Following the exponential growth of the vacation rental industry after the Airbnb platform establishment in 2008, local US authorities started introducing various laws and regulations in an attempt to control the further spread of the industry and the negative effects it had on many real estate markets and communities.
What Short Term Rental Regulations Are
Short term rental regulations refers to the set of rules, restrictions, and principles that authorities impose to establish unified standards in the vacation rental industry by which all interested parties need to comply.
In the US market, Airbnb laws are usually applied at the state and city level but some of them are also imposed at the county level. It’s important to note that there are no federal regulations, and rules differ significantly from one state to another and even from one city to the next within the same state.
Generally speaking, locations that see a lot of tourist activities and many short term guests tend to have more strict rules that might reach blanket prohibitions in areas that have been seriously affected by vacation rental operations.
Airbnb hosts and managers should be aware that most US states as well as a lot of US cities and towns have their own definition of a short term rental. In most cases, a short term rental is considered a residential property or a part of a residential property that is rented out for fewer than 30 consecutive days in exchange for monetary compensation.
Nevertheless, there exist variations in the definition, and it is the responsibility of the operator to check the definition in the local market when starting reviewing short term rental laws.
How Short Term Rentals are Defined by Local Authorities
The Florida Department of Business & Professional Regulation (DBPR) defines a vacation rental (equivalent to a short term rental) as “any unit or group of units in a condominium or cooperative or any individually or collectively owned single-family, two-family, or four-family house or dwelling unit that is also a transient public lodging establishment but that is not a timeshare project”.
Florida short term rental operators need to obtain a license in case they rent out an entire unit more than three times in a calendar year for periods of less than 30 days. It’s worth noting that Florida is one of the few states that have a state-wide definition while in most cases short term rentals are defined at the city level.
As another example, the State of Iowa does not define vacation rentals. Meanwhile, in Ashford, CT, a short term rental is defined as “a residential dwelling unit, portion of a dwelling unit or room within a residential dwelling unit rented by transient guests for a period less than 28 consecutive days”, whereas Bozrah, CT defines it as “a dwelling unit or portion thereof, or all or a portion of an accessory structure on a residential lot that contains sleeping quarters but does not meet the definition of dwelling unit, that is rented for compensation, direct or indirect, in currency or in kind, to occupants for a term of twenty-one (21) or fewer days at a time, with no consecutive rental agreements allowed with the same tenants”.
What Short Term Rental Regulations Aim to Solve
Local authorities introduced vacation rental regulations with the stated purpose to limit the negative impact of the quickly spreading short term rental industry on local communities. In some markets like California and New York, property prices skyrocketed over the two decades, partially as a result of the increasing number of out-of-state investors buying homes to rent out on Airbnb in search of quick profits.
In this way, Airbnb contributed to the already existing challenge of the lack of housing affordability in many locations, and regulations aim to provide a solution to this crisis by making sure that properties are purchased by homeowners and not investors.
Additionally, short term rental guests in residential areas brought a whole lot of problems to local residents. These include but are not limited to unbearable levels of noise, uncontrolled mass parties, parking deficit, and a general increase in the level of insecurity due to the everchanging guests. That’s another challenge that Airbnb laws tend to address.
Moreover, in many locations, the newly issued laws aim to guarantee guest safety. This is done through the obligatory installation and regular inspections of various security devices such as smoke detectors, fire alarms, carbon monoxide detectors and alarms, and fire extinguishers.
Another major objective of short term rental regulations is to properly tax the operations of Airbnb businesses, just like all other business activities get taxed in the US market. That’s why special sections of the laws deal with taxes, such as transient occupancy tax (TOT), lodging tax, and sales tax, which vary in accordance with local tax regulations and requirements.
In this way, universal regulations eliminate unfair competition between Airbnb hosts (hosts paying taxes vs hosts not paying taxes) and also put short term rental operators on equal footing with others in the hospitality industry (hotels, motels, beds and breakfasts, etc.). Furthermore, they ensure that local governments benefit from relevant taxes to improve services to residents.
While some claim that the primary objective of Airbnb laws is to support the hotel industry in the face of the fast-growing vacation rental business and result from the strong hotel lobby, it’s crucial to have clear rules about how short term rentals are supposed to operate for the benefit of hosts, guests, neighbors, and local authorities.
How Short Term Rental Regulations Work
While the rules that govern vacation rentals are as diverse as they get, there are certain aspects that all state, county, and city rules define and regulate.
The most important components of STR regulations include:
Short Term Rental Registration, Licensing, and Permitting
Most locations require properties that operate as vacation rentals to be registered with the county and/or city authorities, similar to any other business establishment. In the State of Florida, a state-level license is needed too though that’s generally an exception.
