DATE: October 27, 2015 WORK SESSION ITEM STAFF: Ginny Sawyer, Policy and Project Manager Clay Frickey, Associate Planner City Council Ted Shepard, Chief Planner SUBJECT FOR DISCUSSION Short Term Rental Activity. EXECUTIVE SUMMARY The purpose of this item is to provide an overview and background information on short term rental (STR) activity, most typically referred to as Vacation Rental by Owner (VRBO) or Airbnb, within Fort Collins. With the increase in the cyber or sharing economy, communities nationwide are determining if and how to regulate this use at a local level to best protect neighborhoods and address quality of life issues. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does Council want to pursue regulations beyond the collection of Lodging Tax? 2. Is so, what specific concerns should a regulatory system address? 3. Does Council support addressing the concentration of Short Term Rental (STR) activity, particularly in residential neighborhoods? BACKGROUND / DISCUSSION Short Term Rental (STR) refers to rental agreements for less than 30 days. In the past, short term rentals were unique to resort communities who frequently saw vacationers seeking 5-10 day rental opportunities. With the growth of online commerce and savvy technical platforms, the STR market has become much more mainstream and widespread. Vacation Rentals by Owner (VRBO) and Airbnb are two of the most widely known and used companies that cater to the on-line short term rental market. This type of “sharing economy” activity has grown tremendously over the last five years and there are numerous other on-line sites (Homeaway, Flipkey, Rentbyowner) with more entering the market each year. There are two main types of STRs:  A whole house rental where the owner or person in control of the property is not in the property  A shared rental where available rooms are rented while the owner or person in control of the property is onsite. Scale of the Issue It is difficult to track the exact number of STR activity in Fort Collins or in any community. The Colorado Association of Ski Towns (CAST) Vacation Home Rentals: Issues, Emerging Trends and Best Practices Report, which was previously provided to Council, highlighted these challenges noting:  Exact address and owner contact information is not available on Airbnb and limited on other sites; October 27, 2015 Page 2  Listings are inconsistent, with some providing street addresses and unit numbers and others not; and  VRBO no longer lists properties in the same order, meaning that new listings are harder to find. There is also overlap between the sites with users putting listings on multiple sites. The following table demonstrates the range of saturation of STRs in various communities. Total Housing Units Listings on VR Websites % of Units Listed Breckinridge 7,187 2,911 41% Estes Park 4,176 301 7% Boulder 44,370 514 1% Durango 7,234 73 1% Portland 200,000 1600 0.8% Fort Collins 62,832 278 0.44% Denver 290,496 1000 0.34% *Breckinridge, Estes Park, and Durango cited in CAST report. Denver & Boulder numbers cited in city materials. Portland taken from 2014 data. Fort Collins numbers not scrubbed for duplicates or confirmed as within city limits The CAST report has also highlighted differing methods communities are using in an attempt to track this activity: Each community pulls data manually and conducts a record-by-record search. While VHR (Vacation Home Rental) addresses can eventually be identified, the process is time-consuming and can be frustrating. VHR information is stored in MS Excel or Access and new listings are manually compared to existing files. In communities with licensing and permitting requirements, listed VHR’s are cross-checked with licensing/permitting records to check compliance. If addresses are not found through the hosting sites, communities use a combination of photos, online maps, condominium complex names, owner names and/or property management names to locate a property. If an owner or property manager is known, they can be contacted for an address. Maps may provide the general location, and photos make it possible to identify the property upon driving to the area or comparing to ArcGIS and Google map street views. Some conducting property searches are very familiar with the communities and can recognize most properties from the photos while sitting at their desks. Durango and Steamboat Springs both tried creating accounts on Airbnb to notify owners of their need to comply with regulations. Both accounts were promptly canceled for violation of user agreements. Frisco has had some success contacting owners through the hosting sites without incident - the small number of properties in this community (under 30) may not have drawn the attention of the hosting sites. Tax Fort Collins is more fortunate than some communities in that its Tax Code has defined Lodging and is clear that STR activity is required to pay Lodging Tax: …the furnishing of