Communities turn to incentives to convert short-term rentals to long-term leases

Communities around the country have been busy over the past several years creating new laws to regulate the short-term rental industry. Many of these measures are driven in part by concerns about the impact of short-term rentals on housing availability and affordability.

Some local governments, however, are trying another strategy: incentivizing short-term rental operators to convert their properties into longer-term housing that can provide places for locals to live.

In Sedona, Arizona, for example, “People working in Sedona struggle to find housing due to skyrocketing real estate prices and vacation rentals dominating the rental market. 15% of the city’s homes are vacation rentals whose prices are unattainable for most of Sedona’s working residents and unavailable for long-term rent. Additionally, local businesses struggle to hire and remain open because there is insufficient housing for employees,” according to a program overview on the city’s website.

The City Council has approved $240,000 in funding for a pilot program that offers stipends to short-term rental owners who lease their properties for at least one year to a local worker (defined as a person who works at least 30 hours a week for at least 30 days for an employer based in Sedona) or two years to a local business that is allowed to sublet the property.

Those stipends can range from $3,000 for a single bedroom up to $10,000 for a three-bedroom house. The city gives homeowners half the stipend amount 30 days after the lease goes into effect, with the remainder dispersed at the close of lease, pending compliance checks.

Applications for the program became available September 1. In order to be eligible, the short-term rental must be legal, and any other vacation rentals run by the owner must be in good standing. The city will provide only one incentive per address.

Once the pilot program concludes, the city will evaluate its success and issue a report on its findings. The city’s goal is to place at least 35 local worker tenants in long-term rentals through the program.

While Sedona acknowledges that its incentives may not replace the income a successful short-term rental can generate, other cities are offering more.

In Placer County, California, a Lease to Locals program will pay homeowners up to $24,000 to sign long-term leases with local renters in the North Tahoe area, depending on the length of the lease and number of locally employed tenants. The program caps the amount of rent owners can charge for these properties at $3,500. Tenants must work at least 20 hours per week at a business located within the boundaries of the Tahoe-Truckee Unified School District. 

“We continue to have such a desperate need for more workforce housing in North Lake Tahoe, and yet so many of the homes here sit vacant for much if not most of the year,” said Placer County Supervisor Cindy Gustafson, who represents North Lake Tahoe.

According to a 2021 Mountain Housing Council study, 65% of single-family homes in North Lake Tahoe are second homes and short-term rentals. Meanwhile, up to 300 households are searching for housing in the area at any given time, according to Landing Locals, a Truckee-based company that matches homeowners and local workers.

The North Lake Tahoe program is modeled on successful programs in Truckee and South Lake Tahoe operated by Landing Locals.

Meanwhile, in Colorado, Summit County also provides an incentive program that offers up to $24,000 for a three-bedroom house that is converted from a short-term rental property to longer-term housing with leases of at least six months. The program also offers incentives to property managers.

Similar programs have also been started in Portland, Maine, and Big Sky, Montana, among others.

MyLodgeTax can help short-term rental hosts automate lodging tax to streamline and simplify their lodging tax compliance. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.