STR Owner & Operator Comments on Proposed Chelan County STR Regulations

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Good Afternoon,

We operate nightly rentals in areas impacted by the proposed Short-term Rental Regulations.   Many of us live and work in this region and have been closely tracking the regulatory process.  We are sensitive to the challenge you face in striking a middle ground between business owners, local homeowners, nightly rental operators, and investors and we thank you for the research and work that has gone into getting the newly proposed Short-term Rental Regulations to this point. 

This comment paper is intended to identify concerns with respect to the proposed regulations as currently written as well as offer suggestions towards reaching a middle ground, which are briefly summarized as follows:

·         The 5% of housing stock cap should be removed or the cap should be increased.

o    If there is a cap, nightly rental units that are not “affordable housing” should be excluded from the calculation and allowed to continue operations.

·         All existing nightly rentals should be grandfathered into the new regime without any 5-year sunset on lots less than 2.5 acres in RR2.5, RW and RV or other forfeiture of rights to operate a nightly rental. 

o    If there is a 5-year sunset or any other forfeiture of nightly rental operating rights, then there should be a process to apply for an exception hinging upon the attributes of the impacted property. 

·         Changes in ownership of nightly rentals should be freely allowed without any 3-year sunset or other forfeiture of the right to operate a nightly rental.

·         Conditional Use Permits (CUPs) should not be required of any nightly rental operators; instead, the County should focus its limited resources on compliance and enforcement efforts.

·         If repeated complaints about a nightly rental operation will result in forfeiture of the right to operate a nightly rental, then there needs to be due process, including appeal rights, before the forfeiture ultimately occurs.

 

I.                    The Proposed Regulations would not Solve the Affordable Housing Issue

We understand a primary concern driving the proposed regulations is a lack of affordable housing in Chelan County, particularly in Leavenworth.  However, we question whether restricting the supply of nightly rentals will meaningfully increase the supply of affordable housing and we are concerned that there will be unintended consequences due to a decrease in the nightly rental stock.  Moreover, independent actions are currently underway that will likely have an impact on affordable housing within Chelan County, consideration should be given as to the likely effects of these efforts.  We urge the County to fully investigate and understand the scope of the affordable housing issue, as well as the impacts of the proposed regulations, prior to assuming the regulations will have an significant effect on affordable housing.

A.                  The Proposed 5% Cap Is Unnecessary

Nightly rentals generate substantial revenue for local businesses, which businesses depend on tourist dollars to pay their employees. A 5% cap will result in a short-supply of overnight accommodations and, due to modern trends in consumer behavior, hotel rooms will not be able to capture the shortfall. 

Indeed, the growing trend in travel is to vacation in nightly rentals, and many tourists will not come to this region if the only accommodations they can find are hotels, as hotels offer less privacy, less security, and an inauthentic travel experience.  Families are particularly challenged by the expense of staying in a hotel, and the families that visit our region are oftentimes folks on a budget, taking an economy vacation to a destination in driving distance of their suburban homes.

By reducing the stock of nightly rentals, we project fewer individuals will travel to and stay in Chelan County, and local businesses will likely see a reduction in revenue which may necessitate employment reductions on the eve of a recession, even though many of these employees are the very same individuals who live in and depend on the local supply of affordable housing.  

Moreover, we understand data shows overnight guests generate far more revenue in this region than day-trippers.

Nightly rental operators also employ local residents who help manage and maintain their rental homes, many of whom live in affordable housing and depend on the short term rental industry for their livelihood.  Although these employees rely upon affordable housing, they also need a source of income to pay rent, and if these employees begin to lose their jobs because of reductions in tourism revenue caused by fewer nightly rentals available, the affordable housing issue will become a moot point as these employees will not be able to pay rent. 

We recognize that the County has a delicate balance to strike. From our perspective, however, the target goal of reducing the current share of nightly rentals down to 5% of the total the housing stock is the wrong target and is far too low to sustain a community reliant on tourism as a primary industry. 

To elaborate, the tourism industry is statistically one of Chelan County’s most significant economic sectors, the impact of which is illustrated by some of the following statistics:

-          Chelan-Douglas region businesses associated with recreation and tourism have historically provided nearly 20%[1] of private regional employment. See Chelan and Douglas Counties Outdoor Recreation Study Steering Committee Study.

 

-          Lake Chelan hosts over two million visitors a year, generating over $417 million in total spending. See Lake Chelan Economy & Business. The tourism industry in Lake Chelan, alone, employs over 5,000 people.

 

-          In Leavenworth[2], the lodging and retail taxes, combined, made up 30% of the town’s yearly revenue in 2019. See Leavenworth 2019-2020 Budget. Moreover, the most common jobs held by residents of Leavenworth and most common industries in Leavenworth are tourist-related, i.e., food service and sales. See Leavenworth Data USA Profile.

