The surging vacation rental market has seen exponential growth over the past five years and is on course to topple the hotel industry in the next 10-15 years, which is reshaping the hospitality industry. The allure of private quarters, fenced yards and fully stocked kitchens is powerful, so much so that even luxury hotel brands have entered the vacation rental business. In South Lake Tahoe and elsewhere, vacation rentals represent a product that people crave and a solution that people need. In short, these rentals are here to stay.
Outright bans or severe limitations only further an underground economy that is already present and nearly impossible to regulate. Even when regulatory agencies attempt to manage an underground economy, those renting homes creatively adapt and make it difficult for regulations to be effective. In their attempt to regulate an underground economy, government agencies that aren’t properly funded for such management exhaust their resources and rarely achieve their intended purpose, all the while neglecting their efforts in other areas.
Vacation Home Rentals (VHRs) in South Lake Tahoe have become a double-edged sword. Obviously we want to balance our sense of community with the principal industry that allows us a community in the first place: tourism. Is it possible to have our cake and eat it too? In 2003 the City created its first VHR ordinance and hasn’t revoked a single permit since then, even with the compounded growth that naturally created issues that needed to be addressed. The City and the Real Estate industry are undoubtedly to blame for the bad behavior that has gone unchecked and the ascent in local resentment that comes with it. Thus, this contentious topic came to a head in December of 2017 when the City implemented a revised VHR ordinance that established a cap of 1,400 VHR’s in residential areas and included stricter parking rules, mandatory bear boxes, an increased fine structure, and a significant rise in permit fees that provided for code enforcement officers and the use of Host Compliance.
But before the ordinance even went into effect, an opposition group against VHR’s was drafting an initiative and days later took to the streets gathering signatures. This opposition soon became to be known as Measure T, which narrowly passed in the November 2018 election. Measure T passed before the City had a chance to accurately assess whether its own 2017 ordinance, which was focused on increased regulation and enforcement, would reduce any VHR problems. The early report card was encouraging: VHR complaints decreased 50 percent after the City’s renewed focus on enforcement. Instead of supporting this positive trend, Measure T was created and adopted an even stricter stance.
Historically, the total number of VHR’s have stayed at roughly 9 percent of the total housing stock in the City, or roughly 1,200-1,300 total units that varied with the ebb and flow of our tourist-based economy. Driven by fear and often securing the right without necessity, an artificial surge was seen just prior to the 2018 Measure T ordinance, bringing the City to its maximum of 1,400 units. Measure T now mandates that all 1,400 VHR’s are to be eliminated over a three-year phase out and must be completed on or by December 31, 2021. Under Measure T, VHR’s will be allowed in the Tourist Core Area (TCA), where a separate total of 400 VHR’s already exist. On the surface it makes sense to move vacation rentals to an area called the “Tourist Core,” that is until one scrutinizes the details. Of the 400 existing VHR’s in the TCA, there are seven single-family dwellings (SFDs) with growth potential maxing at a total of 38 SFD’s. The remaining 98 percent of the housing units are condos, townhomes or time-shares, including 205 in Lakeland Village alone. There is currently no consideration to expand this area. The housing stock in this area simply doesn’t provide what vacation rental seekers value in their vacation experience, which is a personal touch.
Vacation rentals have been around for decades but advances in technology and the evolution of the sharing economy created a climate for the industry to flourish. Sharing economies allow individuals or groups to make money from underused physical assets. According to studies, private vehicles go unused for 95 percent of their lifetime until car sharing services like Lyft and Uber surfaced. The same report detailed Airbnb’s cost advantage over hotel space as homeowners make use of spare bedrooms. There’s something personal about riding in the same vehicle a driver uses for errands as opposed to an impersonal yellow taxi cab, in the same way people make a distinction between booking someone’s home and staying in an impersonal hotel room. There is a human need for the familiar and the self-catering vacation rental as an accommodation option is ideally suited to benefit from this. Our visitors were enjoying this personal touch. At the same time, our City enjoyed an increased tax base that better provides our community with services we all benefit from.
VHRs generated over $3 million in Tourist Occupancy Tax (TOT) in 2017 for the City of South Lake Tahoe, and reports suggest that total increased to nearly $4 million in 2018. This is no small sum of money, and while much of it funds vital services such as police, fire, roads and snow removal, some of it creates additional opportunities for the City to improve and better serve our community. VHR permit fees go directly to enforcement that includes $100k annually for Host Compliance, a company that identifies illegal rentals and provides short-term rental registration, tax collection and enforcement solutions. In addition, conservative numbers estimate that guests staying in short-term rentals infuse over $100 million into the local economy.
A VHR ban, which is essentially what Measure T becomes because of the Tourist Core Area, won’t be a complete loss. Some visitors stay in our hotels and continue to create TOT, but it’s reasonable to assume we will experience a reduction of services because the City’s TOT has increased steadily with the growing popularity of VHRs. Without as many VHRs, it’s unclear how our hotels could replace the loss in TOT, considering they’re already at full capacity during the high seasons and busy weekends. It is however very clear what would happen if VHRs remain, but in an underground market: we lose tax dollars and won’t have the ability to properly regulate that market.
A ban could not only damage our local economy but encourage an underground movement where owners share loop-holes and workarounds to preserve their income and protect their investment. In this case, VHR’s remain in residential neighborhoods and yet provide no tax revenue that previously provided essential services and code
