Home Base: What short-term rentals mean for locals and the Chattanooga economy

For travelers seeking overnight accommodations, the words "heated indoor pool" and "continental breakfast" may not have the same cachet they once did. Not when a hotelier's competition can boast amenities that sound more like real estate listings: "charming loft only 7 mins from downtown," "dreamy studio in the woods," "urban retreat."

Not every traveler wants an actual home away from home. For some, a room will do. But increasingly, travelers are looking for a place to stay that has the feel of home, even if it's someone else's home, or studio apartment, or extra bedroom.

At standard price points, hotel rooms look the same - two queen beds, tiled bathroom, generic art on the walls, heat-and-air unit under the window.

Not so with short-term rentals, whose color schemes and design choices often mirror the homeowner's personality and where family photos and other personal effects add a homey ambience.

The use of short-term rentals has grown exponentially in the last few years, with global sales projected to reach $132.5 billion by 2022, nearly triple what they were in 2012.

The first site to launch on the web was VRBO (Vacation Rentals By Owner) in 1995, followed by HomeAway in 2005. By 2015, the vacation rental industry was worth an estimated $85 billion. By then, HomeAway alone encompassed more than 2.8 million rooms - more rooms than the four largest hotel chains in the world combined, according to a timeline at RentalsUnited.com.

But it's Airbnb whose name has become synonymous with short-term vacation rentals. It launched in 2008 and within 10 years had welcomed more than half a billion tourists throughout the world, according to the company.

More sites have debuted over the last decade, some with global reach, some catering to local markets, but all operating as booking platforms to connect travelers with alternative lodging.

"Airbnb is kind of a disrupter in the industry, but there's one thing they've been really good at," says Christian "Thor" Thoreson, who manages 28 Chattanooga-area short-term rental properties with wife Christina.

"Short-term lodging used to be mostly on beaches and at ski resorts," he says. "Airbnb has made it possible for everybody to have a vacation rental property, no matter where you live, and have extra income to help pay that mortgage. It's brought the whole business model to everybody."

Initially, the Thoresons, who have owned vacation rentals since 2004, marketed through their own website, ChattanoogaVacationRentals.com. But Thoreson says Airbnb's staggering growth in the industry and the evolution of its business model became hard to ignore. "They started out as a couch-surfing website. Someone could rent a couch in a living room or an extra bed in a house. That's not the clientele we were after. They [Airbnb] eventually changed to whole houses, more traditional vacation rentals."

Growing Pains

The proliferation of the industry has not been without growing pains.

Recent news reports have chronicled at least five deaths and other violence at Airbnb properties in the U.S.

"Nationwide, short-term rentals are becoming known for massive parties whose guests victimize neighborhoods and jeopardize the safety of families who live there," says Mike Lux of AirbnbWatch.org. "These continued shootings are unacceptable. Families and communities should not be subjected to the revolving door of guests who come in and out of these Airbnb-style rentals."

Airbnb recently banned "open invite" parties at all of its accommodations, with exemptions for boutique hotels and professional event venues.

"This policy does not impact parties that are authorized by hosts and convened respectfully by guests," the company said in a news release. "Instead, our goal with this new policy is to address the small number of guests who act irresponsibly and those rare hosts whose homes become persistent neighborhood nuisances."

Additionally, the hotel industry has accused the rental platforms of not abiding by the same rules and regulations that hotels must adhere to, including the payment of occupancy taxes. Airbnb has argued that its hosts and travelers would be responsible for such taxes, but has voluntarily entered into agreements under which it collects and remits the funds to state or municipal governments.

In Hamilton County, Airbnb collects and remits all state and local sales taxes through a 2018 tax agreement with the Tennessee Department of Revenue. Earlier this year, the company announced that it delivered $23.5 million in statewide tax revenue in the first year of the agreement, nearly doubling initial expectations.

Critics remain. Dan Bucks, the former executive director of the Multistate Tax Commission, which promotes uniformity in state tax laws across the country, points out that studies have shown that access to short-term rentals has almost no impact on tourist visits to a state or city - at most, he says, an increase of just 2% to 4%.

"Most short-term rental revenue is simply a diversion of lodging stays from traditional lodging sources, which generally collect and pay lodging taxes through a more transparent and documented tax collection process," he says.

Many municipalities also have started cracking down on rental platforms after studies have shown the influx of short-term rentals in U.S. cities has depleted the housing supply and increased the cost to rent or own a home.

Last year, the city of Asheville, North Carolina, clamped down on homeowners wanting to offer short-term rentals in the popular tourist destination. The new restrictions meant owners of condominiums, apartments or other downtown homes being rented for periods of less than 30 days could continue to do so, but only if they were already registered with the city.

Proponents of the ban said the policy change was needed to deal with the increasing number of dwellings being converted to short-term vacation rentals. Locals who argued for the restrictions told the City Council of being evicted so the homes they were leasing could be converted to tourist rentals.

Among them was musician Andrew Fletcher, who said the rentals pushed out service industry workers and artists, such as his band, whose downtown studio was converted to a vacation rental in 2014.

"People are not being displaced by 120-room hotels," he told Asheville's Citizen-Times newspaper. "They're being displaced by 120 individual Airbnbs."

Among those supporting downtown rentals was Andy Brokmeyer, a wedding chapel owner.

"To limit [tourists] to just a sterile hotel, I think, limits their Asheville experience and limits our reputation as a desirable tourist destination," the Citizen Times reported.

