Unintended Consequence–Albemarle’s AirBnB Black Market

FORUM WATCH EDITORIAL

By. Neil Williamson, President

When a new business concept is successful the first thing the government attempts to do is tax it.  What is the second thing? – regulate it.  In an interesting ‘Short Term Rental’ twist of fate, Albemarle has completed the first thing ensuringBlack Market photo credit news.softpedia but is about to put those revenue sources (and others) in jeopardy by driving much of this thriving new industry out of the open and into a Black Market.

Please let me explain.

Back in June 2017, Albemarle joined many Virginia localities in updating its tax code to capture ‘transient lodging’

TAX CODE
At its June 14, 2017 Board meeting, the Board of Supervisors amended the County Code §15-900 and §15-901 to enable the County to impose taxes on residential transient lodging, previously not included in this regulation. They also amended County Code §8-616 to explicitly list short-term rentals on the list of businesses subject to the business,professions, and occupations licensing (BPOL) tax requirements.

Albemarle County has been engaged in a “community conversation” regarding the regulation of short term rentals (AirBnB, HomeStay Charlottesville, etc.).  Rather than dealing specifically with the impacts of such rentals, with ordinances already on the books, Albemarle is seeking to restrict the number of rentals any property might be able to book in any given calendar year. This is a mistake.

According to Allison Wrabel’s article in Monday’s (10/30) Daily Progress, our good friend, Travis Pietila, of the Southern Environmental Law Center (SELC) spoke out last week’ Planning Commission meeting about this very issue:

“We need to make sure that the revenue to be gained from homestays does not lead to building new houses in the rural area that would not otherwise be built, and it’s critical that the limits put in place to keep that from happening are enforceable,” he said.

Pietila said that the 90-day limit proposed for whole house rental was too high and that a 30-day limit seemed much more appropriate.

“But a more fundamental concern is that the limits based on a number of days a property can be rented would prove unenforceable,” he said.

While we firmly disagree with SELC’s position that property owners should be restricted from building new homes on parcels that have that fundamental property right, we concur that limits based on a number of days would not only prove unenforceable – it not only starts a negative domino effect on transparency and taxation – it is an unfair restriction on property rights.

Negative Domino effect – if allowed to only permitted to rent my house on a short term basis for 30 days a year, that is exactly what some savvy property owner will claim.  If there is market demand for greater than 30 days a year (ie: weekend from April 15 to December 31 = 76 days), the incentive is to rent the space and not claim the rental on the TOT form, lower the BPOL payment, don’t report the rental revenue for 46 days of occupancy on state or federal income tax forms.

This scenario fits Investopedia’s definition of a Black Market:

Economic activity that takes place outside government-sanctioned channels. Black market transactions usually occur “under the table” to let participants avoid government price controls or taxes. The black market is also the venue where highly controlled substances or products such as drugs and firearms are illegally traded. Black markets can take a toll on an economy, since they are shadow markets where economic activity is not recorded and taxes are not paid. In the financial context, the biggest black market exists for currencies in nations with strict currency controls. While most consumers may shun the black market because they consider it sleazy, there may be rare occasions when they have no choice but to turn to this necessary evil.

What is gained by this charade?

More from Wrabel’s article:

Commissioner Pam Riley said she is concerned about the impact on local housing, especially as the county considers adding apartments and townhomes.

“The more you remove what could be housing units, really at any price range, from the long-term rental, you’re really exacerbating your affordability problem,” she said.

The Free Enterprise Forum finds itself again agreeing with SELC’s Pietila’s  economic analysis, if not his property rights restriction on that analysis:

Pietila said officials should consider limiting whole-house rentals in the rural area to existing houses.

“This would give existing homeowners the ability to earn some extra income and help defray housing costs, while reducing the risk of encouraging new house construction,” he said.

We have seen anecdotally, the short term rental income provides the revenue needed that makes the housing ‘affordable’.  If a unit (home, apartment, townhouse) has a monthly cost (mortgage/rent) of $900 a month and it is rented four weekend days at $150 a night, that generates $600 in revenue, this income helps offset housing cost.  Anecdotally, we have witnessed families visit their parents for football weekends and pay their entire monthly housing cost with the revenue.

Commissioner Daphne Spain is quoted in Wrabel’s article questioning the property owner rights regarding short term rentals:

…Spain said she noticed that many comments said that people should be able to do what they want with their homes to generate income.

“I don’t give much credence to that, because if they wanted to open a brewery or a speakeasy to earn money, or a brothel, that wouldn’t be allowed, so there are limits for the public good on what a person can do with their home and these are all residential areas,” she said.

Spain’s argument is really comparing apples and oranges. Unlike a brewery (or even brothel), the use of the property is still residential – it is just a question of the length of stay in residential.  How are the impacts different?

Which has more impact on me as a land owner, my neighbor renting out his house on weekends or a family with 5 teenagers moving in next door?

The reality we see from the Planning Commission is a clear anti short term rental bias.  Albemarle County would be wise to focus on mitigating any impacts of short term rentals [under existing ordinances] and skip any fatally flawed attempt to strangle this thriving new business with onerous regulations that are unlikely to be followed and will be impossible to enforce.

Respectfully Submitted,

Neil Williamson, President

Neil Williamson is the President of The Free Enterprise Forum, a privately funded public policy organization covering the City of Charlottesville as well as Albemarle, Greene, Fluvanna, Louisa and  Nelson County.

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