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As hotel tax growth slows, Tourism Commission targets short-term rentals

Friday, March 22, 2019 by Chad Swiatecki

The growth of short-term rental activity in the city and a possible saturation of the local hotel market are seen as the biggest causes behind a flattening of Austin’s once fast-growing Hotel Occupancy Tax revenue.

That was the conclusion at this week’s meeting of the Tourism Commission, where how to best use the roughly $100 million collected by the city annually from hotel visitors is a central issue of debate.

While discussion at the meeting again veered into whether expenditure levels for the Austin Convention Center are in line with other peer cities and market demand, commissioners roundly agreed that a combination of factors are slowing growth of the hotel tax. That money is used to fund a variety of efforts including historic preservation, cultural arts, tourism promotion and debt relief on previous capital improvements to the convention center.

While the revenue pool grew by more than 10 percent annually for much of the past decade, its growth is estimated now to be in the low single digits because of a possible surplus of hotel rooms and demand for short-term rentals siphoning off traditional hotel business.

There was some debate at the meeting about possible fluctuations and the overall completeness of the city’s reporting, but data presented showed 10 percent growth in 2016, the most recent year available. Commission Chair Catlin Whitington said by most estimates the tax revenue grew by around 3 percent last year.

Commissioner Scott Joslove, president of the Texas Hotel and Lodging Association, said for the first time in recent memory the city had unused hotel rooms during the 10 days of South by Southwest, which is traditionally one of the busiest and most expensive booking periods.

“We were not even completely sold out for SXSW this year,” he said, pointing out that high room rates generate higher tax amounts. “There were rooms that typically would have been long sold out at high rates that were sitting available, and the rates overall were down.”

Asked about market equilibrium, Joslove said “we’re probably a bit overbuilt” and added that the pace of construction will likely slow soon to allow demand to catch up in coming years.

A bigger concern is the city’s role in regulating and collecting HOT revenue from short-term rentals marketed and managed through platforms such as Airbnb and HomeAway. Currently the city has no comprehensive method to collect the revenue and force those using STR platforms to obtain a license and comply with taxing and other regulations.

Much of the difficulty, Joslove said, comes from conditions the services want cities to agree to in exchange for their collection of tax revenue. Among those conditions are keeping STR owners anonymous, no limits on the number of non-owner-occupied STRs in residential areas and forgiveness of all previous failure to report overall STR activity.

During meetings of the city’s Visitor Impact Task Force in 2017, it was reported that STR companies had roughly $6 million in tax revenue available to the city, but the conditions they placed on that money were counter to a desire many in the city had to strictly manage the number of STRs operating in residential areas.

That battle is currently playing out at the state level, with lawmakers considering legislation that would strip away most of cities’ power to regulate the STR industry.

“You have the Realtors on one side who want to have Austin not able to ban short-term rentals and want an unlimited ability to locate as many as they would like,” Joslove said. “Virtually everybody agrees that if you are owner-occupied you ought to be able to have short-term rentals, and if you’re non-owner-occupied you should be able if you’re located in commercial areas. The issue comes down to residential areas and should you be able to limit that.”

While no action was taken regarding the STR issue since the agenda item was specifically related to growth of HOT revenue, commissioners agreed to a future agenda item to recommend action to City Council, including looking at third-party services that can track STR activity and make it possible to collect outstanding hotel tax money.

Photo by Fredlyfish4 [CC BY-SA 4.0], via Wikimedia Commons.

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