Short-Term Rental Proposal is Latest Threat to Airbnb/Vrbo Business Model

In many states, the tide appears to be turning against short-term rentals. With restrictions on short-term rentals, such as Airbnb and Vrbo, on the rise, businesses operating short-term rental properties are running out of options. Such restrictions are not unheard of in larger vacation hot spots such as Miami or Nashville, seemingly with the goal of curtailing out-of-control partiers on vacation.

In its most recent ordinance proposal, the Town of Narragansett, Rhode Island, which has been attempting to limit the rental market in its communities as far back as the 1990s (with little success),[1] is attempting to take a different approach when it comes to short-term summer rentals.[2] Despite it being one of the most popular tourist locales in the state of Rhode Island during the summer, as well as being the hub for college students at nearby University of Rhode Island, Narragansett is attempting to curtail rentals in an attempt to encourage families to move to town.[3]

To that end, this most recent proposal would require those utilizing a short-term rental to stay for a minimum of seven nights and would ban renters from utilizing the properties for events such as weddings, banquets, bachelor and bachelorette parties, and other celebrations. A restriction on utilizing such properties for certain events is certainly not unusual by itself.

The proposal would further require those wishing to utilize their property as a short-term rental to apply for a permit each year, with a limited number of permits available each year. In larger locales such as Miami or even Los Angeles, such restrictions may not make businesses renting out these properties think twice about continuing their operations. In Narragansett, the hassle associated with yearly, limited permits, and the costs associated with obtaining same, are likely not worthwhile to the businesses operating there. This cumbersome, expensive process would result in heightened rent prices for summer renters and even college students during the school year.

Should these businesses choose to relinquish their Narragansett rental properties as a result, it seems highly likely that there would be an adverse impact on the small businesses located in Narragansett, as well as its residents and local college students residing there, unless the vacant properties are filled with year-round residents. While Narragansett feels these restrictions are necessary to encourage year-round residents to move into town, it seems far more likely that the loss of these rental opportunities will create a large “hole” in the local economy that that the real estate market would be unable to fill. According to Realtor.com, the median listing price for a home in Narragansett is $1.1 million.[4] This is hardly an affordable option for most Rhode Island families, where the median income is currently approximately $81,000.[5] With this most recent proposal likely to be passed into law in the coming months, just in time for the summer season, businesses utilizing properties as short-term rentals should keep a close eye on the effect such restrictions have on a small community such as Narragansett.

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[1] The town already restricts the number of unrelated persons living in a single-family home to three persons (with little enforcement ability) which has already negatively affected URI students searching for off-campus housing. The Rhode Island General Assembly is currently considering a bill to address this issue. https://www.wpri.com/news/politics/bill-could-overturn-controversial-3-person-housing-limit-in-narragansett/?ipid=promo-link-block1.

[2] See https://www.providencejournal.com/story/news/courts/2022/11/14/judge-strikes-down-narragansett-rhode-island-three-student-rental-ordinance/69643090007/ (“In 1994, yet another Superior Court judge held that a zoning ordinance enacted by the town that restricted landlords from leasing properties to three unrelated people ‘unlawfully burden[ed] the fundamental right of otherwise competent adults to live with whom they choose.’”)

[3] https://www.wpri.com/news/local-news/south-county/narragansett-seeks-to-regulate-short-term-rentals/.

[4] https://www.realtor.com/realestateandhomes-search/Narragansett_RI/overview

[5] https://www.neilsberg.com/insights/rhode-island-median-household-income-by-age/