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VOL. 9 | NO. 49 | Saturday, December 3, 2016

Platform for Property

Memphis finds Airbnb middle ground for property owners, tax revenue burden

By K. DENISE JENNINGS

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Airbnb is revolutionizing the hospitality industry causing legislators worldwide to scramble to regulate it, but the Memphis City Council is gaining state and national attention for its hands-off attitude.

The debate in Memphis between the local tourism industry and the Airbnb community has been ongoing, with both parties meeting regularly until an agreement was made that everyone could live with – at least for now.

The newly adopted City of Memphis Short Term Rental Ordinance requires that rental platforms like Airbnb remit a 3.5 percent rental fee tax and a $2 fee per room per night directly to the city of Memphis.

If a rental host is not a member of a platform, they are individually responsible for remitting these taxes and fees to the city of Memphis. As far as noise, trash and parking ordinances, the city of Memphis is requiring short-term guests to follow the laws that are already on the books for all citizens.

Diane Sable, a Memphis-based Airbnb superhost who has been renting space in her home for two years and was on the original steering committee for the Memphis Short Term Rental Alliance, says she’s generally happy with the new ordinance.

“Six months ago we were in a very different place than where we are right now,” Sable said. “(The hotel and tourism industry) started a year or so ago trying to control this.”

Various ideas were floated, such as only charging taxes if rental prices were above a certain amount and requiring business licenses and permits to operate, but that was going to mean hiring employees to staff a permit and appeals board and create a layer of red tape and bureaucracy at the city level.

“The $250,000 they were going to collect from us was going to disappear in salaries to run it,” Sable said.

Memphis City Council chairman Kemp Conrad said he thinks the city “struck the right balance in making sure that people in Airbnb are on a level playing field with the hotels from a taxation and pricing standpoint without overregulating.

“At the end of the day VRBO, Airbnb, Uber and Lyft…they’re all self regulating,” Conrad said. “If someone has a bad experience they won’t have good reviews and they’ll eventually be kicked off the platform. We don’t need a 1970s approach to regulating that.”

While Airbnb is exploding worldwide, Memphis has been slower to enter the market.

“Right now there are 486 listings in Memphis,” Conrad said.

Comparatively, in Nashville there are 3,277 and in New York City, prior to a new law, there were more than 41,000 listings.

Conrad believes that right now the ordinance is the right solution for the number of short-term rentals in Memphis, but he leaves the door open to revisit it in the future.

“The ordinance and the law can evolve as the industry evolves,” he said.

Kevin Kane, CEO of the Memphis Convention & Visitors Bureau, said it was never the intention to make the Airbnb industry jump through a bunch of hoops.

“We just think they should pay the appropriate taxes,” he said. “Some of them disagree with this, but they do benefit from the marketing that we do for the city. People don’t just accidentally come to Memphis. People are coming for a reason and a lot of it is something we’ve done or triggered to get them here.”

With an agreement inked that everyone seems satisfied with for now, Kane is looking forward to helping the city’s Airbnb and other rental platform hosts become experts on what Memphis has to offer and be good ambassadors for the city.

He says the CVB is working on training seminars for rental platform hosts that will be announced after the first of the year.

“It’s here to stay,” Kane said. “There are more Airbnb rooms in this country than InterContinental Hotels (which own the Holiday Inn brand) has in their entire inventory. They are a force to be reckoned with and we recognize that they fill a good role in the market. We look forward to working with them and we want to help them put Memphis’ best foot forward.”

AIRBNB TRENDS IN OTHER MARKETS

The regulatory hurdles are not unique to Memphis. Airbnb is working to find its place in the hospitality landscape as worldwide policy makers complain that the company is doing everything from violating local laws to raising prices in the long-term rental market.

“Ultimately, it’s something new that has come with technology like Uber and Lyft, and governments are scrambling to try and regulate it because there are no laws on the books,” says Mark Cunningham, spokesman for The Beacon Center of Tennessee, a Nashville-based think tank.

Nashville has had a high-profile battle with Airbnb hosts, enacting a law that one Tennessee judge has said is unconstitutional in its vagueness. The city’s ordinance, which was signed into law recently, requires a short-term rental permit and among other things, limits the amount of non-owner occupied rentals to 3 percent per neighborhood.

“Nasvhille way overstepped their bounds,” Cunningham said. “The Memphis regulation is a much more fair way to regulate.

“Local governments are just trying to figure out how to define it and tax it while keeping the rights of property owners intact,” he said. “If they can’t do that, the state government (in Tennessee) has considered regulating it on a state level so local governments don’t overstep.”

