Today, the VRMA is launching its Eastern Seminar in Orlando, FL with a general session about government regulation of vacation rentals and the pending legislation in the state of Florida. The recent increase in proposed legislation, in Florida and around the U.S., attempting to restrict the ability for a homeowner to rent his home as a vacation rental is centered around the issue of basic property rights for Americans and the government’s ability to dictate use.

“One of the most fundamental requirements of a capitalist economic system—and one of the most misunderstood concepts—is a strong system of property rights. For decades social critics in the United States and throughout the Western world have complained that “property” rights too often take precedence over “human” rights, with the result that people are treated unequally and have unequal opportunities. Inequality exists in any society. But the purported conflict between property rights and human rights is a mirage. Property rights are human rights.”–Property Rights, Library of Economics and Liberty, by Armen A. Alchian

Armen Alchian, who is a member of the majority of economists who have determined that the economy improves when property rights are guaranteed and published multiple studies about the positive economic impact of an environment which supports property rights, points out that – although resolving the protection of property rights is complex – it must be done in a way which ensures the property owner’s undisputed freedom to have exclusive use to his property and the ability to use his property has a resource.

From Property Rights, Armen Alchian

“For example, the owner of an apartment with complete property rights to the apartment has the right to determine whether to rent it out and, if so, which tenant to rent to; to live in it himself; or to use it in any other peaceful way,” said Alchian.”That is the right to determine the use. If the owner rents out the apartment, he also has the right to all the rental income from the property. That is the right to the services of the resources (the rent).”

Finally, a private property right includes the right to delegate, rent, or sell any portion of the rights by exchange or gift at whatever price the owner determines (provided someone is willing to pay that price). If I am not allowed to buy some rights from you and you therefore are not allowed to sell rights to me, private property rights are reduced. Thus, the three basic elements of private property are (1) exclusivity of rights to choose the use of a resource, (2) exclusivity of rights to the services of a resource, and (3) rights to exchange the resource at mutually agreeable terms.

The U.S. Supreme Court has vacillated about this third aspect of property rights. But no matter what words the justices use to rationalize such decisions, the fact is that such limitations as price controls and restrictions on the right to sell at mutually agreeable terms are reductions of private property rights. Many economists (myself included) believe that most such restrictions on property rights are detrimental to society. Here are some of the reasons why.

Under a private property system the market values of property reflect the preferences and demands of the rest of society. No matter who the owner is, the use of the resource is influenced by what the rest of the public thinks is the most valuable use. The reason is that an owner who chooses some other use must forsake that highest-valued use—and the price others would pay him for the resource or for the use of it. This creates an interesting paradox: although property is called “private,” private decisions are based on public, or social, evaluation.

The fundamental purpose of property rights, and their fundamental accomplishment, is that they eliminate destructive competition for control of economic resources. Well-defined and well-protected property rights replace competition by violence with competition by peaceful means.

The extent and degree of private property rights fundamentally affect the ways people compete for control of resources. With more complete private property rights, market exchange values become more influential. The personal status and personal attributes of people competing for a resource matter less because their influence can be offset by adjusting the price. In other words, more complete property rights make discrimination more costly. Consider the case of a black woman who wants to rent an apartment from a white landlord. She is better able to do so when the landlord has the right to set the rent at whatever level he wants. Even if the landlord would prefer a white tenant, the black woman can offset her disadvantage by offering a higher rent. A landlord who takes the white tenant at a lower rent anyway pays for discriminating.

But if the government imposes rent controls that keep the rent below the free-market level, the price the landlord pays to discriminate falls, possibly to zero. The rent control does not magically reduce the demand for apartments. Instead, it reduces every potential tenant’s ability to compete by offering more money. The landlord, now unable to receive the full money price, will discriminate in favor of tenants whose personal characteristics—such as age, sex, ethnicity, and religion—he favors. Now the black woman seeking an apartment cannot offset the disadvantage of her skin color by offering to pay a higher rent.

