Susan Pendergrass speaks with Show-Me Institute Director of Municipal Policy David Stokes about his new paper in the Free-Market Guide to Missouri Municipalities series on planning and zoning. They discuss how fragmentation among local governments can limit overly strict zoning, how zoning rules affect housing affordability, and why “last house syndrome” poses risks for Missouri’s future growth. From accessory dwelling units and minimum parking requirements to the debate over multifamily housing, Stokes explains how smart reforms can protect property rights and keep housing costs down.

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Timestamps

00:00 Introduction to Planning and Zoning in Missouri
02:35 The Impact of Fragmentation on Zoning
05:24 Housing Affordability and Zoning Regulations
08:22 The Role of Municipalities in Housing Development
11:18 Challenges of NIMBYism and YIMBYism
14:21 Accessory Dwelling Units and Short-Term Rentals
17:00 Planning and Infrastructure in Missouri
19:57 Future Papers and Conclusion

Transcript

Susan Pendergrass (00:00)
Thank you, David Stokes, so much for being on the podcast this morning. You have a new paper out with the Show Me Institute. Well, it’s actually part three of an existing series on your free market guide to Missouri municipalities. And this one is on planning and zoning. So thanks for joining us to answer some questions about it. Great. I do have one question that I was just saying before we started recording. I’ve seen this paper a few times.

David Stokes (00:19)
Delighted to be here.

Susan Pendergrass (00:26)
And one thing that I noticed up front is that I complain about the number of school districts in St. Louis County and how fragmented it is. And other folks have also said similar things, too many small municipalities. But it seems to be the case that when we’re talking about things like planning and zoning and permitting and regulations, that can be a good thing. Is that right?

David Stokes (00:46)
Absolutely. Because it’s harder to enact comprehensive planning, zoning, major things like urban growth boundaries—the extreme things like an urban growth boundary that we don’t have in Missouri. But it’s harder to enact that the more governments you have to get in line to agree to it in the first place. So it’s definitely—I don’t want to say it’s a causation. I don’t think the data is there to—

Susan Pendergrass (00:47)
What?

David Stokes (01:14)
But it’s definitely a—I would say it’s a truism—that there’s a strong connection between the metropolitan areas that have less strict zoning around the country. And over the past decade, we’ve really changed a lot in American local public policy to realize the harms of overly strict zoning. Until the past decade or so, it was just sort of assumed that strict zoning was a good thing. So now that we recognize the harms of it, we see that the places like St. Louis—and to a lesser extent, Kansas City—that have more fragmentation. St. Louis by any measure nationally has extreme fragmentation, meaning a whole lot of local governments, be they cities or school districts or fire districts or streetlight districts. I mean, we can really get into the obscure ones here in Missouri, but the more you have of that, the less strict zoning you’re going to have. And then that results in lower housing prices.

Susan Pendergrass (02:00)
You—

David Stokes (02:10)
What is the good that comes from that in the end? I think there’s lots of goods that come from it and some harms too. But the real good—the point of this paper, and the good for somebody who doesn’t care about public policy or libertarian thoughts or anything and just wants to be able to buy a nice house at an affordable price—is: the less strict zoning you have, the more fragmentation you have, the more you see that in lower housing costs.

Susan Pendergrass (02:35)
Yeah, and if you were starting a business too and one municipality, let’s say Clayton, has really high restrictions on what you can build, where you can build a health office and be—I don’t know if they do or don’t—but then you could just simply go next door to the next place and pick a different place that has fewer restrictions.

David Stokes (02:52)
You can, and that does happen. One of the ways they’ve solved that dilemma in St. Louis County especially is they do a lot more code enforcement and permitting at the county level than at the municipal level. Because nobody wants to have to get—if I’m going to be a plumber—nobody wants to have a plumbing license in 88 different cities. So they do that at the county level. You get your county license and it’s good throughout all of St. Louis County. Now, there are good aspects of that—mostly that you have to get one license instead of 88, which is an obvious good—but it’s also subject to abuse as well. It’s sort of the counterargument to the benefits of fragmentation in that it’s easier for special interest groups, like in this case, say the plumbers union, to capture licensing in St. Louis County if they only have to dominate one board as opposed to 88 boards. So there are two different ways to go—there’s the good and then the part of it that might not be quite as good.

Susan Pendergrass (03:59)
Yeah, so you make the point in this paper that while St. Louis does not necessarily have a housing affordability issue—or maybe even Missouri—it’s still worthwhile for folks who are working at the municipal level, like if you’re working as a newly elected Board of Aldermen or newly elected county board official, to educate yourself on what is and isn’t possible to make sure that you avoid what you just described as the pitfalls of over-regulating.

David Stokes (04:28)
Absolutely. A lot of this paper is about—in the not very scientific term—sort of low-hanging fruit. Just because zoning in Missouri may be less strict than in other states… there’s actually, I discovered in researching this paper—I’d always understood and known that zoning in Missouri and in St. Louis and Kansas City was less strict than in many other parts of the country—but then I discovered that there is actually an index out of the Wharton Business School at the University of Pennsylvania that ranks metropolitan areas by zoning strictness. And St. Louis is the least strict for zoning of any metropolitan area in the country in this ranking. And Kansas City is sort of in the middle. But then you see that Kansas City on the Missouri side is closer to St. Louis, and it’s the Kansas side that is more strict and puts them in the middle. So we really do have not-strict zoning.

