Is Airbnb Legal? The Best and Worst Cities For Short-Term Rentals

Scott Shatford | March 22, 2016

It’s never been easier to embark on a career as a vacation rental manager. You don’t need to create a website, set up a payment system, or pay for marketing. Platforms like Airbnb take care of these things for you.

As the barriers to entry have come down, people from all walks of life have transformed their homes, second homes, and real estate investments into rental properties. In 2015, AirDNA identified a total of 550,000 Airbnb listings in the United States that were listed on the site at some point during the year.

What is good for property managers and real estate investors also benefits travelers. Consumers now have a broad choice of accommodations. They are no longer limited to pricey hotels or dreary motel rooms.

However, this growth in short-term rentals is threatening the established hospitality industry. Hotels have good reason to be worried. In this article, we argued that Airbnb’s growth may contribute to a significant downturn in the lodging industry.

Unsurprisingly hotels are responding to this threat by asking regulators to limit Airbnb operations. Many cities have already implemented restrictions. For example, Chicago prohibits listings in specific zoning districts and San Jose only allows rentals for 180 days per year.

It’s not the first time that a young industry has come under fire. Restaurants responded to the rise in food trucks by seeking increased regulation governing the new competition. Uber and other ridesharing start-ups have also come under pressure.

So how are city regulators responding to the upsurge in Airbnb listings in your area?


Is Airbnb Legal in Your City?

Is your city friendly to Airbnb real estate investors? To answer this question, we refer to R Street ‘s Roomscore 2016: Short-Term Rental report.

The R Street Institute is a non-profit “think tank”. Their mission is to engage in policy research and outreach to promote free markets and limited, effective government.

Roomscore provides an in-depth analysis of the local and state regulations in 59 US cities. Each city starts with a base score of 90.Points are added or deducted in five different categories. The final score is then translated into a letter grade. The highest score awarded is A+ and the lowest score is F.

Before we get to the overall scores for each city, here’s an overview of the five scoring categories.

  1. Tailored Legal Framework

The first question R Street asks is whether a city has a legal framework specific to short-term rentals. Cities that explicitly regulate both vacation rentals and room sharing score +10 points. Cities that recognize vacation rentals but not room sharing score +5 points. All other cities score 0 points.

  1. Legal Restrictions

The second category examines the limitations on short-term rentals. An example is a limitation on the number of days per year a property can be rented out. The more limitations a city has, the greater the negative score. Cities that prohibit short-term rentals altogether score -40 points.

  1. Tax Collection Obligations

In this category, cities are penalized up to 5 points if they force rental platforms to collect occupancy taxes. While Airbnb does collect taxes in many US jurisdictions, this is not feasible for a platform like Craigslist. Hence such a restriction is overly burdensome and limits the short-term rental industry.

Cities enforcing a tax rate that is higher than the rate paid by hotels are further penalized by Roomscore.

  1. Licensing Requirements

The fourth category penalizes cities based on the number and cost of filings that the city requires of short-term rental operators. Depending on the severity of the burden, a city receives up to -10 points in this category.

  1. Hostile Enforcement

The final category gives deductions for any other overheads inflicted on short-term rental operators. Examples include inspection requirements, occupancy limits, and restrictions on location or accessibility. A city with regulations that are hostile to short-term rental owners receives up to -10 points.


The Top Airbnb Friendly Cities

Let’s examine the overall results. R Street found significant variation in the legality of Airbnb across the United States. Total scores range from 50 at the low end to 97 at the high end. The following chart shows the distribution of scores.


Most Friendly Airbnb Cities to Invest
Just four cities have enacted a legal framework that is favorable to short-term rental owners. Galveston and Savannah both score 97 points. These cities enforce minimal restrictions on Airbnb operators.

Just below the top scorers are Louisville with 93 points and San Diego with 92 points. The following chart shows the scores across all categories for the top four cities.

top airbnb cities for investing


The Silent Cities

Next on the scoreboard are the “silent cities.” 11 cities have no Airbnb legal framework in place. They all receive the base score of 90 points. They neither allow nor prohibit short-term rentals.

The silent cities are Cleveland, Columbus, Dallas, Detroit, El Paso, Indianapolis, Mesa, Milwaukee, Omaha, Phoenix, and San Antonio.
Only time will tell whether these cities will elect to support or restrict Airbnb operations.


10 Cities That Make Airbnb “Illegal”

At the other end of the scale are ten cities what receive an F grade from Roomscore. These cities currently ban short-term rentals or make it impossible to operate. For example, Jacksonville scores just 55 points. The city only permits short-term rentals in commercial districts, such as a boarding house.

The ten cities where Airbnb is effectively illegal are: Fort Worth, Jacksonville, Kansas City, Los Angeles, New Orleans, Santa Barbara, Fresno, Atlanta, Denver, and Oklahoma City.


What Should Airbnb Operators Do?

First, examine the specific policies in your city and see how they apply to your situation. The below table displays the scores for all 59 cites. You can also view Roomscore’s detailed results here.

Rank of Best Cities for Airbnb regulation
Second, stay up to date with new regulatory activity. This story is far from closed. At AirDNA, we are keeping a close eye on developments and will continue to share our insights with you.

Lastly, think about this. Airbnb benefits both consumers and the economy; it’s here to stay. Successfully navigate the regulatory landscape and you can still cash in on this rapidly growing market.  View the best places for vacation rental investments.

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