With the trend of cities clamping down on issuing new licenses, short-term rental hosts will have compliance and taxes top of mind in 2021, ensuring first that any license renewal is handled post haste.
From a budding trend to a full-fledged business strategy for both marketplaces and hosts, short-term rentals have certainly come into their own – and 2021 is going to be the year they officially grow up. The short-term rental business will be taking control of its trajectory, ushering in a new era with self-regulation and working with local communities. This year, we’ll likely see travel bounce back a bit as the coronavirus vaccine is distributed, and here’s what we can expect from the short-term rental industry.
Self-regulating short-term rentals
Self-regulation is going to be an integral part of short-term rental industry growth. Industry “parents” such as Airbnb and Vrbo are already stepping in and taking action. For example, the Desert Sun reported that Airbnb suspended operations for 30 short-term rental properties in the Palm Springs, Calif., area when rental guests had decided to turn them into “party houses” against stay-at-home orders. Not only is this type of behavior disruptive to full-time neighbors, but it violates current guidelines of state-mandated shutdown rules. The company suspended other short-term rentals in the San Francisco Bay Area; Raleigh, N.C.; Austin, Texas; and in several cities in Ohio. Airbnb’s reasoning for this self-regulation is clear, and it’s in the interest of its own business and brand.
With the trend of cities clamping down on issuing new licenses, short-term rental hosts will have compliance and taxes top of mind in 2021, ensuring first that any license renewal is handled post haste. Listing a home without proper licenses will be more of a gamble this year than it has been in past years. Municipalities are struggling to recover economically as the coronavirus pandemic stretches on, and they legitimately need the revenue, so they will be paying close attention to license and tax information.
In Denver, officials are fining Airbnb directly for its hosts’ violations. The collective marketplace arm is being twisted, and we can expect other cities to jump in, going straight to the marketplaces to sort things out. Jurisdictions want the revenue and local economic activity, but they also know they need to make the residents happy. In order to accomplish both goals, they need to have more oversight in this area and will look to the marketplaces to monitor the situation. This means there will be stricter regulations and more enforcement than has been happening in the past.
Working with the community
Governing bodies, the tourism industry and communities on the neighborhood level, will all work together as part of the economic recovery process. Some cities are conducting safety inspections on short-term rental properties in an effort to ensure code compliance and to weed out scofflaws. For remote/rural areas seeing demand for rentals as people look for a socially distant escape during the pandemic, this scenario will continue to play out as “under the radar” listings pop up and residents seek to make some fast cash or supplement wage losses without any red tape. Violators beware – fines will increase as municipalities lose patience and seize the opportunity for claiming additional revenues.
We also anticipate 2021 marking the shift to “rational exuberance” among travelers, with reservations coming back online in steady fashion. Vaccine distribution will likely be a major factor for people to return to travel. The quicker the distribution of the vaccine, the faster tourism may return to various areas.
As the short-term rental industry grows up, the days of the absentee owner with little or no responsibility to the community have come to an end, and the new era will be one of:
- Noise level and occupancy awareness
- Proactive complaint resolution and in-the-moment communication
- Compliance at all levels from lodging tax to licenses
- Abiding by local neighborhood parking and other standards
Look for new entrants into the marketplace from property owners with second homes or the ability to host at their primary residence, taking advantage of the uptick in travel that will likely happen once the vaccine is widely applied. These newcomers might be offsetting pandemic-related income loss, or simply to fund their own desire to go someplace new.
Ready for 2021
The travel industry will experience another big shift this year, and the short-term rental landscape will be growing, too. As concerns surrounding travel during the pandemic gradually being to ease, and local restrictions are lifted with a greater sense of surety, we’ll see an uptick in bookings. However, the past year’s experiences will not be forgotten, and marketplace leaders like Airbnb and Vrbo will pave the way for self-regulation standards including cleanliness and safety, licensing, and lodging tax compliance. Additionally, we’ll see short-term hosts and marketplaces work more closely with local communities to forge positive relationships and become a more open partner in bringing tourism back. In 2021 we’ll see the short-term rental industry grow up with policies and practices that more closely resemble those of traditional lodging like hotels, further proving that marketplaces and hosts are in it for the long haul.
Pam Knudsen is an executive at Avalara, leading multi-tax teams including Lodging, Beverage Alcohol, Telecommunications and Sales & Use Tax. She serves as a leading voice in vacation rental tax compliance and regulation, in addition to bringing in-depth experience across software/SaaS technology as well as ERP systems. Pam joined Avalara in 2012.