These statistics demonstrate that Chelan County’s tourist-driven economies sharply distinguish it from neighboring areas, such as Spokane and Walla Walla, whose nightly rental codes are less applicable to the specific needs of Chelan County, even though they were used as models for crafting the proposed regulations for Chelan County.  Indeed, as illustrated by the data in Appendix A, Spokane and Walla Walla both have large health care, social assistance, and educational service industries.  By contrast, Leavenworth and Lake Chelan consist of large accommodation and food service industries. While a 5% of housing stock cap may be appropriate in Spokane and Walla Walla, it is not appropriate in our local tourist-driven economy, and we request the County forgo the cap altogether or, at minimum, increase the cap.

Finally, regardless of whether a cap exists or not, properties that do not constitute “affordable housing” should be excepted from calculation of such cap, as these properties drive tourist dollars into the region without impacting the availability of affordable housing.  Specifically, although we do not dispute that some nightly rentals may otherwise constitute affordable housing, many nightly rentals are properties at a price point far exceeding the price of an affordable property.  Others are in locations not preferable for residential life – for example, next to highways or auto-repair shops. Still others sat on the residential housing market for over a year because of location or other attributes of the property.  Given the unique characteristics of these properties, they do not have an impact on the general availability of affordable housing within Chelan County, and should be excluded from any housing stock cap calculations and excepted from any sunsets. 

B.                  The Impacts of Independent Efforts Should be Considered

As you know, the City of Leavenworth is currently taking its own efforts to increase the affordable housing supply.  We suggest the County observe the impact of the City’s efforts before setting any target or cap on the percentage of nightly rentals to housing stock. 

By way of brief background, Leavenworth’s City Council has worked actively since 2016 to determine the best solution for meeting the community’s growing housing needs. Indeed, in the last few years, the City has made significant strides towards supporting additional housing for all economic level, including: permitting Accessory Dwelling Units, permitting zero lot line developments, and adding two new funding tools for affordable housing. Moreover, the city was recently awarded a $45,800 Housing Action Plan grant through the Washington State Department of Commerce, providing the City “an opportunity . . . to complete a comprehensive review of current living conditions, identify future housing needs, and develop clear, actionable implementation tools.”  This is an ongoing process, however it gives the City the tools and resources it needs to create and develop a clear, cohesive plan to address the concerns raised by the County that are specific to the City.

The County should cooperate with the City in connection with the City’s Housing Action Plan and instead devote its attention to other issues regarding the current state of short-term rental operations.  After the City completes it process, perhaps we will learn that the current percentage of nightly rentals is already optimal, or otherwise have specific data to demonstrate where changes need to be made. 

II.                 The 5-year and 3-year Sunsets Are Overbroad and Unnecessary

In addition to eliminating or increasing the cap described above, we strongly urge the County to adopt a regime that grandfathers in all currently existing nightly operations without any 5-year sunset (on lots less than 2.5 acres in RR2.5, RW and RV) or other forfeiture of rights to operate a nightly rental.  If these sunset provisions are implemented, as each nightly rental is required to sunset its operations, there will be an impact to the people who live and work in a symbiotic relationship with the tourists who also cherish our region.

In addition to the decrease in revenue and increased unemployment that may stem from the sunset provisions, a problem the County will inevitably be required to deal with is potential liabilities from nightly rental owners who have made substantial investment and business decisions in Chelan County in reliance on the current regime that permits short term rentals.

Finally, separate from the economic effects of these sunset clauses, the 3-year sunset provision following a one-time change in ownership is inconsistent with the current code.  As the Board of County Commissioners has noted in public meetings, all other land use permits and licenses run with the land.  Treating changes in ownership differently will pose administrative inconveniences and future revisits to the code.

At a minimum, if the proposed regulations are adopted to include a 5-year sunset or 3-year sunset, then there should be a process to apply for an exception hinging upon the attributes of the impacted property.  Many short-term rentals would end up shuttering their operations under these sunset provisions, resulting in a taking of property and a negative impact on our County’s economy.

III.               Compliance & Enforcement

We understand another purpose of the proposed regulations is to protect the community’s interest in preserving the residential nature of local neighborhoods. Indeed, many community members have shared stories of mismanaged short-term rentals, bemoaning guests’ trespassing, disruptive parties, over-occupancy issues, and the like.  These concerns are not to be taken lightly and are shared by all property owners, including us short-term rental owners.  Although we share these concerns, we believe these concerns are best addressed through compliance requirements and an enforcement regime, not through use of permitting, capping rental stock, or sunset clauses.

In light of this, we agree with the County that imposing the following provisions of the proposed regulations would remedy all, if not most, of the problems raised by concerned citizens:

·         Parking requirements.

