ban and you know that will be in fines, most likely with violations. You know, and so making sure all the owners are aware of the rules, board and management working together along with the residents, because residents, you guys, are the ones who are also, you know, living there. So speak with your board, speak, speak with your manager. Don't be shy. If something is upsetting, you do something about it.

Speaker 1: 13:14

If you want to see a change in your association, start with your board, one step at a time. Have an investigation violation process in place so, you know association doesn't falsely accuse an owner, and that would go to Airbnb and Airbnb neighborhood support line and verbose. Stay neighborly. These programs are useful tools for the association and you know managers and board members can take advantage of them and make sure to give the owner the opportunity to share their side of the story. But be be stern and be clear. You know this is a community. You're all neighbors. You want to be civil. You're still going to, you know, possibly live in the same area.

Speaker 1: 14:06

I mean, if they're renting out the unit, they might not be on on site, but, um, it's interesting, uh, so if you're attempting to, you know allow short-term rentals. So we just talked about all these things why they're bad, why hAs don't like them, how we can ban them. You're going to have to do it through your governance documents. And let me actually continue. Check your governing documents. Check for loopholes. An example is owner is allowed to rent his home for a year but can also terminate that lease before it ends. So I mean in that case that loophole there is obvious. You can have someone creating 12 year long leases in a year and just breaking the lease every single time or something along those lines. So certain restrictions you can place upon them as an association require residents to notify the board of each rental. So that goes to a renter's agreement.

Speaker 1: 15:30

The association, if they decide to allow short-term rentals, can have a rental agreement. That you know and for a short-term rental that's a lot more justifiable. Maybe a long-term rental, you know that renter is going to be there for a long time, so they're going to have to. They're going to be able to answer to what they do since they live on the property. But short-term rentals they're in, they're out and they can just bounce and say what you know wasn't me. Require renter to identify themselves upon entering the property. Make sure homeowners understand that they are responsible for any violations of the governing document and that's important. Communicate the governing documents documents.

Speaker 1: 16:40

Also, hoas can levite fees on rent on units that rent out in short-term rentals, there can be different fees levied on them. And if they're making money and the association permits it and there's some sort of cost that the association has come to, that can be offset by a fee. That's what, that's what that's. And even a fee, would you know, incentivize owners to from doing that, so from taking on their short-term lease if they're like, okay, I'm going to have these costs and these costs and these costs. And now another cost is my association is going to be charging me you might have. It's not as profitable for them. And if they decide to not inform the association and still do it again, bad idea, especially if there's governance in place that, uh, disincent, that says that's, that's not allowed, that's not committed, um, set a standard, notify homeowners, find out when the policy is broken and handle violators.

Speaker 1: 17:53

So if you allow short-term rentals, there's going to be risks and liabilities. Handle disruptive or noisy renters. How will you encourage owners to look for respectful rentals? That's probably through fees for noisy and disruptive renters. How much will it cost your association and the maximum number that you'll allow property to be rented? So the board must make what's right for the association, the decision that's right for the association.

Speaker 1: 18:37

There's no one-size-fits-all for this. You know, in Sacramento, for example, hoas require property owners who wish to offer short-term rentals to carry a specific type of insurance, referred to as host liability insurance, which protects against claims that may be injured parties or other damages caused by tenants during their stay. Without this, homeowners could be held responsible for losses incurred during their guest actions during the stay. So you know, associations need to be aware about the state and local laws you know a lot of this is local ordinance and determine how that affects them, where their liability is held and make sure that their liability they're covered. And um, it's not, it's not simple, it's not easy really, if you have a resident who's breaking the rules, it's very difficult, okay. So, breaking the rules, it's very difficult, okay.

Speaker 1: 19:55

So, and if you permit short-term rentals contracts, I think that's a good idea Decide maximum number of residents or maximum number of short-term tenants, maximum number of days in a year. Place a fine on that. If you'd like, you can put your insurance coverage requirements on the contract. You can create a tenant's notice. It's a good idea. You know, if you can not just allow short-term rentals, your association is going to be permitting. You know short-term renters, high-frequency individuals who you know may be vacationing. When people go somewhere for a short amount of time, they act differently, and if it's somewhere, if they know they're going to be there for months on end, I think that's a part of human nature. So just in conclusion, there's no one-size-fits-all. Make sure your CCNRs, covenants, codes and restrictions are communicated and your association members are abiding by those rules and when they're not, enforce them. You know, don't just allow people to take advantage of the association. Take advantage of other members of the association. This is a business and it must run like a business. Thank you everyone. Have a great day.