How tougher regulations on short-term rentals can boost revenue for state, local govs
In this photo illustration, a key is seen in front of a mobile phone screen displaying the Airbnb logo. Dilara Irem Sancar/Anadolu via Getty Images
Some short-term rental properties go undetected by authorities, but a new report offers tips on how officials can crack down on unregulated rental units to boost revenue and reduce their negative impacts on communities.
As online booking sites like Airbnb and Vrbo attract more travelers, more cities and small towns are becoming targets for people eager for a weekend getaway or remote workers looking for a staycation destination. The growing short-term rental industry is pushing state and local governments to try to better regulate short-term rentals in their communities.
Short-term rentals generally refer to residential properties, such as apartments, condos, houses or even individual rooms, that are rented out for a temporary period of time ranging from weeks to months. Last year the short-term rental market was valued at $29 billion and is projected to reach roughly $82 billion within the next decade.
Short-term rental properties can generate tourism-related revenue for cities and businesses, particularly in rural areas, according to a report released last week from civic engagement technology company Granicus, which sells software to the public sector.
But as the demand for short-term vacation spots grows, so do opportunities for people to list their properties on rental sites without complying with local or state tax or permitting requirements, said Graeme Dempster, director of Host Compliance in North America, a short-term rental management software service managed by Granicus.
That means state and local governments are losing out on potential revenue from short-term rentals that go undetected by authorities, he said. A report released earlier this year from Florida Taxwatch estimated that unlicensed vacation rentals could lead the state to losing out on $1.8 million to $6.9 million in annual registration fees
State and local governments can reduce future revenue losses with more stringent regulations on the short-term rental market, according to the Granicus report. Many rental property owners, Dempster said, could simply be unaware that there are tax requirements for rental units in operation, such as occupancy levies.
To help bridge that gap, governments could require vacation rental sites to collect rental-related taxes from hosts through their booking platforms, Dempster said.
A more robust system for collecting taxes could make it easier for authorities to track and monitor short-term rental properties through a payment platform, he said. It can help officials recognize, for example, when new rental properties are listed or when an existing one has stopped paying.
Increasing taxes on short-term rentals, said Jorge González-Hermoso, a research associate at the Urban Institute, could also help ensure that the cities get paid for short-term renters’ use of public services like roads and utilities.
In Colorado, for example, where ski resorts and national parks draw millions of tourists, a bill that would have increased the tax revenue generated from short-term rentals died in the face of opposition from Airbnb, VRBO, and other short-term rental owners.
Hotel owners, González-Hermos said, have raised concerns that unregulated short-term rentals create “unfair competition” for traditional lodging facilities because owners of the rental units are likely to avoid paying the same taxes and fees that establishments like hotels do.
Last year in Colorado, residential properties—which could include short-term rental units that were not registered as lodging—were subject to a 6.765% property tax rate, while hotels paid a 27.9% rate. The proposed legislation would have required short-term rental owners to pay the same property tax rates as hotels.
A fiscal analysis of the proposed Colorado bill found that it could’ve generated an additional $184.5 million to $293.3 million in revenue for local schools in 2026.
Revenue from short-term rentals can also be used to offset the negative impacts of the industry, Dempster of Granicus said. In many cities, short-term rental opponents have pointed out that temporary rental units can reduce the housing supply, driving up housing costs for long-term or permanent residents.
Dempster pointed to Nashville, where a rental tax imposed on Airbnb hosts since 2015 has helped fund the city’s Barnes Fund for Affordable Housing, which finances the development of affordable housing. The tax has generated more than $15 million since its inception.
With short-term rentals, “there are potential negative impacts, but you can strike a balance,” Dempster said. “Having regulations that are fair and enforceable encourage those good operators to continue running their short-term rental business without disruption to neighbors or without disruption to the local community but provide opportunity for those municipalities to bring in tourist dollars.”
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