Your home is not a hotel, obviously. However, an ever-growing number of New Orleans homeowners want to run a hotel-type business on the side. With tourism booming in the midst of a generally weak economy, it’s a quick way to make some extra cash.
This is the nexus of the controversy over “illegal short-term rentals” that has been permeating local political discourse in recent months. Due to zoning and licensing laws, there’s simply no way for homeowners to rent a room out as a vacation rental. Most crucial is the fact that any lease has to be for at least 30 days (or 60 days in the French Quarter).
Adding fuel to the fire is Airbnb, a website which allows users to rent out lodging. The company was founded in 2008 in San Francisco, which ironically is both a city that bans such short-term rentals and has enforced its ban vigorously, filing lawsuits against repeat violators.
New Orleans is taking a similar tack. This past week the City Council signaled its intention to rein in illegal short-term rentals by clarifying and tightening the definition of a “transient vacation rental” in the city code. However, Council President Stacy Head seemed to leave open the possibility of allowing some transient rentals to remain under tight regulation.
“There are a growing number of unregulated, illegal and sometimes very problematic short-term rentals,” Head remarked. “We’ve got to put together a comprehensive way to regulate and, at times, restrict and certainly harness tax dollars from them.”
This debate is hardly unique to New Orleans. While many cities lack significant regulations on transient rentals, many have clamped down. Austin, for example, set up a complex regulatory scheme in 2012, and many other cities have enacted outright bans.
The issues at stake are twofold: First, it would be unfair to exempt transient rentals from all the taxes, fees, and licensing that hotels, motels, and bed and breakfasts have to go through. The city’s hotel tax is the biggest issue; the rate has increased greatly in recent years and is now up to 16.44%, which is among the highest in the nation.
Transient rentals are, by their nature, hard to regulate. Getting people on board with going by City Hall to get a license and a tax certificate for simply renting out a single unit will be difficult, if not impossible. Meanwhile, a real crackdown on transient rentals would require a rigorous enforcement effort from the city, one that might not pay for itself.
Secondly, although hosting a transient rental might benefit the homeowner, it creates problems for everyone else. Tourists who seek vacation rental are more likely to be loud, stay out late, and generally irritate the neighbors. A never-ending cavalcade of drunken tourists arriving home from Bourbon Street is hardly conducive to a residential neighborhood. It’s one thing if this is restricted to a few residential bed and breakfasts; it’s quite another if it’s half your neighbors.
Moreover, transient rentals often take away prime housing stock from actual residents, thereby increasing prices in the rental market. With rents already spiking throughout the historic areas of the city, this is another major blow to housing affordability.
It’s easy to understand why homeowners elect to go the transient rental route instead of a traditional long-term lease. A room or small apartment that might rent for between $600 and a $1,000 monthly in a normal lease can fetch $150 per night.
And transient rentals don’t require a working kitchen or substantial storage space. A bedroom set and a bathroom are all you really need.
Alas, as attractive as the option is, the scales still weigh against transient rentals. Ultimately, they can cause serious problems as huge swaths of the city could turn into quasi-hotels that skirt regulations and avoid taxes.
The reason for this problem, however, is not simply selfish homeowners -– it’s the failure of the city to allow the real estate market to keep up with demand. There has been a moratorium on new hotels in the French Quarter since 1969. Zoning and height restrictions have often served to prevent the development of new hotels, particularly in other prime locations.
Worst of all, following Hurricane Katrina, many bed and breakfasts folded as tourism plummeted. These were small businesses that made little profit and could hardly be expected to weather such a major catastrophe. During that period, many BnB’s were bought up and converted to other uses (including the house I currently own).
With high demand for transient rentals and an inadequate supply, it’s unsurprising that illegal short-term rentals are cropping up to pick up the slack. The solution is not to legalize these admittedly “problematic” rentals, but to accelerate hotel development to satisfy demand.
There are some positive signs in this regard. This week the city council waived some needlessly onerous zoning requirements to allow the construction of a new $35 million hotel in the CBD, to be built on the site of what is now a valet parking lot. Although the council stuck to its guns on the zoning code’s absurd height restriction, it did allow an additional floor despite the refrain that such dispensation would technically violate the holy writ of the “Master Plan.”
Sadly, Stacy Head was one of two councilmembers who voted against the project. She championed her conception of rule of law, embodied in a rote adherence to the Master Plan, as trumping practical economic concerns.
That was a mistake. It’s essentially “zero tolerance” zoning, and when combined with a zeal for restricting illegal short-term rentals, it’s a fundamental refusal to acknowledge reality. If we are to eschew AirBnB and start the process of eliminating illegal transient rentals, we also ought to help bolster supply in the market for hotel and vacation rentals.
Curbing illegal short-term rentals is good policy, but we need to ensure that we aren’t fighting market forces on both ends. In the end, that’s a war we can’t win.
Owen Courrèges, a New Orleans attorney and resident of the Garden District, offers his opinions for UptownMessenger.com on Mondays. He has previously written for the Reason Public Policy Foundation.