New STRP Bills

I am the lead sponsor on three short term rental property bills that are set for first reading on August 16. My goal is to find a better balance between commercial STRP operations and neighborhoods.

The media has covered the growing debate over short term rentals. Neighbors complain about living next to party houses. There are stories about people with young families choosing to leave Nashville rather than have to live next to a short term rental with new strangers there every week. You can read more here and here. Nashville does not have a good balance between investor owned short term rentals and their neighbors.

The first bill requires all online advertisements to include the STRP permit number. This will help with enforcement. The second bill requires permit applications to be made under oath and include information about home owner association rules. Again, this will help with enforcement. It is hard to predict, but I don’t expect much opposition to either of these.

The third STRP bill clarifies that short term rentals are subject to the same occupancy rules as long term rentals.  For a long time, Nashville zoning laws have prohibited more than 3 unrelated people from sharing a residence.  The short term rental law passed last year conflicts with those zoning laws by allowing higher occupancy.  This conflict needs to be cleared up.

This bill goes to the heart of the heated debate going on between investor STRP owners and neighborhood advocates. The investor owners focus on their tax-paying businesses providing an important service to Nashville. Neighbors focus on not wanting to live in what is essentially a motel district. I think we need to go ahead and get to the bottom of this issue. What do we value more – long-standing occupancy rules designed to maintain the residential character of neighborhoods or growing a new business model that places tax-paying businesses in the middle of neighborhoods?

Clearly, from the way I frame the debate, I have a bias. I think there is value on both sides. But between arguments of equal merit, I would consistently lean in favor of preserving the character of neighborhoods. I want the Council to have this debate. I want my colleagues to hear from their constituents. I have confidence that the process will work. Maybe my colleagues will embrace this, maybe they won’t – either way, we will have the issue resolved.

Since the Council agenda came out earlier this week, I have heard from five investor owners. Two live in the county.  One is a long-time close friend. My friend is pretty unhappy with me for this proposal. She made me promise that I would give voice to her objections. I’m going to do that here – along with my response to each. These are the arguments I have heard from her and the others:

This is an enforcement problem with Metro Codes: Yes, but…  I am sympathetic to the argument that, if Metro Codes had more resources, they would be able to enforce existing STRP laws. However, as a pragmatist, I don’t think we are going to get perfect enforcement.

Codes doesn’t have employees that work on Friday and Saturday nights. They can’t enforce STRP rules in real-time. The result is that Codes has a limited amount of time and resources to enforce these laws. If Metro were to increase Codes’ budget, STRP enforcement wouldn’t make the top 5 list of things to spend more money on. It just wouldn’t – Nashville’s historic growth has taxed Codes immensely and there would be other fish to fry if Codes had more resources. Politically and practically, I just don’t see a scenario where a squad of Codes inspectors is out cruising Germantown and East Nashville for rogue STRPs. Unfortunately, this leaves us having to pick between unpopular options – leave the status quo or attempt to clarify and reshape the rules to see if we can give Codes the ability to provide more enforcement with their current resources.

But, I follow the rules – why punish me? See the last point. I am very sympathetic to this. I don’t enjoy raising topics that make my friends unhappy. But if we can’t expect complete real-time Codes enforcement, we must have the policy conversation about whether to leave the status quo or reshape the rules to find a different, hopefully better, balance.

This will drive investor owned STRPs out of business: Some people say that different rules will drive investor owned STRPs underground. Some people say it would force them out of business. Obviously, both can’t happen – if the business model gets more difficult, it would have to be one or the other. Either way, if evening the playing field between short term and long term rentals were to make someone’s business model harder, I would be ok with a sunset or grandfather provision that would allow the field to be evened over time.

This will drive investor owned STRPs underground: See the last point.

I pay property taxes: Thank you for that, but property taxes get paid no matter what the use of the property is.

I pay STRP taxes: Yes. Any policy decisions need to weigh the potential loss of STRP tax revenue against perceived gains in neighborhood quality of life.

I invested in reliance of the law being stable: Respectfully, to my friends who are investor owners, I know you all owned a bunch of these units before there was an STRP law in Nashville. Yes, many of you have doubled down and bought more units after the law passed; but many, many investors got into the business before there was any STRP law in Nashville.

In the end, I sincerely hope that no investor has pinned his or her family’s financial future to a business model that relies on Nashville’s all-time greatest popularity, Nashville’s all-time fastest (and likely unsustainable) growth rate, and Nashville’s all-time greatest deficit of hotel rooms compared to need. Whatever happens with our STRP laws, you have to know that current market conditions will not last.

I know that, despite the inherently risky, boom-or-bust nature of relying on real estate investment as your primary and permanent source of income, some investor owners have done just that. I want to be clear – this is the single hardest part of the debate for me. Even though I would consider it much too risky an investment/income strategy for my family, I know that there are STRP investors that are in fact relying on this business for their income, to pay bills, to buy food.  For them, I’d definitely be okay with sunset or grandfather provisions to help the impact of any changes get spread over time.

Tourism is good for Nashville; we provide a needed service: See the last point. I agree that, for today, you may be right. I am less sure whether there is value on a 20 year time horizon. I’d hate to have undermined the long-term stability of certain neighborhoods for what turned out to be a 5-7 year shortage of hotel rooms. This debate is worth having and seeing where we stand as a city.

This will cause 900 investor owned units to be dumped on the market at once: First, I don’t think so.  Second, this is an interesting argument. To borrow a response from the development community in the affordable housing debate – the entire housing market is intertwined; if you impact supply or demand, you necessarily impact price. I guess dumping 900 units on the market would tend to increase affordability? Would that be bad?

I think that about covers it. We have an unhealthy balance with investor owned STRPs now. Talking about whether to make short term and long term rentals have the same occupancy rules should help us find a better balance.

Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.