What happens to short-term rentals in the long-term?

The cloud of COVID-19 came with a golden lining for owners of many properties in Asheville and Buncombe County that are rented out via online platforms like Airbnb and VRBO.

The amount of money brought in by these short-term rentals in Buncombe County and its municipalities during the first half of this year, $97.9 million, was up 131% compared with STR revenue for January through June 2019, according to county government. By contrast, while hotel and motel sales were recovering during the first half of 2021, they remained below the level seen two years before.

A lot of that STR money ended up in the pockets of owners of high-end properties like those managed by Asheville-based Yonder Luxury Vacation Rentals, which handles tasks like booking, cleaning and maintenance for 170 homes in 12 area counties.

“Once things started opening up, people really felt, ‘We need some space and fresh air,’” says Mark Bastin, Yonder’s chief marketing officer. “All of Western North Carolina lends itself to that.”

Consumer preferences — and choices to be made by government officials locally and in Raleigh — will affect the size of that gravy train and who will benefit from it in the years to come.

The Buncombe County Board of Commissioners has held informal, preliminary discussions about the possibility of limiting STRs in unincorporated areas of the county, says Chair Brownie Newman, and a closer look at whether it should act may be coming within months. Commissioners worry about the effects STRs have on the county’s limited supply of affordable housing and hear complaints from people who live near those properties, he says.

“For some time, the issue around short-term rentals was viewed as more of a concern in Asheville. … But that whole sector has just continued to expand” into the rest of the county, Newman says.

The state General Assembly may have other ideas. The House has passed legislation to curb local governments’ ability to regulate STRs, potentially accelerating what has already been rapid growth in the number of STR units in Buncombe County. Whether the Senate will go along, and the exact impact of the House proposal, is uncertain.

‘More homey’

On a recent sunny and crisp September day, a sign near one corner of Bill and Linda Kelder’s South Asheville home marked private parking for “Diana & Paul” and promised “Your suite awaits.” Inside the three-room apartment the Kelders created in part of their home for Airbnb guests in 2017, a wall held brochures for area attractions and a map with pushpins marking the hometowns of previous visitors. Two muffins — one blueberry, one banana nut — that Linda Kelder had baked herself sat wrapped and waiting on the counter for guests expected later in the day.

Asheville’s city government issues homestay permits allowing holders to rent out rooms or an apartment in their homes so long as they live on site. (Rentals of whole homes, apartments and condos have been forbidden in most areas of the city since 2018, with the exception of STRs in operation or approved before the ban.) Semi-retired, the Kelders wanted to supplement what Bill Kelder, 70, brings in working part-time as an industrial supply salesman. Linda Kelder worked as an Uber driver for a while but the proceeds were underwhelming, so the couple moved to a different part of the sharing economy.

The small unit often rents for as little as $61 a night. It has its own entrance and, as Bill Kelder says, is “more homey” than a typical hotel room.

Initially, COVID-19 dramatically reduced guest visits. “We dropped off 40%, but now it’s starting to pick back up again,” Bill Kelder says. Now, if time opens up on the apartment’s reservation calendar, “We put it back on [Airbnb] and it’s gone in a day,” Linda Kelder adds.

Bob Michel, head of the Asheville Homestay Network, says there were 700-800 legally permitted homestays in the city before the pandemic but estimates the number has fallen to about 690 today. Because of concerns over COVID-19 exposure, he adds, “Some folks have just shut down” their homestay units.

The upper end

Exposure to guests is less of a concern for many owners of luxury rentals like those managed by Yonder and similar area companies. A whole ecosystem of businesses has grown up around STRs to manage listings, clean units, deal with guests and make repairs. Once they’ve bought a house or condo and furnished it, about all the owners have to do is pay the bills and cash checks from the management company.

Yonder and the property owners it works with have benefited. More people are seeking its rentals, and more vacation home owners are deciding to rent out their properties, Bastin says. WNC is a reasonable drive from much of the eastern U.S., he points out, and the idea of a luxury cabin or a grander house in the mountains is especially appealing to city dwellers anxious to travel.

“COVID has definitely impacted our business in a very positive way,” he says. “When COVID hit, people didn’t want to stay in hotels. They didn’t want to get on a plane.”

The region’s STR boom is part of a national trend. AirDNA, a company that tracks the STR industry, says demand for the units was up 67% in small cities and rural areas in April of this year compared to April 2019. Occupancy rates were down 41% in the United States’ 50 largest cities.

Many people gathered with their extended families at rentals or booked stays while they worked remotely and their kids went to school online, Bastin adds. “With so many people working outside the office, the big question was, ‘How’s your internet speed?’” he quips.

Shift or blip?

Hotels and motels in Buncombe County haven’t seen the same boom, although business began recovering strongly this year. Sales of those traditional lodgings for the first half of 2021 were down 5.9% compared with the same period in 2019. Their revenue still makes up the largest portion of sales covered by the Buncombe County occupancy tax, but STRs’ share has grown quickly.

STR sales accounted for 17.8% of all room sales in the county in the 2018-19 fiscal year. Two years later, that share had more than doubled to 37.4% for the 12 months that ended June 30.

