When Jordan Schwartz converted his basement mother-in-law apartment in Seattle from a long-term rental to an Airbnb listing, he more than doubled his annual earnings. The huge gains motivated him to turn another apartment, in a three-unit building he owns, into an Airbnb rental, as well.
“We converted one of the units to Airbnb last year, and immediately tripled our income,” said Schwartz, the CEO of Seattle startup Pathable. “As tenants move out, we’re converting the others as well. The second one comes online on Airbnb at the end of this week.”
But those plans may be thwarted by new regulations, proposed by Seattle Mayor Ed Murray and Councilmember Tim Burgess, aiming to put new restrictions on short-term rentals like those facilitated by Airbnb, HomeAway, and VRBO.
The proposal splits short-term rental operators into two groups — homeowners who occupy the properties they rent out, and property owners renting out residences they do not occupy. The latter group, Burgess and Murray contend, run their rentals more like a business than a “casual” way to earn extra cash.
If the city enacts the new regulations, short-term rental operators who don’t use their properties as primary residences could not rent them out for more than 90 days per year. The regulations would also require property owners and short-term rentals platforms to obtain new types of licenses. The proposal defines short-term rentals as non-hotel bookings of 29 nights or fewer.
Airbnb and HomeAway — the Expedia-owned vacation rental network that includes VRBO and similar sites — are the titans of the short-term rental industry. They have been growing rapidly in recent years, taking a considerable chunk of business from traditional hotels. The platforms, which allow property owners to rent out rooms and entire units to peers, comprise a new multi-billion dollar industry known as “alternative accommodations.”
Burgess and Murray are concerned that property owners, compelled by lucrative Airbnb listings, are taking housing inventory off the market by converting units into short-term rentals. They believe the proposed regulations will discourage landlords from operating hotel-like businesses where they would otherwise provide long-term rentals for residents. They hope curbing Airbnb and VRBO will help address Seattle’s housing affordability crisis, driven largely by the city’s tech boom.
The proposed regulations have ignited a major debate among Seattle residents and property owners.
Schwartz, for one, has mixed feelings about the changes. “This law would obviously hammer my rental property, but I get it, and don’t necessarily oppose it,” he said. “I’m taking affordable apartments off the market and renting them through Airbnb. That’s bad for Seattle. So, OK.”
Though the rules would have the desired effect on Schwartz, not everyone is convinced that they’re the right approach. GeekWire asked Airbnb operators in Seattle what they think of the proposed regulations and what impact they expect to see.
Impact on Airbnb operators
The intention behind the proposal is to reduce commercially operated short-term rentals while still allowing individuals to rent out their properties or spare rooms on a “casual” basis. But some homeowners say they’re discouraged by the new licensing system.
Take Betsy Bell, a West Seattle resident who rents out her spare room because she’s on a fixed retirement income and enjoys the company. Because she is the primary resident of the property she rents, the 90-day limit would not apply to her. She would, however, be required to obtain a business license. Because Bell rents her spare room for more than 90 days — about 200 per year — she would also need to get a new Short Term Rental Operator license. Requirements for that include proof that the unit is a primary residence, liability insurance, a local contact number for guests, a signed declaration the unit is up to code, and compliance with safety ordinances.
“I feel the regulations are excessive for homeowners like me,” she said. “Widows who want to stay in their homes (like me) and may have fixed retirement income and want the occasional company a guest provides, might find getting a business license challenging. I can see the value of regulating people who have moved out of their houses and the whole place becomes a cash-generating mini hotel, and the people taking rental units out of the long term rental market in an apartment building.”
The licensing process is also discouraging for Eric Jewett, vice president at Seattle startup SkyKick. He and his wife bought their house in 2014, with the intention of renting out the basement mother-in-law long-term. They were dismayed to find out the property lacked the necessary permit for long-term rentals and posted the unit to Airbnb in 2015. He says that even though his property likely meets the requirements for a short-term rental license, the process is too onerous for individual homeowners.
“We also want the flexibility for our parents to stay there due to the upcoming birth of our son, so we do not want it permanently rented out,” he said. “Therefore, we would likely take it off the market if the restrictions become too burdensome.”
Despite these concerns, Burgess insists the new regulations are designed to protect casual short-term renters, while restricting commercial operations.
