Short Term Rentals and the Rental Market

Currently there is a variety of excellent rentals available, many of which in prior years would already have been rented at this point in the season. Perhaps a combination of cold and rainy weather, holidays and Shelter Island Town passing its Short Term Rental Regulation has had a ripple effect.

Over the past several weeks, I gained interesting perspective about short term rentals, a topic that has been widely debated, in recent conversations with: 1) homeowners who do not rent their homes, 2) Landlords who only do longer term rentals, and 3) landlords who offer their homes for short term rentals.

Landlords whose properties had been rented on a short term basis for many years without incident believe this rental category has been singled out because of problems at only a handful of short term rental properties surrounding noise, group occupancy and landlord supervision. They believe the issues that have led to the creation of the regulation are not limited only to short term rentals, and that, if anything, there might have been measures put into place for all rentals, such as lowering noise decibel minimums and enforcing current group rental laws currently on the books, prior to creating more regulations. A few of the concerns are:

• The regulation application is a “self check,” an owner’s statement that safety and code items are correct, which do not require the Town to verify. (Note: updating certificates of occupancy with a physical inspection by the Town would in reality facilitate the process of selling a home which has been a rental in the recent past, since the Town requires an on-site inspection before sending title company copies of certificates of occupancy.)
• The regulation specifies that the rental “must comply with Town Building and Zoning Codes,” however there are inconsistencies between the regulation and these codes.
• The Group Rental regulation in the Town Code specifies that: “Not more than one family shall occupy a one-family dwelling… A dwelling occupied by a group may be occupied by not more than two persons per conventional bedroom. In no event shall more than five persons unrelated by blood, marriage or adoption occupy a one-family dwelling unless the owner thereof actually occupies same and uses same as his principal place of abode.” The penalty for violating the Group Rental Law is “no more than” $250 per occurrence and/or “no more than” 15 days in prison.
• The Short Term Rental Regulation reads that: “…the rental cannot exceed more than two persons per bedroom.” As an example, a four bedroom house could accommodate 8 unrelated individuals which would be non-compliant under the Town Code. Violation of this provision under the short term rental regulation ranges from $500 to $4K with the possible suspension of the ability to conduct short term rentals. No jail time is included.
• The sign regulation in the Town Code specifies that: “Any property owner may display anywhere on his or her property no more than one real estate sign.”
• The Short term rental regulation reads that there can be: “No on-premises signs advertising a vacation rental.”
• About the “Good Neighbor” brochure, one landlord said “I can understand asking tenants to respect the island, but why is it their job to talk about ticks, beach permits and speed limits, then force us to have our tenants sign the brochure?” Another said it would have been helpful to have the Town suggest tenants download a mobile phone app to measure decibel levels than to generally suggest tenants keep noise to a minimum.

Some short term rental Landlords have said they may postpone capital improvements, using local contractors and thereby supporting the economy on the island, which were to be financed by the proceeds of their short term rentals. Others have considered selling altogether and leaving Shelter Island.

In the past, because of the number of short term leases a Landlord could potentially turn over, the revenue from short term rentals has been more lucrative than a monthly or seasonal rental. In most cases the math does not translate from short term to long term using the Town’s new short term rental regulation formula, which allows for no more than two two-week rental opportunities per month, with no minimum length of stay. Here are two examples comparing longer term rentals to AirBnb rental rates, using the new formula under the regulation:

– A three bedroom inland home with no pool: Listed with brokers for the season at $32K. The short term formula is: 5 night minimum $3,250, $6,500 per month, $19,500 per season

– A four bedroom inland home with pool: Listed with brokers for July-LD for $63K. The short term formula is: 14 night minimum: $12,600, $25,200 per month, $50,400 July-LD.

The popularity of short term rentals in recent years has changed the rental business for everyone: owners, tenants and real estate brokers. Traditionally, the rental rate set by a landlord was the rate at which a home was leased, with little to no negotiation. Landlords, in conducting their own rentals, began negotiating rentals rates, resulting in often extensive negotiations for utilities, amenities, and rent prior to finalizing a lease. Many short term rental properties have been purchased over the last decade or so, frequently offer more updates, and are sparsely furnished. As a result, tenants’ expectations have shifted from renting someone else’s home to renting a property that feels like a hotel suite. The longtime go-to home that was once the mainstay of the rental market in a great location, with old fashioned style décor and sometimes a tube television will often now go unrented for the season, sometimes despite an attractive rental rate.

Shelter Island Town Board envisioned short term rentals being enforced through reviewing online advertisements placed by Landlords on AirBnb type websites. Because of the structure of the regulation, it will be a challenge to gauge compliance without an actual audit of each and every Landlord’s leases. Like the self-check application, compliance is through an honor system. The Town unfortunately missed a good opportunity to speak to laypersons about the importance of Fair Housing, which is not only a civic duty, but also a Federal law.

On the positive side, the topic of short term rentals introduced a dialogue between homeowners and the Town Board. It appears everyone would like to preserve the character of Shelter Island as a tranquil, yet tourist-friendly place. The annual registration fee will add revenue to Town coffers that can be used toward useful projects; approximately $46K for 306 short term rentals currently on AirBnb. On the other hand, the regulation as it stands may not be enforceable and may not resolve the problems initially voiced by those who oppose short term rentals.