However, no one can say with certainty how much of that dramatic increase in local STR revenue represents a temporary shift from hotel and motel stays caused by travelers’ pandemic worries and how much reflects a long-term change in consumer preferences. Some observers think it’s a bit of both.

Industry experts are watching to see whether travelers shift some of their spending back to hotels once COVID-19 recedes. AirDNA hedged its bets in a recent forecast, offering three different possible scenarios for STR demand – but all three showed increases, with an average projected boost to demand of more than 23% in 2022.

Vic Isley, president and CEO of the Explore Asheville Convention and Visitors Bureau, notes that hotel and motel sales finally rebounded to pre-pandemic levels this summer. While most visitors to the area are tourists, business travel and convention and group travel are important for hotels; she says that segment of the travel market is still slow “as people are rightly being cautious about group gatherings.”

Analysts see America’s increased willingness to use Zoom and similar applications for business meetings as a threat to hotel business even after COVID-19 worries subside. Isley declines to speculate on how the local market shares of STRs and hotels and motels may change in the years ahead: “That’s too soon to tell for me.”

County action?

In contrast with Asheville’s whole-home STR ban, Buncombe County does not regulate STR operations at all.

Newman says the county commissioners are concerned that the conversion of homes into STRs is driving up the cost of renting or buying housing for county residents. They also hear from constituents unhappy with how the rise of STRs “impacts neighborhoods in terms of not having real neighbors, loud parties, things like that.”

He says it is unlikely that commissioners would eliminate existing STRs, but they may look at ways of limiting their growth. No specific rules have yet been proposed.

Philip Roth, an Asheville attorney who specializes in real estate law, says many homeowners’ associations in the county are taking up the issue of limiting STRs in their neighborhoods, resulting in some sharp debates and mixed results.

“That’s a hot potato out there,” he says. “There’s a huge number that are doing that.”

There are no restrictions on STRs in Black Mountain, Montreat and Weaverville. They are banned in two low-density zoning districts in Woodfin but allowed in the rest of the town. Meanwhile, Biltmore Forest prohibits rentals of less than 90 days.

Raleigh says

The state House has passed two bills this year, House Bills 829 and 911, that would restrict local governments’ ability to require permits for STRs. Members inserted the same language into the House version of the state budget bill, Senate Bill 105.

The Senate has not taken up either of the stand-alone bills, and its budget bill makes no reference to the issue. House-Senate negotiators have yet to agree on budget legislation for the fiscal year that began July 1; it’s unclear whether they’ll pass a bill that Democratic Gov. Roy Cooper would sign or whether the STR language would be in it. The legislature’s GOP majority and Cooper have a history of differing on spending issues.

Rep. Dean Arp, R-Union, heads the House’s budget-writing committee and has led the charge in the House for the rental legislation. He has said in floor debate that previous legislation consolidating laws on governments’ regulatory powers contained a provision added “in the cover of night” that favors Wilmington in an ongoing lawsuit challenging its STR rules.

In 2019, Wilmington capped the number of STRs in the city, required that they be at least 400 feet apart from one another and set up a lottery to determine which STRs could continue operation in cases in which the units were not far enough apart. A Superior Court judge struck down the law after a couple who own an STR that would be shut down sued. Wilmington has appealed.

“What you think about short-term rentals, that’s up to you, but [the law] shouldn’t be changed in the middle of a lawsuit to prejudice one party or another,” Arp told the House. His legislation would apply statewide.

Arp’s legislation has the backing of the influential N.C. Realtors Association, which says it is needed to protect an “essential but increasingly embattled residential use.” But the proposal has drawn opposition from affordable housing advocates and those who argue that towns and counties are better able than state legislators to decide what the rules should be for STRs within their borders.

Someone who buys a home in a beach town like Nags Head does so with the expectation that their neighbors will change frequently, says Scott Mooneyham, spokesman for the N.C. League of Municipalities.

“That’s a different expectation than someone who bought a house in a quiet neighborhood 20 years ago” in a town elsewhere in the state, only to suddenly find they’re living next door to an STR, Mooneyham says. He suggests that local governments can best tailor rules that balance the needs of property owners and residents in their jurisdiction.

Kate Pett is the director of local nonprofit Thrive Asheville, which has programs to increase the supply of affordable housing. She says that if local governments lose the ability to “provide some brake on the growth of short-term rentals, we will see an increasing scarcity of housing, and housing prices may increase further.”

Long-term residents’ homes “will be converted to short-term rentals because long-term rental rates can’t compete with the income from short-term rentals,” she argues.

Barry Bialik, chair of Asheville’s Affordable Housing Advisory Committee and owner of homebuilding company Compact Cottages, has a different view. Allowing construction of more STR units, he suggests, would indirectly increase the supply of long-term rental housing because some STRs would eventually be converted to long-term use.

And some people who host homestays in Asheville voice misgivings about the idea of allowing more homes and apartments to become freestanding STRs.

“I hope that doesn’t happen. I think it would just be a free for all,” says Brenda Sconyers, who operated a homestay in her house in Montford until she temporarily put it on hiatus because of COVID-19 concerns. “It would hurt neighborhoods. I would not want somebody having a party all weekend in the house next door.”