·         Occupancy restrictions on the number of guests per bedroom.

·         Noise restrictions.

·         Rental rules with quiet hours, trespass prohibitions, fire safety guidelines.

·         Qualified person able to respond to the property within 60 minutes.

·         Posting signage with contact information for the qualified person.

·         Following good neighbor guidelines.

We believe these requirements – coupled with enforcement – will remedy the vast majority of the concerns raised by local homeowners.  In fact, we believe this is all that is really necessary in terms of regulating short-term rentals, as effective enforcement against the absentee short term rental operators will allow the County to focus its resources on the minority of properties that cause the most issues and allow the remaining majority of properties to continue to drive revenue and jobs into the County without unnecessarily burdening the County. 

We are of course mindful that an increase in the County’s enforcement will likely require additional resources and revenue.  Because we believe adopting these policies and increasing enforcement would be the most efficient and appropriate manner to remedy the issues flagged by citizens, we would be open to a modest increase in the lodging tax as a way to generate the needed revenue to allow the County to hire the personnel and implement the needed changes to enforce these provisions.  By increasing this lodging tax slightly, the County would be well-poised to address the issues without overly burdening the County’s limited resources and staff.

In short, we believe that implementing the above policies and creating a simple and effective enforcement mechanism will be the most effective manner for the County to ensure that the benefits derived by the majority of short term rentals are not outweighed by the select few problematic properties.

IV.               It’s Unnecessary to Require a CUP

As a final point, because implementing and enforcing the above policies will provide the County the ability to effectively manage rentals, there is no practical benefit for requiring a conditional use permit (“CUP”) to operate a rental property, especially when compared to the significant costs and administrative burden that would come with implementing the infrastructure necessary to process the flood of CUP applications that would necessarily follow.  In fact, as the Board of County Commissioners noted, the hiring that would have to be done by the County to implement the CUP infrastructure would be significant and would tax many of the other resources that County would otherwise be able to put to other uses.

Separately, even if the County implements a CUP process for short term rentals, the imposition of the requirement for a CUP based upon occupancy limits appears arbitrary.  In particular, while a rental with 12 guests may qualify as a Tier-2 property under current regulations, the addition of one more guest triggers the arduous and lengthy CUP application process, substantially increasing the burden on the operator and the County, yet no support is given as to why this number is the defining line.  Because appropriate occupancy depends on the unique circumstances of each property, we ask that the County either provide guidelines and facts to support the 12-guest defining line or permit property owners to receive an exception where the characteristics of the property do not justify imposition of a CUP.

Rather than attempt to implement a time-consuming and cumbersome CUP process applicable to some nightly rental operations, we suggest the County focus its personnel and resources on enforcing the parking, occupancy and other compliance matters listed above.  If the County can curtail the behavior that gives rise to complaints, the community will be more accepting of nightly rental guests.

 

 

V.                  Appeals Process for Complaints

Finally, and briefly, with regard to the proposed provision that would rescind the right to continue operating a short term rental if there are repeated complaints about a nightly rental operation, the County needs to ensure that a process and procedure is implemented in order to ensure each property owner is afforded due process, including appeal rights, before the forfeiture ultimately occurs. As currently written, the automatic rescission of the ability to continue operating a nightly rental operation would not only deprive owners of due process but would also subject the County to additional litigation expenses and likely damages, all at significant expense to the County and its citizens.

Conclusion

In conclusion, we understand the County’s goals and we commend the County’s persistence and patience as it continues to craft the proposed regulations.  We believe the changes suggested in this comment paper will strike an even middle-ground.  Thank you for your further consideration of these issues.   

“Onerous regulations of short-term rentals can drive the industry underground, thus evading regulation and local hotel taxes.  Fair regulation of short-term rentals ensures greater compliance and greater receipt of local hotel taxes.” – United States Conference of Mayors

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[1] This number is based on 2017 data, therefore, today’s percentage is likely much higher considering the increase of tourism in the last five years.
[2] Leavenworth’s economy is reliant on tourism. See Leavenworth 2019-2020 Budget. Tourism has been at the forefront of Leavenworth’s city planning since the mid-sixties when the town was remodeled into a Bavarian Village. See Bavarian Leavenworth and the Symbolic Economy of a Theme Town. Without this remodel, Leavenworth would likely have continued to live “on the brink of extinction.” See Leavenworth’s History. As one chronicler put it, “out of the travail of economic insecurity and decline was born a child of our own imagination. The setting was perfect—an alpine village with all the characteristics, topographically, of a romanticized Bavarian village—the perfect Hollywood setting for ‘Heidi.’” See Bavarian Leavenworth and the Symbolic Economy of a Theme Town.