Competition for apartments is not eliminated by rent controls. What changes is the “coinage” of competition. The restriction on private property rights reduces competition based on monetary exchanges for goods and services and increases competition based on personal characteristics. More generally, weakening private property rights increases the role of personal characteristics in inducing sellers to discriminate among competing buyers and buyers to discriminate among sellers.

The two extremes in weakened private property rights are socialism and “commonly owned” resources. Under socialism, government agents—those whom the government assigns—exercise control over resources. The rights of these agents to make decisions about the property they control are highly restricted. People who think they can put the resources to more valuable uses cannot do so by purchasing the rights because the rights are not for sale at any price. Because socialist managers do not gain when the values of the resources they manage increase, and do not lose when the values fall, they have little incentive to heed changes in market-revealed values. The uses of resources are therefore more influenced by the personal characteristics and features of the officials who control them. Consider the socialist manager of a collective farm under the old Soviet communist system. By working every night for one week, he could have made, say, one million rubles of additional profit for the farm by arranging to transport the farm’s wheat to Moscow before it rotted. But because neither the manager nor those who worked on the farm were entitled to keep even a portion of this additional profit, the manager was more likely than the manager of a capitalist farm to go home early and let the crops rot.

Similarly, common ownership of resources—whether in the former Soviet Union or in the United States—gives no one a strong incentive to preserve the resource. A fishery that no one owns, for example, will be overfished. The reason is that a fisherman who throws back small fish to wait until they grow is unlikely to get any benefit from his waiting. Instead, some other fisherman will catch the fish. The same holds true for other common resources whether they be herds of buffalo, oil in the ground, or clean air. All will be overused.

Indeed, a main reason for the spectacular failure of the 1980s and early 1990s economic reforms in the former Soviet Union is that resources were shifted from ownership by government to de facto common ownership. How? By making the Soviet government’s revenues de facto into a common resource. Harvard economist Jeffrey Sachs, who advised the Soviet government, once pointed out that when Soviet managers of socialist enterprises were allowed to open their own businesses but still were left as managers of the government’s businesses, they siphoned out the profits of the government’s business into their private corporations. Thousands of managers doing this caused a large budget deficit for the Soviet government. In this case the resource that no manager had an incentive to conserve was the Soviet government’s revenues. Similarly, improperly set premiums for U.S. deposit insurance gave banks and S&Ls (see savings and loan crisis) an incentive to make excessively risky loans and to treat the deposit insurance fund as a “common” resource.

Private property rights to a resource need not be held by a single person. They can be shared, with each person sharing in a specified fraction of the market value while decisions about uses are made in whatever process the sharing group deems desirable. A major example of such shared property rights is the corporation. In a limited liability corporation, shares are specified and the rights to decide how to use the corporation’s resources are delegated to its management. Each shareholder has the unrestrained right to sell his or her share. Limited liability insulates each shareholder’s wealth from the liabilities of other shareholders, and thereby facilitates anonymous sale and purchase of shares.

In other types of enterprises, especially where each member’s wealth will become uniquely dependent on each other member’s behavior, property rights in the group endeavor are usually salable only if existing members approve of the buyer. This is typical for what are often called joint ventures, “mutuals,” and partnerships.

While more complete property rights are preferable to less complete rights, any system of property rights entails considerable complexity and many issues that are difficult to resolve. If I operate a factory that emits smoke, foul smells, or airborne acids over your land, am I using your land without your permission? This is difficult to answer.

The cost of establishing private property rights—so that I could pay you a mutually agreeable price to pollute your air—may be too high. Air, underground water, and electromagnetic radiation, for example, are expensive to monitor and control. Therefore, a person does not effectively have enforceable private property rights to the quality and condition of some parcel of air. The inability to cost-effectively monitor and police uses of your resources means “your” property rights over “your” land are not as extensive and strong as they are over some other resources such as furniture, shoes, or automobiles. When private property rights are unavailable or too costly to establish and enforce, substitute means of control are sought. Government authority, expressed by government agents, is one very common such means. Hence the creation of environmental laws.