“It is clearly providing economic benefits to hosts,” the councilmember told GeekWire in an interview. “We don’t want to interfere with that but we do want to regulate commercial enterprises that are converting large numbers of Seattle homes to short-term rentals, instead of the long-term rentals that they are today. That’s where I think the city’s compelling interest comes into play. … How do we protect our long-term rental housing stock while at the same time allowing homeowners to earn some extra money by taking advantage of these rental platforms and the service they provide?”
It’s a difficult question to answer. The experiences of Jewett, Bell, and Schwartz show how challenging it is to protect one group, while restricting another, when everyone involved is using the same technology and model. But Schwartz’s case is one example of the intended law’s effect.
“If the regulations are passed as is, I’ll continue to rent my primary residence mother-in-law apartment on Airbnb, but take the three-unit apartment building units and convert those back from Airbnb units to long-term rentals,” he explained.
Regulation in Seattle
Between its liberal politics, booming tech and business sectors, and early adoption of disruptive technologies, Seattle poses unique challenges for enacting regulation. The debate over the proposed short-term rental rules (and past attempts to regulate gig economy services) demonstrates the conflicting interests of many of the city’s residents.
In a satirical commentary on GeekWire last week, Pioneer Square Labs co-founder Greg Gottesman criticized the new rules by suggesting some extreme restrictions on other technologies.
“To curb obesity in our city, we should limit the number of OpenTable reservations Seattleites can make to one per month,” he quipped. “To lower the divorce rate in Seattle, we should cap the number of Tinder swipes within city limits to 15 per month.”
Many in the tech and business communities share Gottesman’s sentiments that the proposed regulations miss the mark. But residents squeezed by the competitive rental market are looking to Seattle lawmakers to provide some relief.
“There are an estimated four to five thousand Seattle homes, whether that’s a condo or an apartment unit or a private residence, that are being offered on these rental platforms today,” said Burgess. “Airbnb tells us that since 2009, their volume of users has doubled each year, so we know that this a large, growing sector.”
Burgess says that about 80 percent of short-term rental operators (those renting units for fewer than 90 days per year) won’t be affected by the changes. His intention is to target the 20 percent of property owners who are operating like commercial lodging.
Schwartz, one of those property owners, believes the new rules will help ease Seattle’s housing affordability woes.
“Free Market Me says, ‘Hey, it’s my property, I should be able to rent it however I want,’ but Social Justice Me says, ‘This is good for the community and in my enlightened best interest.’ Net-net, I’ve got to side with Social Justice Me,” he said.
Jewett, on the other hand, thinks the new rules are just for show.
“The proposed regulations seem to be purely a political ploy to attempt to demonstrate the city council cares about people struggling with rising rents,” he said. “I don’t think they will have any impact on rising rents, and there are many other actions the city could take that would have a larger impact.”
Under the new policies, companies like Airbnb and VRBO would be required to turn over some data to the city in order to obtain a new regulatory license. They would be required to provide names and addresses of rental operators and the number of nights the operator has rented on the platform, over the previous 12 months, on a quarterly basis.
Robert Callahan, Director of California State Government Affairs for The Internet Association, a non-profit lobby that fights online regulation, is concerned about the implications of this measure.
“Individuals have a valid expectation online that their information will not be turned over to government enforcement agencies without cause,” he said. “This proposal flips this tenet of privacy on its head, by requiring online platforms to regularly turn over information on their users just to do business in Seattle. This is an inappropriate approach to enforcement, with broader negative implications for the internet economy.”
Burgess says the data is no different than information businesses in Seattle are already required to provide. He does not believe the privacy concerns are germane to the issue.
“The city is not going to be seeking information on guests or people who are using the service and staying in a property that’s been advertised on Airbnb,” he said. “But like we do with any city business license holder, we’re going to know about the host or the operator.”
Still, the data requirement has some Seattle short-term rental operators, like Jewett, up in arms.
“I am not aware of hotels or landlords being required to provide this information to the city and see it as a gross abuse of power and completely unnecessary,” he said.
Perhaps because Schwartz has operated his rentals commercially (rather than casually) all along, he isn’t uncomfortable with the city requesting this information from Airbnb.
“If I were operating a restaurant, I’m sure I would have to tell the city where the restaurant was to get the license,” he said. “So I don’t see a problem with the city knowing where I’m operating a lodging rental business.”
The Seattle City Council will hold its first discussion of the proposed rules at a meeting of the Affordable Housing, Neighborhoods and Finance Committee — of which Burgess is the chair — on June 15. The Council tentatively plans to vote on the proposal in late July.