Susan Pendergrass (05:05)
That’s hilarious.

David Stokes (05:24)
And that’s a wonderful thing, but it doesn’t mean that cities shouldn’t make some of these reforms that are coming nationwide that would still benefit Missouri, such as abolishing minimum parking requirements, allowing smaller lot sizes, allowing people to build accessory dwelling units on their own property. It’s a great reform focus—from the Show Me Institute’s perspective—because these are changes that can be made that enhance people’s own property rights and what they can do with their own property, while at the same time giving people more choice. And in the long run, if you do more of these, you’ll help keep housing prices down even more for people. And in a good way—you’re not doing this through mandates or rules; you’re just saying we’re going to allow people to build even more. And I’m not against every limit on every property thing ever. There are some that are reasonable—particularly in Missouri we have floodplain limits on where you build that are very reasonable in many cases—but there’s still a lot of good stuff we can do.

Susan Pendergrass (06:33)
Yeah, I saw recently last week that in the upcoming election cycle, housing affordability is a top issue for folks. This is really bubbling up the list of priorities because it’s gotten so expensive and, you know, I keep reading about why people can’t afford to move, and they can’t afford to sell their home, or they can’t afford to buy a home. And certainly some markets—like you mentioned in the paper, like Portland—and you mentioned this briefly: Portland’s got a brown zone and a green zone, and you can’t build in the green zone. You have to stay in the brown zone, and it makes it very prohibitively expensive to build new housing stock in Portland, and the prices have gone up dramatically. We do not yet have that problem in St. Louis, but I know that it’s on a lot of people’s minds and certainly, statewide, we still have some concerns about having enough affordable housing for everybody. I do think it’s important to make sure that we don’t let regulation creep happen so that we find ourselves raising our prices artificially.

David Stokes (07:36)
And you see this in disputes in our exurban areas now in, say, St. Charles and Jefferson County—surrounding counties of St. Louis—and on the Kansas City side as well. Last year, for example, in St. Charles County, a big new subdivision was rejected in a wooded part of the county—I think it was near Weldon Spring. They’re also allowing some, but—

Susan Pendergrass (07:56)
Was it Weldon Spring, or what was that?

David Stokes (08:02)
And that’s the dilemma that people face: as places like St. Charles and Jefferson County grow and get more full, there’s going to be inevitable pressure from the people there now to stop new building. It’s called last-house syndrome: “Great, my new home here is great. Now don’t build any more because I got the house and it’s perfect.” You see that everywhere, and you understand the concerns. I try not to completely ignore the concerns of the folks, because they’re not always wrong—of course, we’ll go back to the floodplain issue—but you’ll have people worry. It’s the people there now: concerns about traffic and overbuilding and destruction of wooded areas and too dense and all those things. But you want people to realize that other people probably said the same thing before they built your house, and it was a good thing that people in most instances really said no to that, and it allowed that construction to continue. And I really want people to realize that.

Susan Pendergrass (08:34)
Yeah. That’s right. ⁓

David Stokes (09:00)
If we go—it’s not about any one subdivision, because look, there probably are certain instances in certain places where the new zoning is too dense, whatever it may be—it’s not that every rejection is always completely wrong. But if you start in Missouri making a pattern of this in the outer areas of Kansas City and St. Louis, where you start turning down a lot of these new subdivisions to preserve whatever it is that people moved out there for 20 years ago, then housing prices are going to increase in Missouri. They will increase substantially, and it won’t take that long if you really do stop the building. So that’s one of the takeaways from this paper: to the largest extent possible, we need to keep allowing the building of these new homes or apartments. And obviously a big part of the paper is that apartments should be generally allowed in more places too. That’s how we’re going to continue to have low housing costs, and that’s the benefit of it. It’s not about one subdivision in one space, but if it becomes a trend, it’s really going to be a problem—the trend being protecting it.

Susan Pendergrass (10:15)
Yeah, and the multifamily for sure. What are your findings around that? People don’t seem to want to have to look at apartment buildings. Is that right?

David Stokes (10:25)
They don’t—there’s just some natural rejection against it. And it’s frustrating to see. In some spots—I remember in the City of St. Louis; this is one where, when you lived in St. Louis, you lived near there—at the corner of Skinker and Delmar there was a proposal for a large apartment building right there, and it got a lot of opposition, and it has not moved forward. It was stopped. I hope it comes back because it’s a perfect lot for an apartment building. It’s just an empty lot—it was a chicken restaurant for many, many years and a popular one—but it’s been vacant forever. And it’s right near public transit. So it’s the perfect idea where you should be able to build there, and you shouldn’t have generous or extensive—

Susan Pendergrass (10:59)
An abandoned empty lot, right?

David Stokes (11:18)
—parking requirements for those buildings, because one of the projects—

Susan Pendergrass (11:21)
That’s what people were kind of freaking out about though, was the parking. Like, where are all these cars going to go? And there was one across the street and they had only put in like one parking space for every two units or something, and they figured that people would use public transport. Anyway, I remember the pushback on that. And it’s this NIMBYism–YIMBYism thing, right? It’s so hard to push people to YIMBYism—yes in my backyard—because of things they don’t… I don’t… These same people often talk a lot about housing affordability, so I don’t mean to overgeneralize, but there are some of the very same people who are so concerned about it who don’t want to look at apartment buildings.