rooms or accommodations by any person, partnership, association, corporation, estate or any other combination of individuals by whatever name known to a person who for a consideration uses, possesses or has the right to use or possess any room in a hotel, inn, bed and breakfast residence, apartment hotel, lodging house, motor hotel, guest house, guest ranch, trailer coach, mobile home, auto camp or trailer court, park or similar establishment, for a period of less than thirty (30) days under any concession, permit, right of access, license to use or other agreement or otherwise. Based on the questionnaire respondents, Fort Collins is currently seeing a higher rate of compliance from VRBO operators (typically whole house rentals) compared to Airbnb (typically a shared space rental.) Over the last 6 months, the City has been attempting to track, locate, and notify STR operators who do not have a sales tax license. October 27, 2015 Page 3 The first notification letter was sent in June 2014. Subsequent letters were sent in November 2014 and in September 2015. Since January 2015 licenses have increased from 43 to 71. From January 1 to October 14, 2015 the City has collected:  $24,034 in Sales tax, and;  $18,414 in Lodging tax from these licenses. Scope of Problem Over the past two years, short term rental activity has come to the City’s attention through a variety of means, including inquiries on permitting the use, concern regarding sales and lodging tax collection, and neighbor complaints and emails to City Council. From mid-July through the end of August 2015, staff provided an online questionnaire to help gauge community thoughts on STR activity. Of the 784 respondents, 113 identified as operating a STR and 204 identified as living near a STR. The full report results can be found at fcgov.com/vrbo. Responses included: Do you think VRBO/Airbnb activity should be regulated? No - 348 Yes - 208 Maybe - 180 I don’t know - 56 If you have a concern with VRBO/Airbnb activity, which of the following apply (check all that apply): Noise and nuisance - 48 Not knowing who is there - 46 Traffic and parking - 38 Over-occupancy - 37 This is a business that does not belong in a neighborhood - 33 Other - 5 The number of complaints in Fort Collins remains low relative to the estimated number of STRs. The concern over this use has increased in the last two years with some expressing strong opinions for the City to take action sooner rather than later. It is worth noting that those neighborhoods having a Homeowners Association (HOA) can restrict this use through covenants. The questionnaire generated more than 400 comments which staff themed into five general sentiments:  Not a problem/Do not regulate/Private property right. (152)  Support for reasonable regulations including tax collection.(85)  Miscellaneous including HOA questions, need more info, and STR consumer comments.(64)  STRs support tourism/cultural experiences. Good addition to the community. Valuable secondary income. (55)  Not in favor. Do not allow. Not in residential areas.(44)  Interested in operating a STR in the future. (6) Range of Options In researching other communities it is clear that many are struggling to find the regulatory “sweet spot” that addresses the defined problem and that enables effective enforcement. The CAST report notes: October 27, 2015 Page 4  Simply prohibiting VHR’s will not make them go away. Units are still advertised and rented where they are prohibited.  Communities with good intentions in adopting regulations have found that enforcing them is the weak link. Cities have been unable to procure cooperation from hosting sites to not list illegal VHR’s nor to provide them the information needed to locate VHR’s that are in violation of local or state regulations. Regulations that restrict the number of days VHR’s may be rented or that require owner occupancy of homes have been a particular challenge. The CAST report also provides a “Best and Potential Practices” checklist. (Attachment 1) Potential regulatory options tend to fall into the categories discussed below. Definitions Creating a definition for STRs is a needed step in any regulatory framework. Neither the Land Use Code (LUC) nor the City Code currently define “short term rental.” There are definitions for Bed and Breakfast and Lodging, neither of which accurately captures this relatively new activity. Staff is considering differences between STR use and traditional Bed and Breakfast use, currently defined as: Bed and breakfast shall mean an establishment operated in a private residence or portion thereof, which provides temporary accommodations to overnight guests for a fee and which is occupied by the operator of such establishment. Bed and Breakfast are currently allowed in 16 zone districts. While there is a perception that short term rentals in a residential home constitutes a business, the rental of rooms from a Land Use Code perspective is considered