Town of Duck, North Carolina Department of Community Development Text Amendment: Short Term Rentals Agenda Item 3b

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1 TO: Chairman Blakaitis and Members of the Town of Duck Planning Board FROM: Joe Heard, AICP, Director of Community Development DATE: July 13, 2016 RE: Proposal At its meeting on April 6, 2016, the Duck Town Council requested that the Planning Board and Community Development staff consider and address a list of concerns about land uses identified by the Council members. Questions and concerns were expressed by Council members about the growing number of properties being rented on a daily basis and individual rooms being rented within a residence. The Planning Board members are seeking to evaluate the issues relating to short-term rentals and offer recommendations, if necessary, to clarify the Town s approach to dealing with these types of situations or other identified concerns. 6/8/16 Planning Board Meeting At its meeting on June 8 th, the Planning Board discussed a variety of issues and alternatives relating to short-term rentals in the Town of Duck. During their discussion, the Board members identified several legal questions that they want to resolve before proceeding with a recommendation concerning standards for short-term rentals. A list of these questions was forwarded to Town Attorney Robert Hobbs, who plans to attend the Planning Board s meeting on July 13 th. In addition, the Board members requested additional background information in order to develop a more complete understanding of the issues surrounding short-term rentals. Toward this objective, the Planning Board requested that staff invite comments from local rental realty agencies (and later from local lodging properties as well). Staff was also requested to obtain information from other communities in North Carolina that are actively considering similar issues in their communities. Staff has contacted the cities of Asheville, Raleigh, and Wilmington for more information. Information from Asheville is included in this report. Staff is waiting on additional information from both Raleigh and Wilmington that will hopefully be available at the Board s meeting on July 13 th. 1

2 Background Information It is a national trend that more property owners are renting rooms or houses on a nightly basis directly through Airbnb, VRBO, and/or other online sources. While completing a comprehensive review of the zoning ordinance in 2004, the Duck Planning Board and Town Council developed allowances and standards for bed and breakfast inns, bed and breakfast homes, and short term rental properties. Although not defined in the zoning ordinance, Short Term Rental Homes were added as permitted uses in all residential districts (RS-1, RS-2, and R-2). In the past, the Town of Duck has interpreted short term rentals to be homes rented on a weekly basis (consistent with common rental realty practices at the time). However, this interpretation may be somewhat dated as the rental market is changing. Rental realty companies are reporting that a greater number of customers are seeking shorter rental periods (3-4 days) rather than the traditional week-long rental. Renting individual rooms on a nightly basis can result in reclassifying a single-family residence to a rooming or boarding house. In the past, the Town has enforced its ordinance to prevent property owners from renting rooms in this manner. Properties in Duck While it is difficult to determine an exact number, it appears that there may be a couple dozen properties in Duck advertising through Airbnb. At least several of these properties appear to be renting individual rooms. Several others appear to be renting separate units, effectively dividing the residence into a nonconforming duplex. Community Development staff will follow up with enforcement action in cases where improper use of a property (individual room rental, duplexes, etc.) is occurring. Input from Rental Real Estate Companies At its meeting on June 8 th, the Planning Board requested input from local rental realty companies. Community Development staff contacted six local real estate companies about issues surrounding short-term rental properties. Four companies have stated an intention of having a representative at the Planning Board meeting (Brindley Beach, Carolina Designs, Sun, and Twiddy). The following comments were also provided: Traditionally, most rental properties on the Outer Banks have been rented for periods of at least a week. Are you seeing any trends toward customers seeking shorter term rentals? Yes! We are seeing more and more guests inquire about short term stays. Many families can no longer commit to a full week s vacation and are wanting to come in and stay for 3 to 4 days at a time. Many are interested in this not only due to their busy schedules, but also to avoid 2

