Guest column: VHRs need to pay their fair share in SLT
October 1, 2017
The information age has changed many ways we conduct life. They are called disruptive technologies. People choose VHRs for many benefits over traditional hotel experiences. While our country celebrates the free market, we also have controls to keep the playing field level.
There is much hyperbole with the local VHR saga, but we should look at some basic facts.
The occupant at a hotel is considered a "licensee," whereas the VHR considers its occupant a "tenant." Both owners retain the right to possession while the occupant only has a right to use. According to American property law, this is sufficient enough to define vacation rentals as licenses. The IRS has classified vacation rental income as business income. The California Western Law Review's article on May 1, 2015 stated, "vacation rentals are, in fact, businesses run out of a homeowner's real property and, therefore, clearly and unambiguously fall within the prohibitions of business activity and commercial use restrictions … "
Hotels have a comprehensive infrastructure, including housekeeping, parking, hospitality, engineering and security. Hotels are zoned and obtain use permits, and must accommodate for the densities of people and vehicles. VHRs generally do not.
VHRs pay the transient-occupancy taxes (TOT) like hotels, but the property taxes are not assessed as commercial, rather as a home in our neighborhoods. Given the above, would not VHRs be subject to the plethora of hospitality laws?
The economics of VHRs has very clear winners and losers.
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The winners are the owners who can collect up to three times the rent versus a long-term rental. Winners include Realtors that purport the return on investment from VHRs and collect their commissions. Caveat emptor (let the buyer beware) is a first principle in real estate.
The losers are the local buyers being priced out of a market. Losers include the people dependent on rentals who cannot buy a home. Thus, the housing shortage in high-priced areas like ours. Bank lending is based on a market appraisal, not on a more appropriate income-based appraisal. The losers may include banks when the loans default in the next crash.
This whole situation is a slippery slope. As VHR owners profit, the downstream economic chain has to burden additional costs. The area's infrastructure (roads, water, sewer, police, etc.) cannot handle the demand without improvements.
Local businesses must raise prices to afford life here. They must either pay more wages or lay people off. Employees must live outside the area and commute. In some cases, it increases dependency on government assistance when people lose their jobs. Over and again, the ordinary taxpayer is burdened with the costs.
The VHR industry is a commercial activity in our residential neighborhoods that affect ordinary market economics and the right to quiet enjoyment of resident homeowners. The facts show this industry needs to bear the full costs of doing business, and do so within the bounds of appropriate rules and regulations.
The taxpayers should not be on the hook to "subsidize" the owners of VHRs.
Jeffrey Spencer is a private consultant in Urban and Transportation Planning, Intelligent Transportation Systems, and Smart Cities
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