David Stokes (11:50)
Right, don’t want to—and you understand. That’s a very liberal area that we’re talking about. If you were to define the politics of that area, you’re right: many of the residents of those communities in both the city and in University City right there would, in theory, in the big picture, probably agree, but then, “Oh, we don’t want this development here.” And it was a perfect place for a new apartment. Again, of all the St. Louis area, it’s one of the best areas served by public transit—

Susan Pendergrass (12:06)
Yes.

David Stokes (12:31)
—with buses and MetroLink and the WashU shuttles, because so many people who would be in those apartments would be WashU students. They’ve got that extensive shuttle system. But it was rejected, and I hope it comes back. And that’s just one of many, many examples of it.

Susan Pendergrass (12:31)
Yeah, yeah. What about the—what part of zoning and planning is this push in the City of St. Louis, anyway, to try to get people to move downtown? Is that something that’s coded in? I feel like they’re trying to get people to go downtown.

David Stokes (13:03)
They are. And thankfully, I don’t think zoning is preventing that. Of all the reasons people may or may not be choosing to move downtown—fear of crime and businesses leaving downtown, the jobs—as somebody who lived downtown in the late 1990s and early 2000s, to move down there when many of the jobs have left—fear—it’s a harder thing to convince. But I don’t think there’s— I don’t think it’s difficult or has ever been difficult for the loft developers of the ’90s to get permission to take an empty commercial building and turn it into lofts. There might have been a lot of issues they had to deal with, but zoning—I don’t believe—was one of them. Thankfully that’s a very good thing. But it’s one of the fun parts about this paper, right? We’re talking in the other papers and in the ones to come about the best ways to do public safety and public works and a lot of things. In most of these instances we all agree somebody has to do this service, and it’s just a question of: does the city provide it themselves? Do they contract with a neighboring municipality to do it—such as a small city contracting with a neighboring city to do police service? Should you let the private sector do it in a regulated manner, like utilities? But we can all agree it has to be done. Whereas I started this paper saying: despite the fact that it may be incredibly common, cities don’t actually need planning or zoning—life can exist without it. And that’s where the current HOA options come into play. And the history of HOAs in St. Louis, in the private place model, is such an interesting part of that. So there’s a little bit of the historic discussion of all of this in the paper too.

Susan Pendergrass (14:53)
So where do Missouri municipalities for the most part right now stand on things like—two questions I’m going to ask you—accessory dwelling units and short-term rentals or Airbnbs? Where do they stand on ADUs?

David Stokes (15:06)
Well, slowly but surely, we’re starting to permit ADUs. We haven’t had any sort of statewide, to my knowledge, overarching legislation. And that’s where the fact that we have low housing costs in Missouri matters. I don’t think we’re going to see the California situation that had to go statewide because none of the municipalities would agree to it. I don’t think we’ll see that here because there’s not the tremendous high-cost-of-housing crisis to push that. But slowly but surely, cities are starting to allow more ADUs, and that’s a very good thing. When you get out into rural areas—and in some places that don’t even have zoning in the first place—you can do any ADU you want to, or the zoning is so loose that of course you can build an apartment above your garage if you’d like to. Why are you even asking? But the cities have the rules against it.

Susan Pendergrass (15:52)
That’s where I live.

David Stokes (16:03)
Slowly but surely moving in the right direction there. And then it’s going in the opposite way with short-term rentals. Slowly but surely most cities are instituting short-term rental limitations. I’m not automatically opposed to that in every case. I get it: if you have a neighborhood and all of a sudden there’s a house where big parties are being thrown every weekend because they’re renting it out to different groups of people to throw parties, you’re going to hate that, and that’s going to impact the quality of your life. So I’ve been saying for a few years now that the short-term rental regulations I support would generally be things that don’t go to a blanket prohibition. I think that’s too far—and most cities aren’t doing that—but rather really focus on punishment of the property owner for repeated rule-breaking. One party is maybe one party, but if there’s a trend where you own the property and the people you’re renting to are consistently out of control, then the fines should be increased. I wouldn’t be opposed to them getting fairly steep up to a point too—that if it happens too often, you would lose your business license to operate that short-term rental. Because I do think that if you’re doing it a lot—if you’re routinely renting it out—you should be treated a little more like a hotel. We don’t want to give short-term rentals an advantage over the hotel-motel industry. You want that playing field to be as level as possible, especially for people who are renting their houses or condos or whatever out a lot. So then pull that license if it’s an abuse that’s happening consistently. But let’s try to—

Susan Pendergrass (17:55)
Well, I had that on my street.

David Stokes (17:56)
—go to a method through crackdown on rule-breaking, not blanket prohibitions.