In Chattanooga, the supply of permitted short-term rental properties is just a sliver of available housing. Of the 27,331 residential properties (houses, apartments and condos) within a 10-minute drive of the central city, about 13,000 are long-term rental units and only 224 or so are permitted for short-term rentals by the city of Chattanooga, according to the Thoresons and their operations manager, Jen Richards.

"That's about 1.8% of the rental units and less than 1% [of all residential properties]," Richards previously told the Times Free Press.

Coming Trends

The growth of the short-term rental industry continues. Airbnb bookings in the Chattanooga area have more than doubled in each of the past two years, from 24,600 in 2016 to 53,000 in 2017 and then to 110,000 in 2018, the company says. Airbnb reports that its Chattanooga-area hosts earned $11 million last year.

Such growth has turned investors' heads, and in some cases spooked traditional property owners who fear a flow of tourists will change the nature and quality of neighborhoods, the Times Free Press previously reported.

To manage the growth and to quell citizen concerns, the Chattanooga City Council in 2017 passed an ordinance that requires permits for the lawful operation of short-term rentals and restricts the practice to certain areas of the city.

The business model is also attracting commercial developers. Owners and managers of some new apartment developments in Chattanooga have converted or have plans to convert units to hotel rooms or short-term vacation rentals. The Maclellan Apartments, in the 700 block of Broad Street, plans to convert two of its 90 apartments to short-term vacation rentals in an agreement with Mint House, a New York-based hotel booking firm that caters to business travelers looking for apartment-style accommodations with the reliability found in top-tier hotels.

Market City Center, one of the biggest new apartment complexes in the central city, came under scrutiny this summer after it unveiled plans to turn 53 of its 125 units into overnight or longer-term travel apartments under the Stay Alfred brand. The $30 million high-rise development, which opened in September 2017 in the 700 block of Market Street, was slow to fill its apartments and commercial space.

Such a change would change its tax liability, according to city and county officials, but the developer plans to fight attempts to limit the tax breaks it was initially granted.

Professional management services like Mint House and Stay Alfred are raising the bar for private homeowners, says Rob Stephens, co-founder and general manager of Colorado-based Avalara MyLodgeTax, which partners with property owners, VRBO, HomeAway and other sites to handle taxes for short-term rental owners for a monthly fee.

"The short-term rental market now includes apartment operators specifically designed and offered to meet the needs of specific traveler demographics like business and higher-end travelers," Stephens says. "These properties are often homogeneously presented as upscale and luxurious, as opposed to the more homey feeling of privately run rentals. Today's multifamily unit properties are often branded and share a similar look across various locations."

Thoreson believes more regulation is inevitable, with governments making it harder to get operator permits.

"I think the trend is good to a certain extent because it involves safety measures, like hotels have," he says of the growing interest in short-term rentals from all sides. "Chattanooga requires inspection by a city inspector and things like hardwired smoke detectors and carbon monoxide detectors, certain size window openings for egress. I think if you're dealing with the public, that has to be in place, just like with any inspection."

He also sees a need for increasingly nimble technology to keep up with the demands of the business.

"You need really good software to handle your housekeeping, to handle your reservations," he says. "It changes every day because of regulations. There are changes overnight all over the world. I wake up every morning and the business model is new."

Stephens agrees.

"This crowd is increasingly comfortable with technology and online processes," he says. "They're looking for memorable moments, Instagram-able backdrops and little extras to make their social-media friends swoon. To ensure those expectations are met, today's travelers are doing more research than ever before. They're poring through online photos, reading reviews and confirming prospective rentals include necessary amenities, such as smart TVs, gaming systems for the kids and Wi-Fi."

Christina and Christian Thoreson, owners of Chattanooga Vacation Rentals, pose for a photo in one of the short-term vacation rental properties they manage in Chattanooga. The Thoresons manage about 28 properties in Chattanooga and surrounding counties. / Staff photo by Erin O. Smith

The Day-to-Day

Thoreson says he and his wife own two short-term rental properties and manage the other 26 in their portfolio for mostly out-of-town owners.

"We have a minimum two-night stay, and our average price is probably about $150 a night," he says. "We have houses that sleep 12, houses that sleep two, houses that sleep six."

Their properties are priced higher than Airbnb's recommendations, but Airbnb's end goal is occupancy. The Thoresons want occupancy too, of course, but they maintain the higher rates for a reason.

"Airbnb tells hosts you can get more occupancy if you lower the rate, and you do," he says. "But the more occupancy, the more wear and tear. We keep prices a little bit higher. We don't have as much occupancy, but the net result is about the same. We get fewer visits [at the higher rate], but there's less wear and tear on our properties."

Sleep-six accommodations, for example, would run about $154 at a Thoreson property, he says, compared to Airbnb's $89 recommendation.

Thoreson sees definite advantages to short-term rentals compared to long-term ones.

"The disadvantage of long-term rentals is you don't have anybody going in that house for a year. If you have a leak under the sink the tenant never tells you about, you're looking at massive repair work," he explains. "With short-term, we are in and out of your property maybe several times a month. Guests are in and out. Housekeeping is in and out. Any damage done can be taken care of right away."

The net result on income for short-term rentals is about the same as for long-term in the local market, says Thoreson. A mid-December search of the real estate website Trulia.com found that the median rental price in Chattanooga for the past 12 months was $1,254. That averages to about $42 per day, roughly the cost of a nightly stay for two guests in a Red Bank or Hixson Airbnb.

"You're not going to make a million dollars overnight," Thoreson says. "But your property will be better taken care of, and you can use it and be there for your own getaway."