The City Council and Short-Term Rentals
A tourist city of 90,000 residents has seen 1,800 homes converted to short-term rentals over five years. Long-term rents have risen 28 percent, and the vacancy rate has fallen to 1.5 percent. The council is considering an ordinance capping short-term rentals at 2 percent of housing units (about 600) and requiring owners to live on-site. Supporters cite housing affordability; opponents argue the rules violate property rights, hurt tourism revenue that funds 20 percent of the city budget, and will push rentals underground. A council member proposes instead a 12 percent tax on short-term rental revenue with no cap. The council must choose a policy and defend it against legal and economic objections.
1. Compare the cap-and-owner-occupancy ordinance with the tax-only alternative on effectiveness and legal exposure.
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Cap plus owner-occupancy: Directly targets the mechanism driving rent increases - removing housing stock from the long-term market. Capping at 600 units would return roughly 1,200 homes to long-term use, plausibly easing the 1.5 percent vacancy rate. Legal exposure: owner-occupancy rules and caps have been challenged as takings or violations of property and due-process rights; courts often uphold them when tied to a legitimate public purpose and when owners retain reasonable use. Enforcement requires registration and inspection.
Tax-only (12 percent): Raises revenue and is less vulnerable to takings claims because it regulates use through taxation rather than prohibition. But it does little to return units to long-term housing; a 12 percent tax may be absorbed by tourists in a high-demand market. It also does not address the vacancy crisis.
Effectiveness favors the cap; legal risk favors the tax. A combined approach - moderate cap plus tax - may capture both.
2. Recommend a policy and explain how to address the tourism-revenue objection.
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Recommendation: Adopt a phased cap (for example, 4 percent now, stepping to 2 percent over three years) with owner-occupancy required for new permits, plus the 12 percent tax to fund housing trust programs. Grandfather existing compliant rentals for a transition period.
Tourism objection: The city should model the revenue impact rather than assume the worst. A cap at 600 units still leaves substantial rental capacity, and hotels and regulated rentals absorb demand. The tax revenue can offset part of any tourism shortfall and fund affordable housing that supports the workforce tourism depends on. Phasing reduces the shock to the budget.
Enforcement: Registration, platform data-sharing, and penalties for unpermitted listings reduce the underground-market risk opponents cite. The council should commit to reviewing outcomes after 18 months, adjusting the cap if vacancy or revenue moves unexpectedly.