Where We Live | Analysis
September 18, 2017 at 9:00 AM
This fall, the D.C. Council will tackle a growing phenomenon that condo associations all over the city have been grappling with: the explosion of short-term rentals.
Now firmly a staple of the sharing economy, companies like Airbnb, HomeAway and VRBO are part of a booming, multibillion-dollar web-based industry that is largely unregulated. The D.C. Council, like many local governments across the country, is considering ways to regulate, tax and license short-term rentals.
In October, the council is expected to hear the Short-term Rental Regulation and Affordable Housing Protection Act of 2017, otherwise known as the "Airbnb bill."
The bill, which is sponsored by D.C. Council member Kenyan R. McDuffie (D-Ward 5), would create a licensing category specifically for short-term rentals and require residents who use home-sharing services to obtain the new business license. It would also establish requirements governing the use of short-term rentals and enforce hefty fines, from $1,000 to $7,000 for violations, with half the funds going into the Housing Production Trust Fund.
Critics of the bill argue that it doesn't address the affordable housing shortage. But the real debate over short-term rentals boils down to money, risk and liability.
Home-sharing services, like Airbnb, connect travelers or renters with owners or hosts who want to rent out their entire home or a room in their home for a night, a weekend or sometimes longer. The arrangements are financially beneficial for everyone except the District treasurer, according to the Airbnb bill's opponents. The traveler/renter gets a bargain on a fully furnished home with all the amenities that come with a condo building for less than the cost of a hotel room and without the steep hotel taxes. The owner/host makes much more on a short-term rental than an annual lease, or in many cases, earns additional income to subsidize a mortgage by occasionally renting a room.
Last year, Airbnb hosts in D.C. made an average of $5,800 and the District wants its cut.
In a condominium setting, the dilemma of the constant revolving door is whether an individual resident's financial gain is worth the significant risk and liability that short-term rentals pose to the association.
For starters, most condo bylaws in the District expressly prohibit short-term rentals and often require a minimum 12-month lease term. The same bylaws typically preclude owners from using a unit for transient, hotel or commercial purposes. Condo rules also generally require that all rental agreements be in writing with a copy of the lease provided to the board for its review and approval.
A condo association's aversion to Airbnb and other short-term rental programs is rooted in concerns over increased rule violations, damage and noise complaints. The reality is short-term visitors — vacationers — are less invested in the long-term security and well-being of a building. A steady stream of strangers reduces a condo community's sense of safety and creates actual wear and tear by thoughtless guests who are there one day and gone the next. In condo communities, owners who participate in home-sharing practices aren't just renting out the four walls of their unit, but in effect, all the shared common areas like the hallways, lobby, rooftop, pool, gym and garage.
Liability cases have clogged our courts, and unless you're an insurance professional, insurance is complicated. You never know if your coverage is adequate until you file a claim. While Airbnb rentals are a newer phenomenon, insurance companies looking to minimize their liability and pay as little as possible on a claim is as old as time. Most homeowner's policies have a business activity exclusion, so when a neighbor rents his or her unit for even a night, it's no longer considered a residential use but a commercial use.
In the eyes of the insurance company, it's no different from a hotel. My association's master insurance policy specifically excludes short-term rentals. When our board called to inquire about getting the business activity exclusion removed, the insurance rate would have increased by more than 20 percent, which for a small, four-unit building is consequential. Yet adding the expensive short-term rental coverage may still not be enough.
Our insurance agent told us that he'd be happy to sell us the coverage but a claim would probably be denied because our bylaws restrict short-term rentals. He likened it to carrying insurance for a swimming pool that we didn't have. The only way he could guarantee coverage is if we went through the legal process of changing and recording our bylaws to allow for short-term rentals.
A call to action
Despite the significant risks, short-term rentals and home-sharing sites are pervasive. Some unit owners may not be fully aware of the condo rules and woefully unaware of the insurance risk. Others may choose to ignore the rules because of the lucrative income potential. Still others may not know their long-term tenant is secretly subletting their home on Airbnb and other sites.
Condo associations, frustrated neighbors and the city government, however, are taking notice and attempting to police short-term rentals. Condo boards are dishing out substantial fines per infraction and seeking legal action to permanently restrict short-term rentals in their buildings.
Representatives from Airbnb, as well as other critics of the Airbnb bill, say the proposed law goes too far and is too restrictive, but if the proposed bill forces a conversation and an awareness of the risk and liability that exist, then it's already been successful.
Timur Loynab is a vice president with the McWilliams Ballard condo resales division in Washington.