3 the typical weekend traffic they have experienced when arriving on a Saturday or Sunday. (Liz Askew, Atlantic Realty) We have always received in inquiries about shorter stays. If someone is looking to book a shorter stay or a small home, we refer them to another company. Our company policy is to wait until the week before to commit to a partial in any property and the pricing. As most of our homes are larger, it is not that cost effective in many cases for the owner to accept a partial week stay. (Monica Thibodeau, Carolina Designs Realty) Are you experiencing any issues or impacts from the rental of homes and/or individual rooms within homes on a daily or short-term basis? What impacts are you seeing? As far as impacts, we are having to re-evaluate our company policies on short term stays. Traditionally we have not allowed the consideration of less than a full week booking until 14 days before arrival to allow the opportunity for full weeks to book. This year, we have relaxed that rule (especially since we had such a soft Spring) to allow bookings of partial week stays as much as 6 weeks in advance. (Liz Askew, Atlantic Realty) I have had no first-hand experience with individual rentals with short term stays. It is not in competition with the homes we market. (Monica Thibodeau, Carolina Designs Realty) Do you have any specific concerns about how these types of activities can affect the rental market in the future? We have not seen the significant impact travel sites such as Airbnb and VRBO have had in other markets. However, we do know that these properties are out there in our area as we have heard horror stories from guests who tried vacationing this way in the hopes of saving money only to find that there was no one there to help them when they had maintenance or housekeeping issues. I don t believe Rent by Owner has been that successful here, but that market may grow as these sites gain traction. From a governmental point of view, I m not sure how it would be possible to track the properties that participate, but it is very important that these homes offered to the public are up to standards and are paying taxes as required by the county and state. Many times Owners who rent for themselves do not charge taxes and vacationers find this is a way to save money over a professional vacation rental management company or hotel. (Liz Askew, Atlantic Realty) The size of the properties we manage would seem to necessitate professional property management. I could envision that smaller homes might go to a model where owners selfmanaged. (Monica Thibodeau, Carolina Designs Realty) Do you have any other comments relating to these issues? One of our biggest concerns as professional property managers is the collection of taxes which would even the playing field in terms of pricing. We are concerned that a lot of tax income may be missed with personal rentals. (Monica Thibodeau, Carolina Designs Realty) 3

4 Input from Lodging Companies Following the meeting, some Planning Board members also requested input from local lodging properties, as they may have a different perspective on short-term rental issues. The following comments have been provided: Traditionally, most rental properties on the Outer Banks have been rented for periods of at least a week. Are you seeing any trends toward customers seeking shorter term rentals? I have been noticing a trend towards travelers seeking shorter term rentals for about the past 6 to 7 years. At first, this became apparent when cottage rentals began relaxing the length of their typical 7-day rental period to 3 or 4 nights. It is not clear to me what stipulations are attached to shorter-term cottage rentals but they are now robustly advertised on the web and across various social media platforms. Whether these are underperforming or less desirable properties, I do not know, but I am fairly certain that many hotels, motels, and B & B s like mine are unable to compete as these rates are often set exceedingly cheap. The growth of Airbnb and VRBO have also had an impact on the traditional lodging sector (cottages as well as short-term lodging) as many of these accommodations are willing to rent for one-night and/or for periods that do not require arrival on Saturdays and Sundays. Most people seeking one-night accommodations are doing so to combat the traffic impacts of weekend travel and are less interested in any specific property and more interested in how it can lessen their burden of check-in. (This has been evident since we opened in 1995.) (Nancy Caviness, Advice 5 Cents Bed & Breakfast) Are you experiencing any issues or impacts from the rental of homes and/or individual rooms within homes on a daily or short-term basis? What impacts are you seeing? The issues I am aware of, although not directly impacted by, are disturbances created by traffic, parking, noise, etc. I have heard complaints stemming from residents whose neighbors are essentially operating an establishment like mine, but in a residentially zoned area. This appears to be one of the most cited issues related to Airbnb and VRBO. Other issues that have the potential to create serious problems are related to health and safety e.g., sanitation (no health inspections for kitchen, laundry, pool, etc.), occupancy and safety/fire code violations, security (to property and common areas of neighborhoods). (Nancy Caviness, Advice 5 Cents Bed & Breakfast) The Sanderling Resort caters to a different market than these types of short-term rental properties. The resort has a higher price point and offers many more services and amenities than other rental properties. So, they don t directly impact our business. (Ashley Vaught, Sanderling Resort) Do you have any specific concerns about how these types of activities can affect the rental market in the future? It is my sense that the cottage rental market has become overpriced and is also being forced away from the traditional 7-day rental that requires arrival on Saturday or Sunday. What this means for established short-term accommodations like hotels, B & Bs, etc. is that they will be forced to adapt to what could be a very profound change. Airbnb and VRBO rentals may thrive 4

