Short-Term Rentals: Issues and Approaches
The City of Knoxville is considering an ordinance to establish regulations for short-term rentals. These include rentals booked through online platforms such as Airbnb and Home Away, which people use to rent out part or all of their personal residences for short periods of time.
After reviewing short-term rental (STR) ordinances from other cities, and researching their effectiveness and challenges, we have identified several issues we will need to address in our Knoxville ordinance. We have laid those out below, along with some options and recommendations.
To further inform our efforts, we have sought public comment in a variety of ways, including a widely publicized public meeting on Oct. 18. We asked for additional comments via email at STRS@knoxvilletn.gov
through the end of October but have now extended that deadline through Friday, Nov. 4.
1. SHOULD SHORT-TERM RENTALS (STRs) BE ALLOWED IN THE CITY OF KNOXVILLE?
In general, STRs are not currently legal in Knoxville. Except in hotels, motels and bed and breakfasts, City code does not permit the rental of residential quarters for a period of less than 30 consecutive days.
With the rise of online rental platforms like Airbnb, Knoxville and cities across the world are seeing a boom in people listing and renting out rooms, apartments and homes for short-term stays. We estimate that Knoxville currently has about 200 listings available through these platforms on any given day. Locally, more of the listings are for an entire home, as opposed to a private room within a home. According to data from Airbnb, the average host age is 38 and the average earnings for a host are $3,700 annually. Citywide, over the past year, approximately 8,000 guests have used a STR within the City of Knoxville. This is a 200 percent increase from the previous year. Those visits were 2.6 nights on average, and 96 percent of the visits of involved 4 or fewer guests (the average guest group size is 2.2 people). During the past two years, the City has received only eight complaints about short-term rentals operating illegally in residential districts. The City has successfully handled each of these complaints using available tools in the zoning code; however, these tools are not comprehensive and are entirely complaint-driven.
One option is simply to not change anything in City code and continue to respond to complaints as necessary. But this creates uncertainty for everybody. Without permits, the City has no record of who is operating STRs, how many there are, or where they are. STR operators are at perpetual risk of being cited and shut down, and they have a disincentive to inform their neighbors of their activity. Visitors to Knoxville who rely on Airbnb and similar platforms are at risk of showing up and discovering that their planned vacation stay has been abruptly canceled.
Given the exponential growth in the STR sector across the country, it seems likely that STR listings in Knoxville will continue to grow regardless of whether they are legally permitted. Without a regulatory structure, the City has no way to track STRs, assure public safety or assess and collect sales and occupancy.
Therefore, City staff believes that the best approach to STRs in Knoxville is to create a regulatory framework that allows for permitting, inspection and appropriate tax collection.
2. HOW SHOULD STRs BE PERMITTED AND REGULATED
Most cities that have passed ordinances regulating STRs have required STR operators to obtain a permit. Permit fees vary depending on the city. Based on our review of other cities, in a city the size of Knoxville, an annual permit fee of $150 seems reasonable.
We would also require a business license (a one-time fee of $15). All properties would be required to have functioning smoke alarms on the premises.
In order to comply with a State Fire Marshal’s opinion, STRs would not be permitted for structures larger than three stories, of more than 5,000 square feet, or accommodating more than 12 occupants.
Permit holders would be responsible for collection and remittance of all applicable sales and occupancy taxes, but they may delegate that responsibility to a listing service like Airbnb or to a third party.
3. WHERE SHOULD STRs BE PERMITTED? WHO SHOULD BE ABLE TO OBTAIN AN STR PERMIT?
Because STR listings are generally for residential property, the listings are often found in residential neighborhood zones. This raises particular concerns about protecting the quality of life in our neighborhoods. Some cities prohibit STRs in single-family residential neighborhoods altogether, but most allow them under varying restrictions.
City staff believes that in residential zones, STRs should be allowed only for resident-owner property
(i.e., only a resident-owner of the property could obtain an STR permit in residential zones). Since one person cannot be the legal resident of more than one address, this would functionally limit permits to one per person in residential zones. (i.e., the owner of multiple rental properties in residential zones could not get STR permits for multiple properties – only the property where he/she actually lived.) This limitation also precludes corporate entities from obtaining a permit in residential zones. This approach is similar to STR regulations in Boulder, Colo., and Asheville, N.C.
In non-residential zones, these limitations may not be necessary. The permits would still be restricted to property owners, but they may not need to be occupants, meaning that a single owner could have multiple permits in non-residential zones. For example, an LLC that owned an apartment building in a non-residential zone may be allowed to get STR permits for apartments in the building.
Rental tenants would not be able to get STR permits in any zone. Additionally, in neighborhoods with Homeowner Associations (HOAs) or buildings with condo associations, the rules of the HOAs or condo associations would still have precedence, although those rules would be enforced privately.
4. HOW CAN A STR ORDINANCE BE ENFORCED?
Enforcement is always an important consideration for any ordinance. It would be cost-prohibitive and time consuming to devote City staff to monitoring online STR listings for compliance. We are exploring technological options for monitoring those services. City staff believes strongly that effective enforcement will be key to an STR ordinance that can protect neighborhoods, travelers, and hosts alike.
5. WHAT ARE THE NEXT STEPS?
After gathering public input, the City plans to create a draft ordinance
which will be submitted for review and comment at a City Council workshop. After any further revisions, it would need to be approved by both the Metropolitan Planning Commission and City Council before being adopted as part of the City code.