The Impact of Short-Term Rentals on Housing Markets

Overview of the Problem

The rise of Airbnb, VRBO, and other short-term rental platforms has created notable challenges within housing markets. The increased prevalence of these rentals is tied to significant effects on housing prices, especially for renters and those looking to buy homes. Studies, including one from the Harvard Business Review, indicate that short-term rentals like Airbnb account for approximately 20% of the average annual increase in rent nationwide. Furthermore, research from the National Bureau of Economic Research and California-based universities reveals that a 10% increase in Airbnb listings correlates with a 0.42% rise in rents and a 0.076% uptick in house prices. These shifts emphasize the need for regulatory action to alleviate the strain short-term rentals impose on the housing market.

While short-term rentals can bring economic benefits, such as boosting local tourism, they also drive up housing costs, reducing affordability for long-term residents. Regulatory strategies are essential to reduce these negative impacts while balancing economic contributions. Potential solutions include tax policies, zoning laws, administrative codes, and, in some cases, an approach resembling a de facto ban on certain short-term rental operations.

Potential Regulatory Solutions

1. Tax Policies
Tax policies aim to curb the rise of short-term rentals and direct funds toward affordable housing projects. For instance:

• California Senate Bill 584 imposes a 15% tax on rentals lasting less than 30 days, channeling revenue into affordable housing managed by public or nonprofit organizations.
• Los Angeles County applies a 12% Transit Occupancy Registration Tax to short-term rental stays, similarly directing these funds toward housing needs.

Purpose: Taxes deter short-term rental growth while supporting community housing initiatives.

2. Zoning Laws
​Zoning regulations can define legal areas for short-term rentals, setting boundaries on:

• Guest Capacity: Limits on the number of guests per rental.
• Stay Length: Restrictions on the maximum allowable duration for rentals.
• Permits: Requirements for property owners to obtain special permits or licenses for short-term rental operation.

Goal: This approach minimizes neighborhood disruption, reducing the risk of short-term rentals in areas best suited for long-term residents.

3. Administrative Codes
In California, administrative codes help ensure that properties used for short-term rentals maintain a connection to long-term residency:

• Owners must reside in the rental for at least 60 days before renting it out and must occupy it for 275 days annually.

Benefit: These requirements prevent properties from being exclusively designated as short-term rentals, allowing long-term rental availability.

4. De Facto Ban Approach
Some cities, such as New York City, have taken measures akin to a ban by placing strict occupancy limitations:

• Short-term rentals are only allowed in owner-occupied homes, with a maximum of two guests at any one time.

Outcome: New York City’s approach has reduced short-term rentals from 22,000 to approximately 7,000, thereby increasing the availability of long-term rental options.

State-Specific Regulations
Florida (SB 280)
Florida’s Senate Bill 280 permits local governments to enforce short-term rental regulations through:

• Registration Programs: Property owners must register rentals with local authorities.
• Guest Occupancy Limits: Limits are set at two persons per bedroom plus an additional two in common areas.
• Penalties: Property owners violating these stipulations may be fined up to $500 if the issue isn’t resolved within 15 days.

Effect: These regulations aim to help local authorities monitor and manage short-term rental impacts on the housing market.

Indiana
Indiana has explored regulations but has not yet enacted state-level controls on short-term rentals:

• Senate Bill 497: Proposed in 2019, it would have introduced taxation on rentals under 30 days, or those rented for more than 15 days annually. However, the bill did not pass, leaving tax compliance largely voluntary.

Challenge: Without regulation, Indiana’s short-term rentals remain less controlled, making it challenging to manage their impact on housing affordability.

Conclusion
With rising housing shortages in Indiana’s largest cities, adapting frameworks from other states could be beneficial. By implementing tailored regulations, Indiana has the potential to balance the interests of short-term rental operators with the need for affordable long-term housing.

---