Depending on circumstances, certain actions may be considered invasions of privacy, trespass, or torts. If I seek refuge and safety for my boat at your dock during a sudden severe storm on a lake, have I invaded “your” property rights, or do your rights not include the right to prevent that use? The complexities and varieties of circumstances render impossible a bright-line definition of a person’s set of property rights with respect to resources.

Similarly, the set of resources over which property rights may be held is not well defined and demarcated. Ideas, melodies, and procedures, for example, are almost costless to replicate explicitly (near-zero cost of production) and implicitly (no forsaken other uses of the inputs). As a result, they typically are not protected as private property except for a fixed term of years under a patent or copyright.

Private property rights are not absolute. The rule against the “dead hand,” or perpetuities, is an example. I cannot specify how resources that I own will be used in the indefinitely distant future. Under our legal system, I can specify the use only for a limited number of years after my death or the deaths of currently living people. I cannot insulate a resource’s use from the influence of market values of all future generations. Society recognizes market prices as measures of the relative desirability of resource uses. Only to the extent that rights are salable are those values most fully revealed.

Accompanying and conflicting with the desire to secure private property rights for oneself is the desire to acquire more wealth by “taking” from others. This is done by military conquest and by forcible reallocation of rights to resources (also known as stealing). But such coercion is antithetical to—rather than characteristic of—a system of private property rights. Forcible reallocation means that the existing rights have not been adequately protected.

Private property rights do not conflict with human rights. They are human rights. Private property rights are the rights of humans to use specified goods and to exchange them. Any restraint on private property rights shifts the balance of power from impersonal attributes toward personal attributes and toward behavior that political authorities approve. That is a fundamental reason for preference of a system of strong private property rights: private property rights protect individual liberty.

The Florida Vacation Rental Managers Association (FVRMA) recently sponsored an economic impact study of the financial benefits to the State of Florida provided by the vacation rental industry. The report was created in response to pending legislation which potentially has adverse affects on this sector. However, the report also serves as a template for all counties, regions and states that see gains in revenue and employment from vacation rentals.

According to the Florida Department of Business & Professional Regulation (DBPR), in 2013 there were a total of 120,291 licensed vacation home rental units in Florida.

This study should be of particular interest to industry stakeholders as it represents the first attempt to assess the impact of the vacation rental industry on a statewide basis. It sets the stage for subsequent investigations into the industry’s economic impact on individual counties or regional groupings within the state.

Last year, short-term rentals in Chicago generated $108 million in overall economic activity and created 920 jobs; $24 million in overall economic activity and 300 jobs in St. Joseph

March 13 – In the Lake Michigan hamlet of St. Joseph, Mich. and Chicago—America’s third largest city—residents and local tourism economies are enjoying the enormous economic benefits of short-term rentals, according to two economic studies commissioned by the Short Term Rental Advocacy Center (STRAC).

In Chicago, short-term rentals generated $108 million in overall economic activity in 2013 with $70.6 million of that activity attributable to visitor spending on short-term rentals and related on food, recreation, transportation and other expenses,according to the study by TXP Inc. For every $100 a traveler spent on short-term rentals, they spent an additional $69 on food, $24 on transportation, $59 on shopping, and $48 on arts, entertainment and recreational activities.

The study also found short-term rental activity created 920 local jobs, primarily in restaurants and bars and in the arts, entertainment and recreation sectors. Beyond the $70.6 million in direct and indirect spending on short-term rentals, that activity has a multiplying effect on the local economy in the form of increased wages, which are spent in those local communities.

TXP’s study looked at short-term rental listings of Airbnb, HomeAway and FlipKey in Chicago. Those companies had a combined 171,000 nights booked in Chicago and surrounding Cook County in 2013 across 3,620 properties. While the average visitor stays in Chicago 2.4 nights, short-term renters stayed an average of 4.5 nights and had an average party of 2.5 people. Those figures, coupled with an all-time high hotel revenue and occupancy rate last year, suggest short-term rentals address a different market segment than traditional lodging options.