5 for a period, because they benefit from being unregulated, often operating in the shadows, and without the overhead that an established business or rental property must absorb. I expect proliferation of these options. (Nancy Caviness, Advice 5 Cents Bed & Breakfast) Competition from these types of businesses has not been a point of discussion at management meetings. We do not see these types of rental properties as having a significant impact on our business model in the future. (Ashley Vaught, Sanderling Resort) Do you have any other comments relating to these issues? I would anticipate the proliferation of single room rentals within a single rental cottage using platforms like Airbnb, etc. There are a growing number of listings (Duck) on Airbnb; with a very wide range of options. I chose to list Advice 5 if for no other reason than to alert the traveling public that they could choose to stay in a bonafide bed & breakfast. (Nancy Caviness, Advice 5 Cents Bed & Breakfast) City of Asheville Standards Over the past decade, the City of Asheville has engaged in several rounds of contentious discussions about issues surrounding short-term rental issues. Proponents have touted greater investment in the community, increased tax revenues, revenue helping individuals afford/maintain their properties, and meeting the wants of today s travelers. Opponents have cited concerns about parking and negative activities of renters, loss of on-site homeowners and neighborhood viability, lack of safety measures found in commercial lodging properties, unfair competition with commercial lodging properties, and noncollection/nonpayment of lodging taxes. The City of Asheville has responded to these concerns by adopting the following measures: The short-term rental (<30 days) of entire residences is not permitted. The owner of a single-family residence can obtain a permit to rent up to two rooms/units as a homestay, subject to the following conditions: o Must obtain an administrative permit. o Must be subordinate to the primary residential use. o Cannot be located within an accessory dwelling unit. o Must be occupied by a full-time resident when lodgers are present. o No additional parking required. o No signage permitted. o Owner must maintain liability insurance covering the resident and guests. o Must pay applicable occupancy and sales taxes. o Subject to annual inspections for zoning/building code compliance. The City of Asheville has recently appointed a task force to look in a variety of continuing issues relating to short-term rentals, including: Potentially allowing homestays in accessory dwelling units. Require conditional use permits for homestays in accessory dwelling units. Only allowing ADUs to be used as homestays 2-3 years after establishment. 5

6 Capping the number of homestays. Allowing existing homestays to continue, but no new ones. Requiring a separation distance between homestays. Legal Issues Town Attorney Robert Hobbs has accepted the Planning Board s invitation to attend the July Board meeting to discuss issues surrounding short-term rentals and provide legal advice on alternatives being considered by the Planning Board. The following questions expressed by Planning Board members were forwarded to Mr. Hobbs: 1. Can the Town limit the daily rental of individual rooms in a single-family residence? 2. Can the Town set standards for the minimum length of time that a single-family residence is rented? 3. If approved as a CUP, can the Town implement safety standards for daily rental of individual rooms in a single-family residence? 4. What options are available to the Town to ensure that all entities in the business renting houses, or a portion of a house, are playing on a level playing field? 5. Can State public health, lodging, and/or commercial codes be used to regulate short-term rentals? Duck CAMA Land Use Plan GOAL #19: Continue established single family residential development patterns. POLICY #19a: Detached residential structures are the preferred type of residential land use in Duck. Prohibiting the rental of individual rooms and portions of residences will ensure that the intensity of use and single-family residential character are maintained throughout residential neighborhoods in the Town of Duck. Staff Comments & Recommendations The Town of Duck can already enforce restrictions against renting individual rooms or portions of a residence on a nightly basis. If the Planning Board wants to more clearly address the issue of property owners renting rooms or portions of a residence on a nightly basis, then the Board members can consider adopting a specific definition for this practice (such as rooming house ) and recommend adding it to the list of prohibited uses. Staff has drafted a very simple definition for consideration by the Planning Board: 6

7 ROOMING HOUSE. A dwelling unit in which paying customers can rent a room or portion of the dwelling unit for a single night. The rented accommodations typically consist of single private room and may additionally include shared common areas. Once a definition has been established, such use can be added to the Permitted & Prohibited Use Table as a prohibited use in all zoning districts. **************************************************************************** Regarding allowances for short term rental homes, staff has identified two options for the Board members consideration: 1. In light of the Town Attorney s opinion that a residence is a residence, no matter the length of the rental period, the Planning Board can recommend removal of the term short term rental homes from the Permitted & Prohibited Use Table and zoning district standards and simply treat them all as single-family residences. 2. Alternatively, if the Planning Board seeks to continue to clarify that short term rental homes are specifically permitted, then a definition for the term can be added to the zoning ordinance. Consistent with the Town Attorney s interpretation, staff has drafted the following definition for the Board s consideration: SHORT TERM RENTAL HOME. A residential dwelling unit rented in its entirety to paying customers for a single night or longer period of time. 7