Susan Pendergrass (18:00)
Yeah, we had that on my street in St. Louis, and it was a street of, I don’t know, three- or four-bedroom houses, and they somehow had eight bedrooms and a pool, which was very rare in my neighborhood. So they mostly just rented it out to college students and got called all the time—the police got brought in all the time for noise complaints. And there wasn’t really a good mechanism in place at the time to prevent it from happening. So I agree that there should be some limitations around them, but not to make it so strict that people can’t use it as intended. I mean, I stay in Airbnbs all the time. I like having them, but—

David Stokes (18:36)
Now, that police dilemma—that’s something in St. Louis and probably Kansas City, a few big cities, where the cops just have better things to do than break up parties. I mean, they’ve got violent crimes to address. That’s an issue: how are they going to take it seriously enough? In the average Missouri suburb or mid-sized cities, the police are going to take that a little more seriously, I would think. And a good comparison I like is in Lake of the Ozarks, where some cities have instituted strict rules against short-term rentals, while others, like Osage Beach—at least as of our research—hadn’t instituted anything and took a much more free-market approach: “We’re a tourist area; we want tourists to come here.” So it’ll be a good natural experiment over time to see how it affects property values, how growth is affected, as different comparable cities in the Lake of the Ozarks region choose different paths to move forward. So I definitely look forward to following that.

Susan Pendergrass (19:37)
Well, then I’ll know—another component to this paper is on planning. I think you just said a city doesn’t have to do planning if they don’t choose to, but are Missouri cities or municipalities planners? I mean, is that a planned thing, or are we more like anything goes?

David Stokes (19:56)
Most Missouri cities have plans. Right?

Susan Pendergrass (19:57)
I’ve been to New Town, by the way. I just want to say I have visited New Town, so—before you start talking.

David Stokes (20:03)
Well, that’s the architectural planning—how do we want to design it? Then there’s the legal, defined planning. And luckily, again, I really don’t think Missouri cities need to do any planning outside of general infrastructure planning. So I shouldn’t say they don’t need to do any planning—there’s the general infrastructure planning that pretty much everybody supports, meaning you should have an idea of how growth is going to go in your city and where you’re going to put sewers and sidewalks and streets. You want a general long-term plan for that, even if that plan is—as it should be—thoroughly adjustable and can be changed as growth happens naturally. But then you get into planning like we mentioned with Portland earlier—urban growth boundaries—where the planners really start to say, “You can live here; you cannot live here; you can build here; you cannot build here,” and it gets to be really extreme. We don’t really have that in Missouri. Thankfully, the plans that cities do adopt can be easily amended by any city council. They can be changed. When I worked at St. Louis County, we dealt with the county planning commission for the parts of the council district I worked in that were unincorporated, where the planning commission had a lot to say on that. So elected officials can and should be able to change that plan as they go. And then the biggest—let’s say you permitted a development that’s against your plan, but the elected officials want to do it anyway—I usually don’t have a problem with that. The fact that it’s inconsistent with your plan would generally be something that, if locals want to sue to stop the development, they would cite in the lawsuit—that it was inconsistent with your process and your plan—and then it would be determined by judges and the whole legal process. But planning in Missouri is something that, outside of basic infrastructure planning, cities shouldn’t really do. And to the extent that they do it, it’s easily amended and changed. And that’s a good thing.

Susan Pendergrass (21:55)
Mm-hmm. So the first two papers in your series were taxation, right?

David Stokes (22:20)
Taxation was number two, and the first one was just sort of the structure of municipal government in Missouri. It had a lot to do with city managers. And then the fragmentation issue was addressed as well in the first one that we discussed here, because that’s a part of that, obviously.

Susan Pendergrass (22:23)
Introductory. Okay. And taxation. And this is zoning and planning. Right. And then what’s on deck? What’s the next one?

David Stokes (22:41)
We don’t actually know yet what number four will be—germinating. Most of them are ready to go pretty quickly, so I think the next one will be released within the next two months—certainly this year. And I think it’s going to be on public works. But we have papers coming on public works, public safety, parks and recreation—which is one I’m really going to enjoy. You go to Forest Park and there’s all the great things in St. Louis’s Forest Park, and then you realize that many of the wonderful things there are actually done under contract with the private sector, either for-profit businesses like the Boathouse and the ice rink that pay the city to operate, or nonprofit businesses like the Muni that have been in the park for a long time. So it’s a great option to talk about all the different ways to provide parks and recreation services.

Susan Pendergrass (23:18)
Yeah.

David Stokes (23:35)
But those are at least three of the upcoming ones. And then there’ll be a concluding, summarize-it-all-up section as well.

Susan Pendergrass (23:41)
I look forward to hearing more about those, and thanks for coming on to talk about planning and zoning. It’s going to be a great series when it all gets put together. Thanks.

David Stokes (23:48)
Thank you very much, Susan.

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Often referred to as granny flats or in-law suites, ADUs are built near or inside existing homes and provide a separate living space from the main house.

You might hear of the university student who rented out space above someone’s garage or in their basement to afford an education–that student is renting an ADU. And if you search Airbnb (with the filters “Entire Place” and “Guest House”), you can get an idea of what ADUs might look like.

Historically, ADUs have been used to house older family members or relatives—hence the names granny flat and in-law suite. This helps promote multigenerational living, making it easier to maintain relationships with close friends and family (which could help ease a recent increase in loneliness).

ADUs are not currently illegal by name in the City of St. Louis, but a convoluted set of regulations make it extremely difficult for many homeowners to build them; the city requires 4,000 square feet of land per dwelling unit, so residents need at least 8,000 square feet of land to build an ADU. Additionally, parking minimums and setback regulations make it very difficult to build ADUs in homes of certain sizes and shapes, even on larger lots.

