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Looking for clarity in a murky planning process

The role of Short-Term Rentals in our city

What does Olympia’s Community Planning and Development staff do with the comments they solicit from the public? For sure they don’t summarize them and link the results to their eventual proposal. And judging from the “proposal” they’ve just published in their quest to regulate the “short-term rental” market, if they read the comments, they ignore them.

What happened to the guiding principles?

Last fall, CP&D staff asked for public comment on whether Short Term Rentals should be regulated, and if so, how? They listed six goals that people should focus on. Two related to the fundamental question raised by STRs – the need to protect the supply and affordability of housing and the intent to ensure equity for hotels while enabling revenue opportunities for existing residents.

The staff has now published “possible approaches” that are not linked in any way to the stated goals of protecting housing affordability and balancing between hotels and residents who want to offer Short Term Rentals. Instead, the possible approaches consist of various disparate regulations that could be adopted: Permits and fees; Booking limits, Key standards, and Safety standards. There’s a survey that asks you to “agree or disagree” with specific options.

Homes have been both homes and financial assets – they will, increasingly, simply be financial assets.

Short term rentals raise important questions about the larger role they will play in a city and its neighborhoods. When will the staff address the underlying question of whether Olympia will allow short-term rentals only by residents? There is good background to consider.

Residents renting parts of their home short-term aren’t regulated

State law (HB 1798) exempts from regulation and taxation a dwelling whose owner occupies it for at least 6 months per calendar year and where 3 or fewer rooms are rented at any time. By this simple provision, residents can earn money from their extra space and not stimulate a whole new tax and regulatory scheme.

Every homeowner, absentee or otherwise; every landlord, every investor, etc. can still rent any dwelling unit on a 30-day or more basis without being licensed, taxed or subject to rules other than those that already apply to rentals. Thus, some housing units could be offered for a 30-day minimum basis and still be advertised on Airbnb or VRBO etc. (This is quite common.) Those housing units would not be available as traditional rentals.

Does Olympia plan to follow the state and, to minimize confusion, exempt STRs as part of a primary residence from local regulation and taxation consistent with the state law? It’s not clear one way or the other.

Market realities that affect housing supply and affordability

The short-term rental of housing units affects both the supply and affordability of housing. CP&D Deputy Director Bauer in presenting infill zoning changes known as “Missing Middle”, told City Council members last year that the new rules would add 474 to 946 new housing units over the next 20 years. How many will be converted to Short Term Rentals if STRs are allowed year-round in entire units? Olympia’s rental market is tight already: According to Thurston Regional Planning, at 4% official the rental vacancy rate in Thurston County is below that of either Pierce or King County.

Houses, apartments or ADUs regularly offered as short-term rentals typically removes those units from availability to long-term tenants. The ability to derive income from a property raises its value, thus driving up the price for anyone competing to buy – or rent. Over time, supply diminishes or grows more slowly than otherwise; and prices rise above what they would be otherwise.

Even though OMC 18.04.040 makes it illegal to convert residences into commercial uses, some have been converted. [Did the City of Olympia simply decide not to issue warnings or fines for these violations?]

Did we find out what STR practices are here now?

CP&D staff identified 167 STR listings as part of its inquiry into regulation. How many of these are offered year-round as entire units, not the primary residence of their owner(s)? Two homes in my neighborhood are no longer available to families. One couple purchased the house next door (with an ADU) and now makes the two units available year-round as short-term rentals. Nearby, a Seattleite purchased an older home, renovated it and now offers it on Airbnb.

The “marketplace” is already moving to convert more housing units to STR investments:

…the Airbnb Rental Calculator allows you to evaluate how profitable a certain property is for an Airbnb investment. You can analyze the location, get real estate rental comps, and estimate your potential return on investment all in a matter of minutes! Click here to start analyzing Airbnb Washington State properties and find the best one to capitalize on.

If the City chooses not to prohibit people from buying, renting and operating entire units as short-term rentals, the regulatory scheme will need to be much more complex. A set of explicit regulations will be needed to along with a set of new city employees. Once this new business sector matures, the city will have an incentive to grow the tax revenue it receives – adding to the dynamic for a new pattern of neighborhood life.

By default, Olympia will be participating in the transformation of neighborhoods – and the city itself—via the creation of a new commercial business sector within residential districts: entire houses, apartments or ADUs owned by investors (in Olympia and elsewhere) for the primary goal of making a profit. Homes have been both homes and financial assets – they will, increasingly, simply be financial assets.

A new concept of “residential neighborhood”

Another need is for significant amendments to Chapter 18 of the Olympia Municipal Code. Without a prohibition or stringent limits on year-round entire unit STR business, provisions of the code that are based on the idea of a residential neighborhood as a community distinct from a business district will need to be rewritten. And to be fair, there should be a look at the definition and regulation of Bed and Breakfasts and motels.

Converting an appreciable number of dwelling units (once understood to be “homes” but that is already becoming inapplicable) to STR business will erode a neighborhood as a community. Provisions for disaster preparedness that depend on neighbors knowing each other and acting as first responders will be less meaningful. There is increasingly no concept that a family will move in, get to know their neighbors, make friends, raise children, and continue to be part of a community as the parents age.

In Olympia, the Comprehensive Plan envisions that neighborhoods will participate in developing “Subarea Plans” that reflect residents’ vision for their community. This “engage Olympia” process for developing STR rules completely ignores that.

The goal of protecting affordable housing

To live up to its goal of protecting affordable housing, the city would have to adopt rules that ensure that suitable dwellings – apartments, ADUs, entire houses—cannot be converted into year-round short-term rental businesses.

An easy way would take a definition from HB1798 and provide that any resident could offer a short-term rental within their private residence or an associated ADU, but no one could convert a residence into a year-round short-term rental. This approach allows an existing resident to earn money from their home in a way that protects housing and doesn’t conflict with traditional hospitality businesses.

Regulation would thus be greatly simplified – requiring registration, and then simply addressing primarily safety, accessibility and insurance. Enforcement would need minimal staff, reducing the need for costly fees. The issue of unfair competition with traditional hospitality businesses would be eliminated entirely or limited to those renting an ADU.

Bethany Weidner has lived in West Olympia since 1984. She has worked as a policy analyst in the US Senate and for Washington State agencies.

 

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