a “residential” use and the collection of tax in and of itself does not constitute a business. Limiting Numbers and Concentration Communities have utilized zoning, caps or percentage caps, and distance requirements between STRs to limit the overall number. Each of these methods has benefits and challenges. Registration/Licensing There are multiple examples of communities’ registering or licensing STRs. These methods vary from a nominal fee to register and a requirement to include registration number in all advertising to comprehensive licensing requiring inspections, renewals, and possible revocation. The CAST Report highlights the following: Permits and licenses typically record necessary information regarding the VHR, such as number of bedrooms, owner information, property manager or emergency contact information, use or occupancy restrictions, among other requirements. In addition, to receive a permit or license, many communities require the following:  Safety inspection: Austin, Portland, San Francisco, Chicago, Santa Fe, Durango;  Proof of adequate property insurance coverage: Austin, San Francisco, Santa Fe; and  Permit or license number to be displayed on all advertising: Austin, Portland, San Francisco, Santa Fe, Sonoma County, Bend, Oregon. Neighbors may also need to be notified as part of the permit process. For example: Austin requires notice be given to neighbors for public comment as part of the permit approval process, similar to other land use applications. October 27, 2015 Page 5 Many communities require notice to be sent to neighbors upon permit issuance. Notice may provide neighbors with the address; terms of rental use or permit; contact information for a property manager, owner or emergency contact in the event of problems; and the process for reporting violations or complaints to the community’s enforcement office. This can be an effective tool to help neighbors know about and police VHR activity in their area. Portland, Oregon, and Petaluma, Santa Cruz, and Sonoma County in California require neighbor notice. Most of the above communities also require annual renewal of permits or licenses. Yearly renewal maintains a current list of active vacation rentals and contact information. Renewals may also be withheld if VHR regulations have been violated, too many complaints have been received, applicable taxes have not been paid, or if there are health and safety issues on the property. As an exception, Portland requires renewal every two years, with a new inspection required every six years, barring a change in owner, bedrooms rented, or cause for safety or violation concern. Staff is confident that through a robust public engagement effort, research and utilizing experience from previous City efforts, such as Illegal Duplexes (multi-year phase in approach with escalating fees), Fort Collins can develop a unique, effective, and reasonable system to address STR activity and complaints. Public Engagement In addition to the online questionnaire, staff has met with both STR operators and neighbors. Many STR operators have come forward and offered to share their experiences and best practices. These operators are very willing and interested in being involved moving forward. As well, citizens interested in limiting and regulating STR activity have also come forward and are working together. Staff met with the Affordable Housing Board (Attachment 2) and the Planning and Zoning Board. Staff also met with the Visit Fort Collins Board and the Board of Realtors. All of these conversations recognized and spoke to the increasing popularity of STRs and the unique experience STRs can bring to visitors. Many expressed a willingness to consider reasonable regulations with the Board of Realtors being the most cautious towards over-regulating. None felt that STR activity was negatively impacting housing affordability and many believe it is providing crucial secondary income to allow people to stay in their homes. Highlights from Research Boulder, CO Boulder voters will be considering a tax on short term rentals at the November. 3, 2015 election. If the tax does not pass, the ordinance allowing short-term rentals will not go into effect. Instead, there will be an express provision prohibiting short-term rentals. Denver, CO Working on developing a program: goals to include tax collection and a revocable license. Do not anticipate having the capacity to inspect properties. Durango, CO Have permitted Tourist Homes since 1989. Recently updated for STR activity. Limit by total number in some areas and by one-per block in other areas. Enforcement is biggest challenge. Provo, Utah An inspection of the property may be required prior to the issuance of a rental license. Information provided on the application will be compared to original approval documents in the zoning office to determine the legal use and October 27, 2015 Page 6 occupancy for the rental. Properties that were originally constructed