Airbnb’s Ascension

Mary and John Doyle moved to their Lexington residence at 432 Morningside Drive in 2001. The couple only needed to use the bottom floor, so, they rented out the top floor.

The Doyles first rented long-term to law students at Washington and Lee University. But five years ago, they entered the Lexington and Rockbridge County short-term rental market, a market that includes 21 inns and bed and breakfasts and 48 short-term rental properties, according to the Lexington Tourism and Development website.

The Doyles started renting their house short-term, which the city of Lexington considers fewer than 90 days, only a few times each year; big weekends for the town’s two colleges, Washington and Lee and Virginia Military Institute, are the most popular.

After renting long-term to students when they first bought their house, the Doyles said they find couples and families in the short-term rental market to be more enjoyable to work with, plus renting only on weekends puts less strain on the house’s infrastructure, like plumbing.

“Vacation money, I called it,” said Mary.

For the past two years, the Doyles have listed their property on Airbnb, a free-to-list marketplace for short-term lodging, with offerings as minimal as a space on a floor or as spacious as a 250-acre farm, such as the Heartstone Retreat and Lodge in Rockbridge County.

With a combined population of more than 30,000, the Rockbridge area contains more than 100 listings on Airbnb. The website, founded in 2008, contains more than 34,000 total listings in 190 countries.

The privately owned company, based in San Francisco, is valued at more than $25.5 billion as of June 2015, according to multiple financial publications. Airbnb’s revenue comes from booking and payment processing fees charged to guests and hosts, respectively.

The company’s valuation is higher than the current market caps of hotel giants Marriott and Hilton. But unlike those companies, Airbnb does not own any hotels, nor offer a multitude of brands. Airbnb’s nearest competitor in peer-to-peer accommodations is HomeAway, which acquired competitor VRBO.com in 2006. HomeAway, a publicly traded company, has a market capitalization of $3.4 billion.

While the Doyles list their one-bedroom top floor apartment on HomeAway and VRBO, Airbnb has accounted for 75 percent of their bookings in the past two years. They have also doubled the number of times their apartment is rented each year, from five or six to about 10 times per year.

Regulations on the rise

Mary and John Doyle list their one-bedroom apartment on Airbnb for $141 per night. The website has increased their bookings by 75 percent.

Mary and John Doyle list their one-bedroom apartment on Airbnb for $141 per night. The website has accounted for 75 percent of their bookings in the past two years.

As the Doyles and others have seen Airbnb drive business, state and local governments have taken notice.

The Virginia House of Delegates passed legislation in February regulating Airbnb on a 75-22 vote, but the State Senate tabled action until 2017.

The proposed legislation would supersede local governments’ laws and ordinances that are already or soon-to-be on the books.

According to Eric Terry, president of the Virginia Restaurant, Lodging and Travel Association, Airbnb is not playing by the same rules and regulations as the hotel industry, because not all Airbnbs are paying the same taxes as hotels.

“It’s not a level playing field,” he said.

He said there needs to be a stronger local influence in these regulations.

In Lexington, the city planning commission is revisiting its zoning ordinance for the first time in 20 years. The goal of this revision is to provide more clarity, said commissioner Matthew Tuchler, and that one of the community’s top concerns is Airbnb.

“A lot of people who have B&B’s and properties in town are concerned,” Tuchler said. “Airbnb is presumably a different model…it’s a big, significant issue that is right on the horizon.”

The zoning ordinance, which City Council must approve for it to be enforced, is how the city designates land for either commercial, residential or mixed use.

While Tuchler said that citizens might be concerned about strangers entering their neighborhoods, he is more concerned about infrastructure in Lexington’s existing residential areas.

“I don’t care about people that I don’t know coming in to town,” he said. “I do care if it has a significant impact on the residential structure we have in this town already.”

Under the current zoning ordinance, most of the city’s commercial business is restricted to areas along the city’s four main streets: Nelson and Washington, which run east-west, and Main and Jefferson, which run north and south, respectively, through Lexington’s historic district. A separate area along East Nelson Street is reserved for shopping center use, and includes Kroger, CVS Pharmacy, Advance Auto Parts and a variety of fast-food restaurants.

“We have residential areas and we have business areas that are equipped to manage certain expectations,” Tuchler said.

Lexington planning and development director Arne Glaeser said that commercial vs. residential use of Airbnb is a concern of the planning commission.

“There are concerns if you’re in a single family zone district and your neighbor rents out his or her house on short-term rentals; when does that become a commercial use?” Glaeser said.

The planning commission voted at its April 28th meeting to keep short-term rentals as a “by-right” usage, said Glaeser, meaning that individual homeowners keep the rights to use their properties as they see fit.

Tuchler, who lives on Myers Street in Lexington, said that traffic flow on tight streets in the town’s residential neighborhoods is also of concern to residents.

“It’s really tough to park on my street,” he said. “If you had Airbnb in this residential area and this Airbnb did very well and regularly had two or three tenants and they brought two, three cars on the street…that could create problems in terms of traffic flow.”

