New Terms for Short Terms

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Community

Travelers were first introduced to one of today’s most popular alternatives to staying in a hotel when VRBO, an acronym for “Vacation Rentals By Owner,” launched in the mid-1990s. Throughout the next decade, companies like Booking.com and HomeAway entered the market, while property owners also turned to online advertising platform Craigslist to find subletters, long-term tenants and short-term renters for everything from spare bedrooms to vacation homes.

When Airbnb, arguably the most well-known short-term rental (STR) platform, launched in 2008, the idea of staying in a private home was still a foreign one to most people, but the well-designed, easy-to-use platform helped catapult the idea for travelers, who quickly caught on to the perks of having options providing a more spacious, authentic, or conveniently located lodging option. Airbnb founders worked hard to create a good user experience, incorporating strong customer service and a ratings system that helped both hosts and guests feel safe and secure.

Today, it’s common for travelers of all types to consider an STR in lieu of a traditional hotel when traveling for pleasure, business, or other reasons, and as more and more STRs are listed on these platforms, the platforms have continued to evolve to address problems and issues. At the same time, cities across the country continue to evaluate the myriad effects of short-term rentals on communities and to propose new regulations that aim to strike a balance between supporting the needs of the neighborhoods where properties are located while not detrimentally limiting the economic benefits of these businesses.

Lexington, like many cities, is in the process of tightening regulations for short-term rentals. Led by Lexington-Fayette Urban County Council members James Brown and Liz Sheehan, the city’s Short Term Rental Workgroup proposed amendments to the zoning ordinance that address classification, occupancy limits, licensing and reporting, and proximity to other short-term rentals.

While the new regulations only passed through council recently (with a unanimous vote by the Lexington-Fayette Urban County Council on July 11), Sheehan said that the discussion actually began with the prior council, which had first started drafting the amendments in 2018 and 2019, before temporarily halting the process during the early months of the pandemic.

“We didn’t want to move forward on a policy when we couldn’t have in-person meetings and in-person public comment, because it was such a big topic for the community,” Sheehan said. The motion was resumed in March of 2022.

Sheehan acknowledges that STR platforms have both pros and cons.

“People are using Airbnb and VRBO in tourism, and it’s another way to invite people to experience our city and makes it more accessible for people traveling here. It also provides a way for people to supplement their income,” she said.

Sheehan continued, “Cons are infringement on our housing stock and impact on neighbors. There are examples where these have been disruptive, like where there have been parties and things like that. We want to preserve our neighborhoods.”

Amendments to the zoning ordinance for short-term rentals fall into a few key areas. The first creates two classifications of short-term rentals that then guide the approval process for the property. Units classified as “hosted units” are properties where a permanent resident lives on the property, whether it is the owner or a long-term tenant. Hosted units will be allowed to host up to 12 occupants, with higher occupancy only allowed with a conditional use permit from the Board of Adjustment.

Un-hosted units, by contrast, are those that do not also have a permanent resident. Un-hosted units must always have a conditional use permit to operate in a residentially-zoned area. Un-hosted units in a commercial or mixed-use area will, like hosted units, be able to operate without a conditional use permit.

Additionally, all units in residential zones, whether hosted or un-hosted, must determine their occupancy limits in the same way. Each unit’s occupancy limit will be calculated as two guests per bedroom, plus four additional guests. While 12 guests is the maximum allowed without a conditional use permit, rentals where the calculation allows for fewer than 12 guests will be limited to the lesser number. For conditional uses, the Board can grant a higher occupancy than is allowed by this calculation.

Another amendment will require short-term rental operators to hold a business license and pay an additional fee for each of their units.

“What the business license allows us to do is track where the short-term rentals are, to know how many we have in the community and where they are,” explained Sheehan. While it’s estimated that Lexington has between 1,000 and 1,400 STRs, there hasn’t been a good way to accurately track the number until now.

The business license will also allow increased regulations.

“If [an operator is] not being respectful, it allows us to enforce regulations — so, if you have two substantiated violations on your short-term rental, we can revoke your business license,” Sheehan said. “We really don’t have that ability now.”

Not only will the data be monitored to keep track of how many STRs there are in the community, but an annual report will also show how active they are.

“We can actually assess if this is making a dent in our long-term housing options,” Sheehan said.

Fees from licensing are regulatory fees, and as such the city must use them for the regulation of short-term rentals. The city plans to do a Request for Proposal for tech companies that might be able to help with this regulation — operating a single point of contact for reporting violations and aiding enforcement, for example.

The amendments include language requiring the Board of Adjustment to consider the number of short-term rentals in proximity to a unit before approving a new conditional use permit, and requires that a new conditional use permit be granted when a short-term rental that was operating prior to the adoption of these regulations changes ownership. In addition to regulations specific to short-term rentals, properties will continue to be subject to all ordinances in place for dwellings, including maintenance, noise and nuisance, and parking ordinances.

While the new regulations are a significant change to STR operation, some in Lexington believe that they are not enough. Kenwick resident Judith Humble references a concern shared by many.