as single family homes and have been converted into two or more units may be inspected. Sonoma County Permit process in place. Maximum of 5 guestrooms. Limited to a maximum of 2 guests per guestroom plus 2 additional guests per property. The maximum number of guests allowed at any one time during the day is the overnight occupancy limit +6. Santa Barbara, CA The City is aware that vacation rentals exist throughout the City and that most are operating in areas that do not allow visitor stays of less than 30 days. The City Council has initiated a Zoning Ordinance Amendment to define, regulate and permit home sharing rentals. The first step will be a public hearing and discussion with the Planning Commission to discuss the various ways this could be done. Anaheim, CA Permit program in place. Occupancy limit of three people per bedroom; plus two. Adopted a moratorium in September 2015 initiating a temporary pause in issuing or renewing short-term rental permits or related variances, building permits, business licenses and entitlements to analyze community and industry comments and to consider additional rules and regulations that may be needed. Bellevue, WA Registration program. No more than five units in any building and no more than 20 percent of the dwelling units comprising a development shall be used for Short Term Stay Use at any given time. Next Steps Based on direction received, staff anticipates initiating a thorough public engagement process including stakeholder focus groups and larger public forums. ATTACHMENTS 1. CAST Best and Potential Practices (PDF) 2. Affordable Housing Board minutes, October 1, 2015 (draft) (PDF) 3. Email from Lloyd Walker, September 16, 2015 (PDF) 4. Public Engagement Summary (PDF) 5. Sustainability Assessment Summary and Tool (PDF) 6. Work Session Summary, June 9, 2015 (PDF) 7. Powerpoint presentation (PDF) ATTACHMENT 1 Taken from the CAST Vacation Home Rentals-Issues, Emerging Trends and Best Practices Report (June 2015) d o ns ho e Best and Poten tial Practices Tracking Regulatio Licensing Permits Taxing Staffing NeighborImpacts WorkforcHousing Post information within the VHR X X X Require local manager/emergency contact X X X Coordinate with jurisdictions in region X X X Create website on VHR’s X X X Require property inspections X X Negotiate Airbnb agreement X X Require license numbers to be on all listings X X Give neighbors notice X X Map licensed/permitted VHR’s X X Establish fee to cover management costs X X Coordinate tracking across departments X X Publish VHR requirements in newspapers X X Work with code enforcement on complaints X Post local VHR regulations on Airbnb X Restrict VHR concentration X Implement more restrictive regulations X where impacts are higher Give owners unique rights to short-term their X homes Permit bedroom rentals w/owners present X Create separate categories for VHR’s X depending on time rented Dedicate/hire staff for license compliance X Educate realtors about requirements X Link complaints to legal vs illegal VHR’s X Establish enforcement procedures and use X them Revoke licenses/permits for violations X Increase license fees to mitigate workforce X housing impacts Collect VHR details on license or permit X applications Taken from the CAST Vacation Home Rentals-Issues, Emerging Trends and Best Practices Report (June 2015) d o sn oh e Best and Poten tial Practices gnikcarT oitalugeR gnisneciL stimreP gnixaT gniffatS robhgieNstcapmI crofkroWgnisuoH Educate visitors that listings must have X license numbers Initiate state action to address 30-day limit X on sale taxation Initiate state action to address how properties are classified for property taxes Assign community development lead X responsibility for VHR’s Coordinate VHR’s w/ economic development X Add staff specialist X Hold stakeholder roundtables X Impose occupancy limits X Impose visitor limits X Limit outdoor parties X Manage trash X Address parking X Have general nuisance provision X Use real estate database to track conversion X of housing into VHR’s Create housing census X Prohibit use of workforce housing for VHR’s X Require check for workforce compliance X when licensing VHR’s Allocate VHR revenue to housing X Replace lost housing units X ATTACHMENT 2 Excerpt from Affordable Housing Board Minutes October 1, 2015 AGENDA ITEM 1: Short Term Rentals—Ginny Sawyer Vacation rentals issues have come to City attention over last two years, mostly through complaints. Unregulated at this time. Any rental less than 30 days should pay lodging tax. Council has asked staff to research. Online questionnaire, visiting boards, reaching out to vacation rental owners, bed and breakfast owners, and complainants. Will have a public forum at a later date. Delineated between vacation rental by owner (VBRO) versus Airbnb with property owner on site. However, a lot of units are marketed as both. Most VBROs and Airbnbs have been operating less than 3 years. Around 120 total