Short term rental registrations can usually be done online by submitting a number of documents that provide information about the property, its characteristics, its address, and its owner.
Depending on the market, a special license or permit might also be required. Typically, these are issued for a period of one year and need to be renewed on an annual basis. In rare cases they are subject to renewal every half year or every two years.
Zoning Laws
Zoning laws are another popular part of Airbnb regulations. In many popular tourist destinations, short term rentals are allowed only in commercial zones, while they are prohibited in residential areas. This restriction aims to permit local investors to benefit from the influx of tourists while securing the peace and safety of local residents and their families.
Occupancy Limits
Many cities restrict the maximum number of adult guests per bedroom (usually to two) as well as per property and do not allow unregistered overnight guests. The aim is to prevent overcrowding (especially in the event of a fire) and to eliminate illegal parties that cause a lot of disturbance and discomfort in residential neighborhoods.
Number of Rented Day Limits
It is also popular for short term rental regulations, especially in the State of California, to limit the number of calendar days per year for which a dwelling can be rented out on Airbnb or a similar platform. The cap can be anything between 14 days and 120 days and sometimes applies only to non-hosted rentals (properties where the Airbnb host is not on site during guest stays).
Short Term Rental Taxes
There are special ordinances that stipulate what taxes Airbnb properties need to pay, to whom, and how. Taxes might be paid to state, county, and municipal authorities or to all three. The rates vary widely from one market to another.
In many states, Airbnb and other listing websites collect TOT, lodging tax, or sales tax on behalf of hosts and remit it directly to the relevant authorities, while in other states this needs to be done by the short term rental operator.
In addition, Airbnb hosts need to pay income tax on the rental income which they generate from their vacation home according to the rates in their jurisdiction. Property taxes continue to work in the same way as with primary homes and long term rental properties.
Insurance
While short term rental property insurance is not legally required by US federal laws, some jurisdictions impose an obligatory property liability insurance of a certain minimum amount. This is usually needed for hosts who list and market properties on platforms that do not offer general liability coverage, such as direct booking websites.
For instance, via AirCover for Hosts, the Airbnb platform offers up to $1 million in host liability insurance for all listings and all reservations, so owners might not be legally obliged to get further coverage.
Operational Rules and Regulations
Finally, short term rental laws set up minimum requirements related to the safety of guests and permanent residents. This refers to the number of smoke alarms, carbon monoxide alarms, and fire extinguishers per bedroom and in common areas.
It also covers things like the need to provide parking spaces for guests and to control the level of noise coming from the property. Some authorities also stipulate how the additional waste associated with running an Airbnb business needs to be handled and discarded.
Before buying a vacation rental or becoming a short term rental property manager, it’s crucial to check and take note of all these aspects of local regulations in your market. No matter how generous or restrictive Airbnb laws are, you need to abide by them to avoid hefty fines and the possibility of having your business permanently shut down.
How Short Term Rental Regulations Affect You
The Airbnb laws and regulations imposed by local authorities impact all aspects of running an Airbnb business. The effects can be both positive and negative for short term rental operators, depending on the market, the specific regulations, and the type of business that you operate.
In areas with tight STR regulations, there are fewer listings as it’s harder to comply with all requirements and some owners drop out. For hosts and property managers that are able to meet all legal expectations and list their rentals, this translates into less competition than in markets with less strict rules. With fewer available options for guests, owners can increase daily rates and still generate a good Airbnb occupancy rate.
Having said that, however, demanding vacation rental laws come with many challenges to those listing properties on a short term basis. First of all, startup and operating costs increase due to the need to install various home safety devices and to arrange for regular inspections as well as to get and renew business licenses and permits.
Moreover, in locations where short term rentals are allowed to be marketed and rented out for only a limited number of days per year, operations are severely restricted, so the overall impact on the annual occupancy rate is likely to be strongly negative.
If you can operate your business for 90 or 120 days per calendar year, your investment property will stay unoccupied for most of the time, while you still need to maintain it and take care of it without receiving income from it. This will lead to decreased cash flow and worse return on investment.
It’s also worth highlighting the impact of regulations that virtually ban Airbnb operations across entire cities. For instance, in New York City it is illegal to rent out an entire apartment or home for less than 30 days even if you own the property or live in the building where it’s located. Parts of homes can be rented out for less than 30 consecutive days if the host is present on site and there are no more than two paying guests who have access to all rooms and exits.
Similarly, in Los Angeles short term rentals can be operated only from primary residences which means that the host must live on site for more than 6 months per calendar year. In such locations, buying an investment property for the sole purpose of renting it out on a short term basis becomes impossible.