ADUs can help lower-income residents afford mortgages and other living expenses while also providing an affordable living space for renters. They also have the potential to increase the value of homes for owners—the extra living space, as well as the potential to rent it out and earn passive income, can increase a home’s appeal.

Board Bill 43 will allow ADUs to be built and used in all residential zones of the city (this interactive map shows how the city is zoned if you’re interested).

Allowing people to use their properties as they see fit and strengthening the rights of homeowners will let the market work freely, increasing the amount of affordable housing in Missouri. This is a much better approach to affordable housing issues than misguided regulations and tax-credit programs.

The now awaits discussion in the Housing, Urban Development and Zoning Committee.

The post How to House Your Family—and Make it Affordable appeared first on Show-Me Institute.

Often synonymous with Airbnb or Vrbo, STR properties are units intended to be rented out for less than a month. These properties provide a place to stay for people passing through and visiting St. Louis, encourage competition within the lodging industry, and bring revenue to their communities. Some owners, however, have been renting to unpredictable tenants, leading to out-of-control parties, violence, and even murder.

STR regulation has become common in major cities such as New York and London. Even some Missouri municipalities are adopting new rules. Citing similar frustrations to the City of St. Louis, St. Charles just placed a moratorium on new residential STRs in most of the city for a year.

The proposed regulations in St. Louis would, among other changes, create a permit and punishment system to hold STR operators accountable, require a Graduated Business License for owners renting out property they do not live in and a permit for individuals who rent out their primary residence, require a 24/7 available contact for the STR, and limit individuals to four permits for units they do not live in.

While some regulations on STRs are warranted due to the disturbances and dangers they can cause, parts of the proposal appear excessive.

The limit of four STR properties per owner seems like a solution in search of a problem. The city might have included a limit to prevent STR owners from operating many units (so many that someone could not realistically operate them alone) and ensuring that there is always some level of oversight for the STR properties. However, the requirements for each rental (24/7 contact, licenses, permits, punishments) should be more than enough to keep STR owners in check without more regulation. If someone can properly run several STRs without harming the community, why is the government trying to place further restrictions on them and create incentives to subvert the law?

More troubling is requiring permits for owner-occupied units. An STR is considered an owner-occupied unit when a property owner rents out a space where they live (such as a finished basement, or a garage converted into a studio). From the bill:

Applicants for a Short-Term Rental permit for an Owner-Occupied Dwelling Unit shall submit, on an annual basis, an application for a Short-Term Rental permit to the Building Division. The application shall be accompanied by a non-refundable application fee in the amount of $150.00. – Board Bill 33, Page 5, Line 19

Not only does this degrade a means by which countless people have been able to afford academic programs or help lodge friends and family, it might run afoul of state law. Missouri Statute 71.990 limits restrictions on “home-based businesses” and may conflict with the proposed bills. St. Charles’s legislation might not be legal either. It is likely that courts will have to sort out the interplay between Missouri statute and local ordinances.

Overall, these bills appear to do a good job of regulating non-owner-occupied properties. They would give communities more power in mitigating problems with STRs while not being restrictive on those who rent their property. The proposals for owner-occupied properties, however, could be improved.

My colleagues Avery Frank and David Stokes discuss their opinions on the proposed bills here.

The post On Short-Term Rentals appeared first on Show-Me Institute.

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Expanding the tax base makes for good tax policy, and equalizing the tax difference between competitors is also good policy. There is no reason that a hotel should have its guests pay one tax rate while Vrbo guests pay a lower rate. The time period of any theoretical “infant industry” argument is long past. The short-term rental industry is a major part of tourism and hospitality, and it should be treated the same as standard hotels for sales tax purposes.

Of course, I would like to see an expansion of the hotel tax base combined with lowering the tax rate, but saving money for tourists probably isn’t the top priority for local officials. I’ll have to be content with the hope that increased revenue from expanding the hotel tax base will remove pressure to raise the hotel tax rates in the future.

Like marijuana taxes and use taxes, hotel tax expansion can offer a method for new municipal tax revenues in an economically sound fashion. However, cities should not just use these new revenue sources to simply get and spend more money. They can also be used to replace other, more economically harmful taxes. These include local earnings taxes, high commercial property taxes, the ridiculous “economic development” sales tax, and personal property taxes on business equipment. (I am well aware that hotel taxes are usually dedicated to tourism promotion and not as readily exchangeable as use or marijuana taxes, but that is a choice that cities make [and a defensible one], not some order delivered via lightning bolt by Zeus himself that the cities can’t change if they wanted to.)

That would be a trade-off that would truly benefit cities in Missouri.

The post Short-Term Rentals, Long-Term Taxes appeared first on Show-Me Institute.

The debate over municipal limits on renting out your own property is happening all over Missouri, but most immediately in Lake Ozark and the City of St. Louis. In Lake Ozark, which currently bans short-term rentals in much of the city, the city council is voting Tuesday night on amending the zoning laws and allowing short-term rentals in certain parts of the city. I am opposed to municipalities having a comprehensive ban on short-term rentals. In a tourism-driven area like the Lake, it makes even less sense to have an outright ban.

The arguments for allowing short-term rentals are that: (a) you have right to rent out your own property if you wish to (b) allowing more rental options is good for the tourism industry and local economy; and (c) complaints about the rentals are often overblown, and police or regulators can handle such problems as they arise.