in Fort Collins. Very difficult to track. Majority are occupied more than 15 nights per month. Have more compliance with sales and lodging tax with VRBO than Airbnb. Asked neighbors how became aware they were living near a unit; majority said the owners informed them. Most neighbors were not concerned, however concerns include operating a business in a neighborhood and character change with transiency of occupant. Many do not feel should be regulated. Received 471 comments on questionnaire. Benefits include supporting tourism, positive addition to community, and creating valuable secondary income. Those who support regulations would like to see permitting, limiting the number of occupants, self-certification, limiting the number of nights, requiring inspections, allowing only in certain zones, limiting total number citywide, and meeting ADA standards. Overall percentage of housing stock being used this way is less than 1%. Resort communities have much larger scale of this activity. Going to Work Session to decide whether do nothing, ban, or have some range of regulations. Many options through zoning, self-certifying, sales tax licensing, and registration/permitting. Marketing sites are somewhat self-policing. It is in best interest of owner to be safe, welcoming, etc. Comments/Q&A  Sue: Durango has parking limitations. o Ginny: Durango required a certain number of parking spaces per occupant.  Eloise: What is problem with collecting sales tax? o Ginny: People knowing they need to collect it. o Terence: Not creating employees, so people don’t think of this.  Curt: Even if municipality is not regulating, it is somewhat self-regulating. Guests and owners can give negative feedback, which has consequences. o Resort communities and large cities are concerned with this activity taking housing off the market.  Troy: Of ones that rent out and owner is not on site, do people rent while on vacation and otherwise live there, or use unoccupied home? o Ginny: Both. A lot of communities have built in exemptions for those who only rent a couple of times a year. Sometimes property is adjacent to primary residence or is a carriage home. Communities are trying to crack down on absentee owners.  Diane: Explain community concerns. o Ginny: Expectation that a residential area remains residential, not a business area. Concern about not being able to know neighbors, character of neighborhood, noise, etc. In multifamily people treat it as a hotel rather than a living place.  Sue: Regulations separate for different types? o Ginny: Yes. Enforcement will be challenging. Secondary income becomes important. Not always a guarantee that Airbnb owners are on site.  Curt: Trying to understand how this is a threat to affordable housing? 30% AMI and below are not Airbnb clientele. And sites are not those that would be occupied by low income residents. o Sue: If you have a house that is vacation by owner, it is off the market for a family to rent or buy as primary residence. o Diane: Concern about percentage of housing stock in short term rentals can be addressed by having a limited number of licenses/permits.  Curt: Then it is first come first served and eliminates opportunity.  Troy: Since most don’t feel it is a problem now, not the right time to regulate. From affordable housing standpoint, not a problem to spend staff time trying to fix. o Sue: What about Airbnb helping affordability by providing income to owners?  Troy: Can help someone into move-up property.  Curt: Property taxes are going up. Look at secondary income as not necessarily just discretionary.  Diane: Would not make a blanket statement that a good thing.  Sue: Has heard that this can help people keep property while un/under- employed.  Ginny: Will continue to pursue education about sales and lodging tax. Council has mentioned full blown rental licensing.  Curt: Could that become cost prohibitive?  Ginny: In Durango was $750 for first year to cover inspection and less for annual renewal. Should Fort Collins begin inspections/regulation now, while there are less than 200? Don’t want it to be so onerous that people take it underground. Keep it safe and get sales tax.  Diane: Does the City have liability if someone is injured? o Ginny: Do we increase our liability if we inspect and license, but someone still gets injured? o Sue: For hotels we inspect, but are not liable for injuries.  Ginny: Will let Council know board’s comments in Work Session.  Troy: Heard from Estes Park that it is a contentious issue there. Surprised it is only 7%. o Terence: A lot of second homes in Estes. o Troy: 0.44% is not a problem yet, but 7% is. Need to find right proportion.  Sue: Bed and Breakfast comments on this? o Ginny: Only two in Fort Collins and one is a hostel. The hostel completely supports Airbnb, but would like to see it taxed.  Curt: If goes toward regulation, investors that are not on site need to have higher level regulations. Too onerous for on-site owners.