Those who are already operating a vacation rental business before the introduction of such prohibitive rules would need to transition into a long term rental or sell their investment altogether and relocate to another more conducive market.
Where to Find Short Term Rental Regulations
Unfortunately, there is no single place where short term rental property owners and managers can find all regulations governing the different parts of the US market. They need to resort to a number of resources to obtain comprehensive information and ensure that their business is legally compliant.
Following are the best sources of data and information about Airbnb laws and rules:
Local Government Websites
In most cases, the most comprehensive source of this kind of information is the websites of local governments. To make sure that you get the full picture, it’s necessary to check out the websites of state, county, and city authorities governing the market of your investment.
Most websites provide an email address or a phone number where additional information can be obtained and questions can be asked. The websites also offer copies of the required applications that can usually be submitted online.
Local STR Zoning Laws
It’s also worth checking out the local laws regarding zoning for the purposes of short term rental markets in your area. These might contain additional details and explanations where exactly Airbnb is legal and where it is not in your city. You can use the available maps to confirm that your vacation home is located in an area where homesharing is permitted.
Airbnb Help Center
While it is beyond the objectives of the Airbnb platform to provide legal advice, the Airbnb Help Center has multiple articles that highlight the main points in the short term rental regulations of the top Airbnb markets.
This cannot be your only source of reliable and comprehensive information on the matter, but it can be a good starting point if you’re a beginner and have no idea where to get started. Moreover, there are useful links to local government websites that you can visit for the full details.
Local Airbnb Property Managers
If you’re a host with no legal background, you can connect with short term rental property managers in the area and ask them about the legality. They should be able to provide you with accurate, up-to-date information. If you decide to work with one of them, they might also be able to help you get the necessary permits and licenses to legalize your business.
HOAs and Housing Authorities
In case your property is governed by a homeowners association (HOA), the HOA might have some knowledge about the nature of vacation rental regulations that apply to your neighborhood and your property type. In any case, you need to confirm that the homeowners association doesn’t limit these activities either.
Local Airbnb Hosts
Another important source are more experienced vacation rental owners and hosts who already operate a property in the market. You can find them via their listings on Airbnb and similar websites, in online forums, and in local meetups of investors.
They should be able to give you a summary of the local laws and point you in the direction of other valuable sources. Of course, you cannot trust them 100% as they might be intentionally or unintentionally skipping some of the regulations to boost profits or purely out of lack of knowledge.
Short Term Rental Investing Blogs and Forums
Finally, many real estate investing blogs and online forums have guides on short term rental regulations in the hottest Airbnb markets. That’s a good place to get a quick summary of what might apply in your area in addition to links to reliable sources.
However, we don’t recommend relying entirely on the information published in blogs as it might be incomplete or outdated. It’s best to go back to the original source which in most cases would be the local government website.
What to Expect in the Future for Short Term Rental Regulations
After the initial crisis that followed the emergence of the Airbnb website, many US local governments were quick to pass strict, often prohibitive laws in 2010-2020. In some markets, we even witnessed reversal to more permissive rules afterwards that aim to control and regulate short term rentals rather than prohibit them altogether.
After all, local governments, tax authorities, and residents can all gain from this industry through increased business and commercial activities in the market and more tax collection.
Regarding the future of Airbnb laws and regulations, it seems that the overall situation in the US market is stabilizing. We don’t expect any major changes in the next couple of years. The states and cities that wanted to regulate the industry have already introduced relevant laws.
Meanwhile, those that have a more relaxed approach are likely to continue allowing short term rentals without many restrictions unless the situation gets out of control because of unexpected rises in vacation rental activities.
Even if a location decides to introduce new regulations, it usually takes a couple of years to do this effectively. Local governments need a few months to approve a final draft of the Airbnb laws and another few months to put them into effect.
Moreover, they need to establish the necessary authorities to keep an eye on the implementation of new laws. So, Airbnb hosts have some time to prepare for the new regulations and the impact that they might have on their business.
With that being said, savvy vacation rental owners need to regularly check the websites of local authorities to make sure that nothing has changed in the STR regulations. Sometimes governments make small adjustments that prove necessary in the course of applying existing rules. It is your responsibility as a host to comply with laws to avoid fines.
Bottom Line
Airbnb hosts and managers need to always know inside out the current short term rental regulations governing their market. This is the cornerstone of a successful and profitable Airbnb business. As a reputable operator, you cannot afford not being familiar with the laws or choosing to ignore them to ruin the business that you have been building for years. Visit local authority websites, keep an eye on local news, and stay in touch with other hosts and managers in the area to learn about new rules right away and adapt your business to successfully deal with them even before they get implemented.
