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Denver Needs Better Short-Term Rental Enforcement

Phone showing short-term rental app.DENVER — Denver needs to do a better job of tracking and enforcing regulations on short-term rentals — the “sharing economy” lodging such as Airbnb many travelers now use — according to Denver Auditor Timothy M. O’Brien’s recent audit.

The audit found there were flaws in the city’s systematic evaluation of licensing activities as well as inconsistent data validation processes. There are discrepancies between how the regulations are enforced and the law, which puts the city at risk of litigation. The audit team also found inconsistent lodger’s tax validation rule application, leading to some applicants receiving licenses they shouldn’t have. Also, data is not used to effectively assess the impact of short-term rentals on neighborhoods and affordable housing.

In 2016, Denver’ City Council passed regulation for short-term rentals such as Airbnb to create a fair operating environment, ensure minimum safety requirements and assess the impact on neighborhoods and affordable housing. The Department of Excise and Licenses and the Department of Finance – Treasury Division regulate licensing for all short-term rentals advertised online. They also collect the lodger’s tax and other applicable taxes.

Between Jan. 1 and Aug. 31 of this year, Excise and Licenses issued nearly 2,000 short-term rental business licenses. This is about 68 percent of the short-term rentals advertised online during that time. The department collected $49,000 in business license fees. Figure 4 from the audit report shows a snapshot of the 2,592 short-term rental properties advertised in Denver on July 26, 2017. About 63 percent of the properties had active licenses.

Map of short-term rentals in Denver.

While analyzing administrative activities, the audit team found discrepancies between licensing and enforcement rules and the law. These discrepancies include lack of proof of possession, lack of clear policy on accepted insurance, lack of proof that applicants don’t have outstanding fines and poor documentation for administrative citations.

“These discrepancies between the law and enforcement could lead to public confusion on how to stay in compliance, as well as the risk of perceived inequity,” Auditor O’Brien said.  “This could put Denver at risk of legal action.”

The audit also includes recommendations for improving the clarity of lodger’s tax validation. We found the majority of lodger’s tax license and identification numbers used on rental licenses were invalid. Multiple people were sharing the same number, multiple licenses were issued to the same applicant, and in some cases, applicants violated the primary residence requirement by registering more than one address to the same license. For example, we identified 45 instances out of 1,642 applicants who received more than one short-term rental license, 20 of them had a license registered to more than one address.

The Department of Excise and Licenses disagreed with our recommendation to review all regulations to reflect short-term rental enforcement practices. The department said all of its rules are written to apply to all license types for clarity and ease of use. The rules are not written specifically for short-term rentals. The department also said it was too soon to create unique administrative rules because the regulations are still new and under assessment.

The Department of Excise and Licenses also needs to develop a systematic approach to collecting and analyzing data about short-term rental enforcement efforts. Data can help the city understand the impact on neighborhoods and on housing affordability. When the regulations began, the goal was in part to keep landlords from renting out multiple properties on a short-term basis, reducing the availability of affordable long-term housing units in the city. The agency disagreed with our recommendation to develop and implement a data collection approach because officials say they are focused on licensing, not affordable housing analysis. The department makes the data it does collect public and shares it with peer agencies for their affordable housing research.

“If the Department of Excise and Licenses does not track and analyze the data, officials should work with City Council to determine who is responsible,” Auditor O’Brien said. “A central goal in the ordinance is to determine the impact on neighborhoods and affordable housing, and some agency needs to be working on it throughout the process.”

Officials spent much of 2015 and 2016 working with the Denver City Council, community groups, industry representatives and other stakeholders to develop the new short-term rental regulations. The strategic enforcement plan mission includes community engagement forums, easy-to-use resources to help with compliance, tracking and monitoring of short-term rentals to ensure compliance and methods to identify and manage complaints. However, the audit team found there are no resources to track the effectiveness of these efforts. Without a systematic approach for developing, collecting and analyzing data, the department might be missing opportunities to ensure safe, efficient and responsible operation.

Read the Audit

"Denver's Short-Term Rental Enforcement Needs Tweaking, Auditor Says" - Colorado Public Radio - Dec. 21, 2017

"Lodger's tax collected on Denver short-term rentals nears $2 million" - Denver Post - Dec. 21, 2017

"Audit Sees Room for Improvement in Denver's Short-Term Rental Program" - Westword - Dec. 22, 2017

"Denver Auditor says should do more to enforce short-term rental rules" - 9News - Dec. 21, 2017

"Audit reveals flaws in Denver's short-term rental system" - Denver Business Journal - Dec. 22, 2017

Update:

"Airbnb to take over Denver lodging tax collections from hosts starting April 1" - Denver Post - Mar. 16, 2018