I agree with all of that—but even if you believe with all your heart that zoning violates property rights, the courts have decided that zoning is legal. So, if zoning regulations where you live say you can’t rent out your property, you may need a better argument. Point (b) is hard to dispute, and while point (c) is also true in my opinion, I understand why homeowners next door to the property that is the exception—with lots of parties, noise, crime, etc.—may want their city to take more proactive action.

The legitimate arguments against allowing short-term rentals are also straightforward. Too many of them do involve large parties and general mayhem. More importantly, one has to have sympathy for the property rights of the people who bought a home or condo under existing zoning laws that limited or prohibited such rentals, and are now seeing people trying to change (or governments ignoring) those laws. I support allowing short-term rentals, but I won’t be cavalier about the property investments people made with the understanding such things are not allowed.

It’s a tough issue. I think short-term rentals should be allowed in a tourist area like Lake Ozark (and the entire Lake region), but I understand that limits and rules may be necessary. In more residential locations, tighter limits may be appropriate. However you look at it, this issue isn’t going away in Missouri anytime soon.

I’ll be writing more soon on the role homeowners associations can play in this issue and how short-term rentals should be taxed.

The post Short-term Rentals, Long-term Questions appeared first on Show-Me Institute.

Cities across Missouri, including Kansas City and towns around St. Louis, have banned Airbnb outright in some areas. As we’ve written previously, this is an onerous and likely unconstitutional restriction on property rights. In 2017, home sharing advocates supported state legislation that would have pre-empted localities from imposing fees or prohibiting STRs outright, while permitting those subdivisions to impose “reasonable regulation” to “protect the public’s health and safety.” It may have been those undefined regulatory allowances that killed that bill, as supporters abandoned the effort at the end. A similar bill is being considered by the Missouri legislature this session.

The economic case for home sharing is compelling. Contrary to opponents’ fears, home sharing seems to increase home values in the surrounding area. However this has raised the concern that it increases rents as is displaces available housing units, although it hasn’t seemed to affect the hotel industry as much as hoteliers feared. As the industry matures, we will learn more about the consequences, intended or otherwise, of this new opportunity for homeowners.

Our guiding principle, however, must not be fear of change or of disruption, but protecting the economic freedom and individual liberty of Missourians. Protecting property rights against neighborhood NIMBYs remains a worthy endeavor.

The post Hoosier State Helps Home-Sharing appeared first on Show-Me Institute.

The author of the quote above is Ian Schrager, creator of boutique hotels and nightclubs, including Studio 54. In a recent Wall Street Journal piece, Schrager talks about the threat and how he is designing hotels to maximize efficiency and deliver a superior service to modern customers. Unfortunately, rather than innovate, some hotels are seeking to use the power of government to thwart competition. And governments are too often willing to do their bidding.

According to The New York Times, the American Hotel and Lodging Association trade group has launched a “multipronged, national campaign approach at the local, state and federal level.” One document shows that the group seeks to work with “a broad coalition of affordable housing advocates, community groups, neighborhood associations, labor, and other progressive entities.” The entire document is worth reading.

We’ve already seen some of this play out in Missouri, although the AHLA document does not cite efforts in the Show-Me State. Some neighborhood association activists have raised unsubstantiated fears about increases in crime. Kansas City’s own Planning and Development Department is exaggerating complaints against short-term rentals such as Airbnb. If Kansas City wants to present itself as a tech-friendly millennial magnet, it ought not keep fighting tech innovations such as Uber and Airbnb. Yet fight them it does.

In the 2017 legislative session, HB608 was an effort to pre-empt the current hodge-podge of municipal regulation that is being driven by the hotel industry’s concerns. The bill kept political subdivisions from imposing fees or prohibiting short term rentals outright, while permitting those subdivisions to impose “reasonable regulation” to “protect the public’s health and safety.” It may have been this last part that doomed the effort, as supporters of STRs feared that “reasonable regulation” was too broad a concession. As of this writing, January 4, there does not appear to be a similar bill proposed for 2018.

More recently, Airbnb announced a deal with Missouri in which it would start collecting and remitting state and local taxes on behalf of their owners. In their statement they estimated this would amount to $1.1 million in tax revenue.

New internet platforms such as Airbnb and VRBO (Vacation Rentals by Owner) offer great opportunities for consumers and for business innovators like Schrager who are up to the task. The churn of the free market—although sometimes ugly in the short term—is the reason why our country enjoys so many technological advantages and conveniences. Allowing big business to use its influence over government to thwart innovation by protecting existing markets isn’t just bad for Airbnb, it’s bad for hotels, government revenue, and consumers.

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On January 17, Kansas City’s City Council will again consider an ordinance regulating STRs such as Airbnb and VRBO (Vacation Rentals by Owner). Some neighborhoods are fearful of change, but there are great opportunities for all homeowners. Failure to think anew could create an uneven and potentially unconstitutional patchwork of regulations that harm consumers and property owners.

STRs have been illegal in Kansas City since 2011, but the City has chosen to overlook infractions and instead work on regulations allowing for STRs. STRs themselves are nothing new. What is new is the ease of finding and booking them thanks to Internet platforms such as Airbnb and VRBO. In the view of some homeowners, STRs amount to boarding houses and would irrevocably change the character of their communities from owner-occupied neighborhoods to more transient rental tracts. But research does not support that fear.

