This quote is usually attributed to Benjamin Franklin (in a 1789 letter)
“Our new Constitution is now established, and has an appearance that promises permanency; but in this world, nothing can be said to be certain, except death and taxes”,
seems very appropriate in the current and developing rental climate.
There are endless and daily news stories that revolve around the problems relating to short term rentals, particularly in urban areas. This weeks article from Skift: “Why aren’t cities, regulating more” illustrates this.
A few simple take-ups from this article and others this week:-
- New York: As many as half of Airbnb listings may break local and state laws.
- There was one thing both agreed on, though. Whether or not Airbnb has a positive or negative impact on local communities, cities need to do more to tax and regulate them. The problem is, many cities avoid taxing the service out of a fear that it will legalize it, further encouraging the spread of Airbnb across the community. By treating listings in the same way hotels are treated, it may condone the service.
- A judge should compel Airbnb to hand over 10 years of receipts and other documents from its hosts to the state of Hawaii in part because the home-sharing platform has acknowledged that the hosts aren’t fully complying with state tax laws, a court filing said.
- Paris is suing Airbnb for $10m for illegal rentals
Spain is a good example of a country in transition
This excellent article written from Spain and focussed on managers should give food for thought!
Tip of the Iceberg
The amount of print allocated to the Airbnb and urban issues obscures what is happening in regional destinations too. Local authorities and governments are waking up to the fact that the “black money” economies can be targeted and are potentially lucrative revenue opportunities, but not only this, they can be regulated using technology. Whether this is to appease hotels, ensure guest safety or to manage the housing situations, the result is the same. The doors are shutting on the unlicensed properties, undisclosed tax and earnings from rentals and a new breed of business will need to evolve, that follows the rules. Spain, Italy, France, Portugal, for example, all have different rules relating to registration, tax submissions, guest information etc. Each business will need to ensure they are compliant or could face serious financial penalties.
Currently, the size of the market, the ingenious ways owners and agencies manage to navigate the online auditing and portal controls, prevents easy pickings for local authorities, but its only a matter of time. Perhaps this is why the authorities initial focus is the larger enterprises. In 2018 Paris officials were fining Airbnb anywhere from $1,200 to $6,200 per home per day for listings that didn’t have a tax registration number. The company paid out $1.6 million in that year apparently. The net effect of this regulation, however, is that the quieter, more traditional holiday destinations with greater seasonal business are now under scrutiny too.
It’s bigger than rentals
It isn’t just rentals that have come under scrutiny. The FAANGs are constantly under attack for tax “management, poor employment practices and lack of responsibility for published content. The gig economy unicorns such as Uber are under threat from the traditional suppliers who have to comply with much more rigid terms, licenses and vehicle scrutiny. There is a growing awareness that these companies who have grown so rapidly have little governance. Airbnb is not a bad company, it simply leveraged under-utilized assets and has been able to take advantage of the lack of rental scrutiny or processes. The controls were never needed in years gone by.
Technology ~ Good or Bad?
This depends on how you look at the situation, but it will play a significant role in administration and legal diligence!
Once upon a time, buying a second home to rent out for holidays was simple. There was little in place to monitor an owner’s activities or agents marketing or activities. Cash could be used for bookings, poor or insufficient records were kept for guest arrivals or departures, income was distributed globally and people turned a blind eye, aided by local businesses and the endless ways that services can be remunerated!
Terrorism and money laundering has made money transfer more traceable and banks are under much more pressure to ensure that all funds are clean. This means, of course, that data is more widely used to determine its use. Tax authorities can, of course, hook into domestic money movements!
Most properties are now advertised on OTAs and this gives a central point of reference to identify owners and agency properties. Location may not be so easy, as yet, as many properties are not “exactly” located and addresses are not made public. This makes checking of registration licenses difficult, but not impossible. In many locations now guest details need to be submitted and increasingly financial information is being requested. Online reporting for tax affairs and land registries will accelerate and data will be mined by authorities to ensure compliance in all affairs of finance. A stepping stone to adding more official services!
Owners, agencies and OTAs will need to comply, there is little doubt. Booking management systems, the initial source of data, can solve the data exchange issues with authorities and reduce the significant amount of admin that would otherwise be needed. The problem, of course, is that many properties have enjoyed an income that has avoided license fees, inspections, taxes and more. Once this comes to fruition, then the rental price will rise and the guest will end up paying more!