House Adopts Legislation to Regulate Short-Term Rentals

Representative Mike Connolly joined with his Cambridge and Somerville colleagues to pass H.4314, An Act Regulating and Insuring Short-Term Rentals. This legislation creates a framework for collecting taxes from short-term rentals (STRs) like Airbnb, and empowers cities and towns to regulate STRs to protect against housing displacement and ensure safety for tenants and neighbors.

STRs emerged as an innovative concept where people could earn extra income by renting out spare bedrooms or houses while traveling out of town, for example. But as platforms like Airbnb have grown in popularity, corporate investors have seized the opportunity to convert entire rental buildings into de facto hotels.

“The displacement caused by large-scale Airbnb operations has exacerbated an already dire affordable housing emergency in places like Cambridge and Somerville,” Rep. Connolly said. “That is why I am very proud to have advocated for a bill that preserves the ability of municipalities to regulate and restrict short-term rentals in ways that make sense on the local-level.”

While many STR units are operated like hotels, they haven’t been taxed or regulated like hotels, and this has resulted in uncertainty and an uneven playing field. Moreover, STRs haven’t been subject to regular safety inspections, and municipalities lack good data to understand just how many STR are in operation at any given time. Perhaps worst of all, entire clusters of housing have been taken off the rental market, adding to the pressure on an already scarce stock of housing.

The House’s legislation creates a tiered structure that allows individuals to earn extra income by renting out spare rooms, while regulating, taxing, and ensuring the safety of all STR units. It requires that all units be listed on an online registry with the state’s Department of Revenue. The registry will include a list of addresses, but for the sake of privacy, will not list names.

The Bill categorizes short-term rental hosts into three categories:

  • Residential Host: rents 2 or fewer residential units, taxed at 4%
  • Investor Host: rents between 3 and 5 residential units, taxed at 5.7%
  • Professionally Managed Host: rents 6 or more residential units, taxed at 8%

These categories recognize the difference between someone who rents out a spare bedroom and corporations that rent entire buildings. It requires any host with 6 or more units to employ a property manager and to maintain $1 million in liability insurance, for example.

Cambridge has already debated and implemented its own short-term rental ordinance which includes limiting short-term rentals to owner-occupied and owner adjacent units.  Under the House’s STR legislation, individual municipalities will continue to have the ability to create their own regulations and restrictions, as well as the option to levy a local tax (up to 5% for Residential Hosts, up to 6% for Investor Hosts, and up to 10% for Professionally Managed Hosts).

If a municipality accepts the local excise tax, they will have to conduct a safety inspection on the residential STR unit within 60 days of the unit being listed on DOR’s registry.

In addition, the House’s STR legislation prohibits hosts and hosting platforms from discriminating on the basis of race, sex, gender identity, ethnicity, sexual orientation, age, religion, disability, or nationality. It does not affect existing leases, rental agreements, or other types of landlord/tenant relationships.

A week later, the Senate passed its own version to regulate the industry, with a few key differences. Under that Bill a state excise tax rate of 5% would be imposed on all types of short term rental properties, no matter if the host was a single-family home with a room or a condo in a multi-unit building that is owned by an investor. The senate version would also allow cities and towns a local option of up to 6% or, in the case of Boston, 6.5%, differing from the House's proposed local-option tiers. Regulations like registration, licensing, or inspection would also be up to municipalities. Both versions of the Bill require 1 million dollars in liability insurance for each unit.