Protecting neighborhood character may sound good, but it is too broad to be a meaningful standard for regulation. As for fear of crime, there is no research that shows a causal relationship between criminal activity and STRs. In fact, studies have found that an increase in STRs increases property values in the surrounding areas. This shouldn’t be a surprise. People who seek to make a living off their homes have every reason to maintain the property and keep it attractive—and the income they receive from STRs helps them do so.

Cities like ours have plenty of housing codes to address issues that might arise from STRs. But there appear to be few actual problems. A public records request of the City Planning and Development Department uncovered only 68 complaints going back to 2014. Fifty-four of them simply noted that the location is being used for Airbnb or a STR, as opposed to specific complaints about noise or crime.

Meanwhile, Kansas City is host to hundreds if not thousands of long-term rental properties. Those homes do not require substantially different regulation—owners are not required to get permission from neighbors or pay additional fees or taxes. What’s more, once a unit is rented, there is little incentive to maintain the property—think of the stereotypical negligent landlord. STRs have the opposite impact by maintaining an incentive to be a good host and neighbor.

Those incentives are important. It is in the interest of every STR owner and every online platform to make sure that the experience is positive for everyone. Airbnb wants happy and safe customers; owners want respectful and well-behaved guests. Neighbors should see the opportunity for better-maintained and higher-valued neighborhoods.

The big problem with an outright ban, at least according to Jamila Jefferson-Jones of the UMKC School of Law, is that it amounts to an unconstitutional restriction on an individual’s property rights. Cities may be able to regulate the industry, but they may not be able to stop it.

Some regulation may be welcomed by STR owners. Airbnb recently announced it would collect and remit state and local taxes on behalf of their owners. Perhaps a nominal registration fee is warranted as well. People living in apartments or condominiums may want assurances that common areas remain secure. But using the power of government to stamp out a new aspect of the sharing economy is unwise and likely unworkable.

The post Some Thoughts on Regulating Airbnb appeared first on Show-Me Institute.

STRs are nothing new—they’ve been around forever. What is new, however, are the internet platforms that have made finding and booking them so easy. As a result, the numbers have increased dramatically and cities are considering how and whether to regulate them.

In Missouri, that regulation has ranged from outright bans in some cities around Saint Louis and in Kansas City to no regulation at all. Springfield recently debated such regulation, and in a news story about them, one proponent of regulation said, “we need to protect the character of our neighborhoods.” Such a vague standard should be of concern for property owners and property rights advocates. Cities already have criminal codes and housing codes to address public safety. But there is no research that I have been able to find that purports to show that STRs increase crime. Quite the opposite, research has demonstrated that STRs increase property values in the surrounding area.

At a recent Southern Communities neighborhood meeting, a representative of the City Planning and Development Department told attendees that they had received hundreds of complaints about STRs. But the hundreds of complaints turned out to be 68 complaints going back to 2014. Fifty-four of the complaints simply noted that the location is being used for Airbnb or a STR, as opposed to noise or safety complaints, for example. (While STRs are technically illegal in Kansas City, the city has not been enforcing the law, instead seeking to come up with regulations allowing the practice.)

Meanwhile, thousands of properties are being rented out in Kansas City for long-term rentals. They are not inspected or regulated by the city. They are not limited by zoning nor do they require that neighbors approve or even be notified of it. They are not assessed at commercial property tax rates. It’s fair to wonder why the city would treat a property that rents out for 3 days at a time differently than it treats one that rents out for 3 months at a time.

Then there are taxes. Kansas City charges a convention and tourism tax of 7.5% on hotels. It seems reasonable that STRs should pay this too. Again, long-term renters do not pay this, so the city will have to establish some sort of defensible threshold between long-term and short-term rentals. And don’t forget about bed-and-breakfasts. They are regulated differently, and maybe they shouldn’t be.

Some neighborhoods want to maintain a total ban on STRs. An ordinance being considered by the Council would render about 80 percent of city residences ineligible for any kind of STR. Is that fair? Or even legal? One Constitutional law professor at UMKC says it is not.

Given the different approaches to these matters across Missouri, it seems likely that the matter will end up before the General Assembly, as was the case with ride-sharing. Rather than creating a new patchwork of regulations, taxes, and fees, legislators need to think broadly about how private property ought to be regulated. The sharing economy is blurring the lines between personal and business, residential and commercial. We should be prepared for a larger discussion.

The post To Airbnb or Not to Airbnb? appeared first on Show-Me Institute.

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“…allow individuals to rent a home, apartment or even just a single bedroom for short-duration stays, usually just a few days at a time, using Web-based platforms that advertise to travelers.”

The most prominent example of this type of company is Airbnb. Much like ridesharing, short-term rental services are a prominent example of the “sharing economy,” where technology allows individuals (and not just well capitalized businesses) to make money renting out the things they already own. A major problem with the expansion of the sharing economy is local regulations, which straight-jacket industries into forms city officials and existing businesses are used to, and benefit from. The good news is that most of the cities the recent survey looked at, likely seeing an opportunity to encourage new business and attract more visitors, are making reforms to allow short-term rental services to operate easily.

                But not Kansas City. The city of fountains got an “F” for its regulations, because, as the report states:

“Kansas City has a tightly regulated short-term rental market that benefits special interests at consumers' expense. Both hosted and non-hosted stays are permissible only in commercial districts, such as a boarding house. No additional deductions are made for the city's legal framework, taxation, enforcement or licensing.”