Antonia Albano, owner of the Heartstone Lodge and Retreat and the South River Highlands Country Retreat at the confluence of the Maury and South rivers, said residents’ concerns about Airbnb are unwarranted.

Along with the 250 acres in the county, which contains two farms and multiple log cabins, Albano owns 11 houses in Lexington, which she rents long-term to students, professors and other residents.

“We have found people coming through Airbnb to be incredibly respectful,” said Albano. “And so, I think [concerns] are unwarranted.”

In addition to following zoning regulations, property owners who list on Airbnb, or any of the other rental websites, must obtain a business license from the Lexington Commissioner of Revenue’s office.

Commissioner of Revenue Karen Roundy said she checks the Airbnb website each month to make sure residents listing there have obtained a business license.

“Anyone engaging in business has to have a business license,” Roundy said. “Normally people do not know that Airbnb must be licensed through the locality.”

Rockbridge County officials have not responded to three requests for comment on business licensing policies.

The Doyles paid $30 for their business license to lease their house on Morningside Drive, which means they are collecting up to $8,333 per year in gross receipts according to Lexington’s business license rates.

Their property is listed on Airbnb for $141 per night, and they must pay the 13.3 percent in lodging and sales taxes each year, which is a factor included in the price. The Doyles have their own insurance, plus $1 million in secondary coverage provided through Airbnb, and the city building inspector inspected their property when they originally applied for their business license.

Roundy said she has discovered 12 property owners since April 2015 who are listed on Airbnb but do not have a business license. Three of the owners stopped operations after they were contacted by the commissioner.

Roundy said that she has not had anyone continue operating without a business license after they were contacted by the commissioner’s office. She said that if anyone were to continue, her office would contact Airbnb to de-list the property. Airbnb’s website states that property owners, or hosts, must be in compliance with local rules and regulations, including payment of hospitality and lodging taxes.

Airbnb does not collect the tax itself; instead, hosts are responsible for self-reporting taxes. In Lexington, hosts must pay a 5.3 percent retail sales tax and eight percent transient occupancy tax, plus a tangible property tax on all property, including beds and furniture, in the space designated on Airbnb and other rental websites.

“If you’re going to be getting income and you’re going to be reporting it, the least you can do is pay the state, city and local taxes,” said Albano.

But in Lynchburg, a city of almost 80,000 to the east of Lexington, Airbnb is going relatively unregulated.

Lynchburg City Manager Kimball Payne said businesses earning less than $10,000 are not required to have a business license.

“You’d have to have a pretty active Airbnb to be earning more than $10,000,” Payne said.

Lynchburg City Council adopted a new zoning ordinance in February after a four-year process and the city’s first overhaul of the ordinance since 1978.

Payne said the new ordinance added flexibility to zoning and was easier to read.

“We’re much more open to mixed uses now, and to allowing residential and commercial and office developments to be mixed in together in certain areas,” he said.

With Airbnb, Payne said the city operates on a complaint-based system.

“I don’t go actively looking for Airbnbs or knowing exactly how many are out there in the city,” said Payne. (A search results in about 60 listings.)

Buena Vista’s director of economic development, Brian Brown, said the city has had to enforce its zoning ordinance which limits occupancy to four unrelated people per house. But, he said, the city does not require a business license to operate an Airbnb and only two Buena Vista properties are listed.

And in Charlottesville, only 30 percent of the listed Airbnbs are registered with the city, said Terry, with the Virginia Restaurants, Lodging and Travel Association.

Officials in both Lexington and Lynchburg said they oppose proposed state legislation to regulate Airbnb.

Payne said representatives from sharing economy companies like Airbnb and Uber are lobbying the state to avoid regulations like zoning and licensing that is controlled by municipalities.

“What they’ve gotten are some folks at the state level, the General Assembly, who have introduced new legislation that affects all the localities in Virginia with a pretty broad brush,” he said.

Roundy said the legislation could also affect tax appropriations, especially since Lexington is such a small area, and separate entity, of greater Rockbridge County.

Since the city and the county are in the same zip code, 24450, she said that if state legislation gives Airbnb’s tax collection control to the state, then then it could arguably send tax revenue to the wrong locality.

“I don’t want the county’s money,” she said. “It’s not right.”

But State Del. Chris Peace, R-Hanover, told the Richmond Times-Dispatch in February that tax collection run by the state will save localities money by reducing their workload. Meanwhile, Airbnb remains illegal in some Virginia localities, including the state capital, Richmond.

According to Airbnb, there are 4,100 hosts in the state of Virginia with average earnings of about $4,400 per year.

Roundy said that tourists staying at Airbnb’s will promote further business in Lexington, a sentiment that was echoed by city officials in Lynchburg.

“I think [Airbnb] is a good idea,” said Roundy. “I just hope we can regulate it in a way that’s happy with everyone.”