“Chicago’s hundreds of events, unique attractions, vibrant culture and nightlife attract a range of visitors with diverse interests and budgets,” said Jon Hockenyos, president of TXP and an economist that has conducted dozens and dozens of local economic impact studies. “While the number of short-term rentals pale in comparison to the number of hotel rooms and overall housing stock, short-term rentals provide important variety to visitors and play a key role in the future of Chicago’s future tourism growth.”

St. Joseph

While the Lake Michigan destination of St. Joseph, Mich. has a population of just 8,311 compared to the 2.7 million residents of Chicago, its residents are nonetheless enjoying the benefits of short-term rentals.

According to a separate study conducted by TXP, an Austin, Tex.-based economic analysis firm, St. Joseph and the surrounding Berrien County experienced $24 million in overall economic impact from short-term rentals in 2013. Visitor spending on short-term rentals and related activities amounted to $22.2 million and supported 300 jobs. The higher overall economic impact figure reflects the multiplying effect short-term rental spending in the local economy, namely in the form of increased wages.

“Like in Chicago, short-term rentals in St. Joseph provide much needed diversity to visitor housing options and are key to the continued growth of St. Joseph’s tourism economy,” Hockenyos said.

Short Term Rental Advocacy Center member companies—Airbnb, HomeAway and FlipKey—listed in 695 properties on its sites, leading to 18,000 nights booked last year. This data also revealed that the average short-term rental party size was 5.7 people staying an average of 3.3 nights. Those figures, rising hotel occupancy rates and hotel revenue suggest that short-term rentals and traditional lodging sources are not in conflict with one another.

“Tourism is very important to St. Joseph and Southwestern Michigan. Visitors spend money at restaurants and they shop at our local stores thereby strengthening our local economy,” said Torrence Moore, a local homeowner who is part of a local group advocating for fair and reasonable regulations. Last year, the city passed a restrictive measure to forbid new short-term rentals in residential neighborhoods.

“St. Joseph needs to have an adequate number of housing options to meet the demand from families coming to St. Joseph,” Moore added. “Currently there are only two hotels in downtown St. Joseph, and short-term rentals offer a solution. However, we risk losing the strong economic benefits of short-term rentals and families will choose surrounding towns with good, fair and responsible short-term rental policies. We believe there’s a better solution for regulating short-term rentals in St. Joseph.”

The Short Term Rental Advocacy Center commissioned TXP to assess the economic impacts of short-term rentals attributable to STRAC members’ customers (termed “participating short term rentals” in the reports) in St. Joseph, Mich. and Chicago. The reports capture visitors spending on short-term rentals in those markets, as well as related spending and the broader implications on those economies, but not necessarily all short-term rentals.

About the Short Term Rental Advocacy Center (STRAC):

STRAC was formed in early 2013 by a coalition of short-term rental marketplace stakeholders, working with local residents and short-term rental providers to share information, establish best practices and advance smart short-term rental regulation that safeguards travelers, alleviates neighborhood concerns and provides a framework for ensuring compliance. With 35 local groups across the country, STRAC is facilitating local advocacy efforts aimed at fair and reasonable regulations benefiting all stakeholders. Learn more and sign up for our monthly newsletter at www.stradvocacy.org.

from : http://www.sunshinestatenews.com/story/florida-legislature-hates-regulation-except-vacation-rentals

In the current mood of the regulation-busting Florida Legislature, it’s puzzling — and, frankly, a little disturbing — to see legislation that invites local officials to run all over one of the state’s most robust economic engines.

Two measures, Senate Bill 356 and House Bill 307, basically eliminate a provision in a 2011 law prohibiting local governments from imposing rules and regulations that restrict short-term vacation rentals.

The bills would wipe out their protections. They would allow locals to zone these popular tourist accommodations out of existence if they wanted, literally stripping them of their property rights and opening the door to litigation.

Short-term vacation rentals offered over the Internet and listed by owners can be as much as 50 percent cheaper than hotels. They are growing in popularity. But the numbers of cities trying to curb the trend are growing, too.