The fact that Kansas City has made so little effort to reform its short-term rental regulations directly contradicts messaging from city officials about how they are all about attracting business and “millennials.” If creating growth and attracting young people is anything more than a rhetorical prop, city policy will have to actually create a welcoming environment for new types of services, services millennials demonstrably like to use.  Right now, it appears that city hall thinks handing out tax breaks to large companies is enough to qualify as business-friendly, and building a streetcar is the essence of cool. 

The post Kansas City Gets “F” Grade for Rental Regulations appeared first on Show-Me Institute.

In Missouri and elsewhere the sharing economy has faced strong resistance from the regulatory state and existing businesses. Hotels and for-hire vehicle operations are traditional revenue sources for local governments (who treat hotels especially as piggy banks for pet projects), and dominant companies are geared toward a highly regulated status quo. When residents demand access to the sharing economy, regulatory bodies downplay the extensive web of regulations and high tax rates they have created, and instead fall back on appeals to public safety. Background checks, inspections, and in Saint Louis, fingerprinting, have become the motte to which regulators have fled, no doubt hoping to retake the entire regulatory bailey once their attackers have run out of steam.

While the claims of protecting health and safety make sense on their face, on closer inspection everything seems very arbitrary. Why does a vehicle need an inspection by a taxi commission; wouldn’t any auto-body shop do? If the vehicles need to be inspected anyway, why require an additional inspection at all? Why should background checks need to go seven years? What’s wrong with five? And so on.

The core problem is that a group of regulators, not the individuals actually using the services, are deciding what is safe enough. So instead of companies differentiating themselves and letting people make their own decisions, cities give an arbitrary, one-size-fits-all solution. And it is usually a conservative solution.

It does not have to be this way. In an innovative approach, Austin’s mayor has proposed a plan called “Thumbs Up Austin” as a compromise on fingerprinting for Uber and Lyft drivers. Instead of forcing all drivers to get fingerprint checks, those who chose to do so would get a “Thumbs Up” badge. Uber users would be able to see this badge before choosing a driver, and could decide whether they required their driver to have the badge. The mayor believes this could also work for other sharing economy services, like Airbnb.

If the idea proves successful, it would open the possibility of allowing those who are providing a service and those who are using the service to decide their level of regulation. 

The post To Regulate the Sharing Economy, Let Users Choose Their Risk Level appeared first on Show-Me Institute.

Last week, the St. Louis Post-Dispatch reported that Saint Louis bed & breakfast owners are upset over the city assessor’s decision to assess their property (or at least the part used as B&Bs) as commercial properties. I can understand why these owners would be upset. According to the way properties are assessed for property tax purposes, if B&Bs were even partially assessed as commercial properties, the owners’ property tax bills would go up substantially.

I sympathize with any business owner that is facing a higher tax bill. However, I do not oppose this change. Saint Louis is doing the right thing here. If a property is engaged in commercial activity, the city should assess it as a commercial property. The situation is trickier with people renting rooms through airbnb. These lodgings are not necessarily full-time establishments, and so some mechanism needs to be in place to make sure they don’t get a tax advantage compared to traditional B&Bs.

Having a large property tax base is important. It’s especially important in Saint Louis because it can serve as a way to reduce (or even eliminate) the earnings tax. The Show-Me Institute released a paper arguing that the earnings tax could be replaced by a two-tier property tax (this differs from a traditional property tax in that the two-tier approach taxes the land more heavily than any improvements on the land). Even if the city sticks with a traditional property tax system, a wider base can generate more revenue to offset any reductions in the earnings tax.

Paying more in taxes is never fun, but low taxes for some shouldn’t come at the cost of a hollowed-out property tax base.

The post Shocking Support for Taxing Bed and Breakfasts appeared first on Show-Me Institute.

Arthur C. Brooks, president of the American Enterprise Institute, recently argued that significant amounts of such dead capital could be brought to productive life if only local governments would stop protecting vested interests and allow entrepreneurs to invigorate their local economies.

How? There are new, exciting companies that empower individuals to improve their economic condition and, at the same time, improve the productivity of capital. One example is the ridesharing service Uber. Uber brings together those with empty passenger seats and those needing a ride across town. My experience (unfortunately, not in Saint Louis) is that Uber rides showed up faster than traditional taxis and that the drivers were more attentive to my needs. Because Uber drivers are rated by riders even in transit, poor drivers can lose business for inadequate service. Competition drives out poor performers.

Airbnb is a market solution to the problem of underutilized housing capital. With excess bedrooms in the United States, why not allow the owners of those empty rooms to satisfy the needs of individuals seeking a place to stay for a night or two? The needs of those willing and able to pay for a room are served and the owner is rewarded with, especially in these still-difficult times, an extra bit of income.

Unfortunately, a maze of state and local regulations block Uber and Airbnb from operating in many locales. “Governments have their own golden opportunity,” Brooks writes, “to exercise creativity in service of the common good, whether that entails rethinking anachronistic zoning laws or adjusting tax policies that treat someone’s spare bedroom the same as a Marriott suite.”

If bringing dead capital to life is good for the economy, isn’t it time for politicians and regulators to awaken to the potential benefits that such services can provide?

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