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Laying down the rental law

Short-term vacation rental scofflaws in Petaluma, beware: there’s a new sheriff in town. After nearly two years of struggling to rein in residents who flout Petaluma’s short-term rental regulations, and missing out on tens of thousands of dollars in annual tax revenues, the city has hired San Francisco-based Host Compliance to identify and crack down on non-complaint hosts.

Unregulated vacation rentals, offered on sites like Airbnb and VRBO, have become a real problem in Petaluma and other cities. Essentially, they allow people to operate informal hotels or inns in neighborhoods where such businesses were never intended to exist. Until recently, the city had no way of collecting the bed taxes that visitors would otherwise pay for staying at a licensed hotel.

In January 2016, a new ordinance went into effect requiring short-term rental hosts to register with the city and obtain a permit for a fee. The hosts are required to report their revenue to the city and pay taxes that amount to the same rate as any other hotel.

But there was a fatal flaw in the new law: it operated on the honor system, relying on vacation rental hosts to identify themselves and self-report their revenue. The city’s lone code enforcement officer does not have the resources to constantly monitor Airbnb and other sites and send letters of warning to non-compliant hosts. As a result, only a small fraction of vacation rental operators are in compliance.

Initially, some hosts could have conceivably claimed ignorance of the new law. But two years in, and with well-publicized regulations in Petaluma and most cities, it is clear that a majority of those non-compliant hosts are merely ignoring the rules, to the detriment of the city.

Just one vacation rental website, Airbnb, has 220 active listings in Petaluma. In contrast, there are only 23 active short-term rental permits on file, meaning the city is losing out on tens of thousands of dollars in taxes and fees.

One of the key problems that the city’s vacation rental ordinance attempted to address was the scarcity of available housing stock. With easy money to be made renting a room or a house in the unregulated vacation rental market, many of the long-term rental properties available to Petalumans were being taken off the market. This, in turn, exacerbated the housing shortage and drove up rents across the city.

With the regulations in place and an appropriate tax and fee structure attached to short-term rentals, hosts may rethink listing their property on Airbnb and instead choose to offer it as a long term rental. This would help address the regional housing crisis assuming, of course, people have an impetus to comply with the city’s regulations.

Host Compliance promises new tools to compel people to comply with the city’s regulations. It will monitor all of the vacation rental websites and create a list of all the non-compliant properties in the city. It will also send notices to non-compliant hosts.

With a more watchful eye on the non-compliant vacation rental market, many hosts will finally start paying their fair share, thus strengthening the city’s financial base. Those homeowners who decide not to comply may instead decide to offer the space to the hundreds of people looking for rental housing.

Either way, more stringent enforcement of the vacation rental ordinance will benefit the community.