San Francisco, Airbnb’s hometown, recently voted to allow Airbnb hosts to rent their residences a maximum of 60 days per year, hoping to combat the increase of non-owner occupied property in the city, which has some people worrying that it could trickle down to affect things like school enrollment.

CNN Money reported that in July, a new rule took effect in San Fransisco that requires all hosts to register with the city in person and pay a $50 registration fee. And instead of fining hosts, the city would fine rental companies up to $1,000 a day for each unregistered listing, putting the onus for compliance on the rental companies.

New York City has banned Airbnb altogether, and the company is involved in various stages of legislative action in most major cities.

But Airbnb seems prepared for the onslaught. In August 2015, the $30 billion company hired Chris Lehane, a former Bill Clinton adviser, to guide the company in navigating public policy in the many markets where it operates. That includes every country in the world except Iran, Syria, Sudan, Crimea and North Korea.

In addition to regulation, Airbnb has had to tackle issues of reported discrimination on its platform. In a statement released late last month, Airbnb founder Brian Chesky apologized for being slow to address certain issues that have been reported, but vows to fight discrimination head-on with some concrete policies.

Starting Nov. 1, Airbnb asked all those within the Airbnb community to sign a new discrimination statement before booking a listing or sharing space on Airbnb. The company has a new program called Open Doors, which fields all complaints and promises to help with bookings if someone feels they have been discriminated against.

Airbnb also has a goal to have a million people registered by Jan. 1 for the Instant Book option, which does not require host approval to get the booking. In addition, the company will offer anti-bias training and will publicly acknowledge any hosts that complete the training.

THE SHARING ECONOMY

Another reason that Airbnb and other short-term rental platforms like VRBO have taken off, in addition to the affordability both for hosts and guests, is that it’s a different and more personal way to experience a destination.

“People who are coming to visit and stay in an Airbnb are people who want to see a different side of Memphis than you can see staying in a hotel,” said Chooch Pickard, a local preservation architect and new Airbnb host who has helped the Short Term Rental Alliance navigate the legislative process.

Pickard has been renting his three-bedroom home to supplement his income since September and has been full almost every weekend since he signed up. He says the new ordinance will make it easier for entrepreneurs to become hosts without all the hurdles other cities have had.

Griffin Elkington, a local residential real estate developer and property manager, got involved with Airbnb when he ran across a unique duplex property in a great location. It has a lot next door where his partner and he plan to build, but they weren’t sure what to do with the duplex.

“I kept hearing about the (Airbnb) market in Nashville, but not much about it here,” Elkington said. “We thought this property was perfect for it, so we just signed it up two weeks ago. The response has been phenomenal. Both sides are getting booked left and right.”

Airbnb hosts are every bit as varied as their guests and they are in the business for many different reasons, some for extra income and some just because they enjoy it.

“It’s the best kept secret in the world,” said Patrick McCabe, a retiree who rents the back house of his Midtown home on average 20 nights a month for a flat rate of $79 a night. “I’m retired military, and I’ve lived all over the world and stayed in a lot of local family owned places like Airbnb.

“It’s fun,” he said. “Talking with a local for recommendations makes the whole experience better for travelers, and it keeps the money in Memphis, which I also like. I send all my guests to local establishments only with the exception of Bass Pro Downtown.”

McCabe did a personal survey and estimates that Airbnb guests who stay with him spend an average of $300 per day including his rental rate.

“Just me, $300 for 20 months, 20 days out of the month… that’s a lot of money and multiply that by the number of Airbnb listings around town and you’re talking about millions through Airbnb being kept right here in town.”

Airbnb superhost Sable agrees, saying Marriott owns 12 different brands and the money they’re taking in Memphis doesn’t go back into the community.

“When you stay with Airbnb you live like a local and you support locals,” she said.

Sable cites Airbnb statistics that Airbnb patrons generally stay two days longer and spend $200 more than hotel patrons.

In addition to Airbnb generating income that stays in the community both with local hosts and eating and shopping establishments, the reviews are essentially free advertising for the city.

“It’s not just reviews for the hosts, but for the city,” McCabe said. “It’s worldwide advertising.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 51 334 9,936
MORTGAGES 41 330 10,946
FORECLOSURE NOTICES 0 12 1,301
BUILDING PERMITS 348 1,216 22,173
BANKRUPTCIES 43 348 6,311
BUSINESS LICENSES 30 142 4,081
UTILITY CONNECTIONS 19 127 3,019
MARRIAGE LICENSES 20 105 2,126