SB 356 and HB 307 come just as an economic study of the vacation rental industry has been released. The study concludes that vacation rentals played a critical role in the state’s economic recovery, sheltering more than 17 million tourists during 2013.

Consider that in 2013 they generated a total annual economic impact of $31.1 billion.

Nancy SmithHide

Whatever are we doing messing with a number like that?

Have a look at the report, “Economic Impact: Florida’s Vacation Rental Industry,” prepared for the Florida Vacation Rental Managers Association by a group called Thinkspot.

“The vacation rental industry is a contributor to Florida’s economy whose impact until now has been largely overlooked,” said Dale Brill, founder of Thinkspot, the primary investigator conducting the study.

“Like any business sector competing in a global market, changes to the regulatory environment can have devastating results,” he said. “Regulatory burdens intentionally created by state or local governments negatively impact the full spectrum of job creators who also generate more than one out of every five total taxable sales dollars collected in the Sunshine State.”

The Florida League of Cities supports the bill, and has said, ”Cities mentioned that too little oversight could expose guests to dangerous situations, create unfair competition in the tourism industry, and rob the state and local governments of tax dollars.”

That statement is code for “we want to decide if they stay or go, they hurt our hotel business because they’re cheaper, and we can’t tax them to the hilt like we do businesses.”

Short-term rental properties generally are larger single-family homes popular for family reunions, for people who don’t like structured vacations in hotels or motels and who like to be slightly outside the hustle and bustle of Tourist Attraction Central.

The study integrated expenditure data compiled from more than 11,000 individual rental units in the state with 2012 visitor spending estimates recently published by Visit Florida, the state’s official tourism marketing corporation.

Here’s a breadkdown of the impact of the vacation rental industry, as shown in the study:

— Florida’s vacation rental industry directly or indirectly supports a total of 322,032 jobs in Florida annually.

— The total labor income generated by those 322,032 jobs is approximately $12.64 billion per year.

— The total estimated spending by visitors staying in vacation rental units is $13.43 billion.

— Total owner-management spending across all licensed rental units in Florida is $3.3 billion.

— For owner/managers, “maintenance on existing units” and “services to units” reflect the two largest categories of owner/management spending with $6,465 and $5,516 average annual expenditures, respectively.

It’s idiocy for lawmakers to ignore the central role the vacation rental industry plays in the Florida economy and  instead work to kill the golden goose. Senate Bill 356 is sponsored by John Thrasher, R-St. Augustine; House Bill 307 by Travis Hutson, R-Elkton, and Daphne Campbell, D-Miami.

“It’s hard to imagine why any lawmaker would support a bill that would harm such a vital economic engine,” said Paul Hayes, President of the Florida Vacation Rental Managers Association. “Vacation rentals provide meaningful work for a variety of other industries, including fishing charters, cleaning and maintenance crews, and jobs at local entertainment and dining establishments around the state. It’s mind-boggling that lawmakers would turn their backs on so many hard-working Floridians. ”

Tim Doyle, spokesman for the Short-term Rental Advocacy Center, which works with stakeholders and policymakers to create fair and reasonable short-term rental regulations, told Florida Watchdog regulations on the industry aren’t good for the economy.

Doyle said he wants “fair and reasonable, simple registration systems.” He said that if the legislation is approved, local municipalities will impose onerous rules and exorbitant fees.

Short-term rentals, by driving down the cost of visiting a destination and increasing the supply of accommodations, can boost tourism and contribute millions to the local economy. In Orange County, room-tax collections soared to $15.2 million in July. Okaloosa County got a similar boost and used the windfall to fund tourism and restore its beaches, Doyle said.

Hopefully, Visit Florida will be in every pertinent committee meeting waving the economic impact study and flying the flag for Florida tourism. This legislation is an affront to private property rights and a painful blow to a strengthening state economy.

Reach Nancy Smith at nsmith@sunshinestatenews.com or at 228-282-2423.