“Real estate developers are constantly searching for property in this neighborhood,” Humble wrote in an email, citing a nearby owner of an attractive, well-preserved home, who learned that a recent offer on their house was from a company “seeking ‘scrape-offs.’”

“We have recently seen an increased number of demolitions, with replacement consisting of monstrous two-story, barn-like structures that do not conform to neighborhood design,” Humble continued. “Often, they are built of inferior materials which seem likely to deteriorate in the future. It has been possible to confirm that some of these are housing un-hosted STRs.”

Others, including Walt Gaffield, president of the Fayette County Neighborhood Council, worry about how short-term rentals will ultimately affect housing costs and the fabric of the community.

He wrote: “Short-term rentals result in a loss of social capital. In the most successful neighborhoods people enjoy each other and work to make their neighborhoods better. It’s not possible to establish a relationship with tourists who routinely come and go on a short-term basis. As housing becomes more profitable as commercial commodities, the cost of housing will increase for people wanting to live here.”

Kenwick Neighborhood Association board member Blake Hall serves on the programmatic board of CivicLex, a local civic education nonprofit, and is an advocate for more housing, street safety and “anything that falls under the urbanism umbrella.” Hall believes that the new regulations are a promising compromise that hold a nuanced view of short-term rentals and how they impact overall housing affordability.

“Short-term rentals are not the cause of our housing affordability issues,” Hall said. “We’ve known that we’ve had an affordable housing shortage for years. I do think they are exacerbating the shortage, but it’s not one of the major factors.”

“I think over time [short-term rentals] can affect the character of a street. If you have one on either side, you don’t have next door neighbors who might help keep an eye on your house. It does start to affect the sense of community. Has it gotten to the point in Lexington where it is that bad? I can’t speak for everywhere, but from what I’ve actually seen? Not really,” he continued.

Heath Green, CEO of The Kentucky Life Realty and Property Management, has been a part of the conversation about the proposed regulations since the committee reconvened in 2022, as a member of the city’s advisory panel.

“From my end, regulations are good,” Green said. “They help educate the public as well as make sure that there are measurables in place to ensure that hosts are operating to a certain standard.”

The properties that Green’s company manages host more than 500 guests each month in Central Kentucky, and he says he believes strongly in maintaining good relationships with neighbors. The best way to do that, he said, is to make sure that hosts are fully educated on how to plan for success from the beginning.

“When we advise a client who wants to operate a short-term rental, we have them look at the reality of the rental. They may want to establish a rental that sleeps 10 people, but will the building actually sleep 10 comfortably? Or is it really a six-person rental?

“If the house can actually sleep 10 or more, it’s responsible to make sure that you have space for four to six cars or to find alternatives that respect the neighborhood,” he said.

Green continued, “Most hosts do as much screening as possible, and they have clear standards and rules in place. But hosts must also act quickly and adequately if there is a concern.”

Short-term rentals, he said, can provide a valuable alternative for people who aren’t on a traditional vacation or have special needs, such as visitors who need to be able to prepare their own meals, or those traveling with children who would benefit from renting a house rather than multiple hotel rooms.

“We’re not necessarily a vacation market, like Gatlinburg or Orlando,” said Green. “We’re much more circumstantial.”

“While bourbon and horses are bringing a certain type of guest in, depending on the location of your property, your guest type could vary drastically. You could have family members coming into town visiting relatives, you could have people coming in for cancer treatments, or a variety of other reasons,” Green said.

He added, “We have seen a lot of people use short-term rentals to explore whether or not they want to relocate to the area. We’ve helped several of our guests become home owners in Central Kentucky.”

Some short-term rentals can also provide a unique experience that a visitor can’t get at a hotel.

“Visitors staying at a horse farm can see how a farm is run, and will have different needs and wants than those who want to stay in the city where the amenities are different,” Green said.

From a financial standpoint, short-term rentals also provide long-term benefits for the community, Green added. Hosts often use local vendors, from cleaners to maintenance crews, and purchase local goods that they leave as gifts for guests. Hosts are also likely to recommend locally-owned restaurants and businesses to visitors, through personal messages to their renters and guidebooks displayed in the rental. Further, renting out a room or separate unit within a house can provide substantial added income for local homeowners.

For the most part, Green is in support of the forthcoming regulations. His only concern lies with the conditional use permit, and how its non-transferability could hinder property sales in the future.

“When you have to go through the conditional use permit process with every sale, the con is that, from a business perspective, some buyers won’t be willing to purchase a property and then wait to see if the conditional use permit will be granted to them as it was to the last owner.

“This could cause some issues years down the road, as some owners will have problems selling property. If someone wants to operate a property as a short-term rental but needs that permit, some investors might not be willing to wait and take a chance on it,” Green said.

As the city moves toward passing the proposed regulations, what is clear is that the demand for short-term rentals isn’t going away any time soon.

“We want to make smart decisions instead of emotional decisions. Short-term rentals can help maintain a neighborhood instead of take away from a neighborhood,” Green said. “Neighbors need to work together to both help the city grow, but to also make sure that neighborhoods stay consistent.”