Regulating the Use of ADUs for Short-Term Rentals

1. If desired, create a local definition of short-term rental. HB24-1152 includes a definition of the term: “‘Short-Term Rental’ means the rental of a lodging unit for less than thirty days.” However, local jurisdictions are allowed to apply their own definition. 
2. Identify the policy goal(s) for your community. Assess what the needs are in your community to ensure your policy is responsive to existing concerns. For instance, if yours is a resort community, goals may include preserving housing for the local workforce and reducing neighborhood impacts caused by a concentration of STRs. However, if wealth building is a goal, allowing STRs to some degree or for a limited time may be helpful.
3. Document the prevalence of STRs. An initial review of STR listings on platforms like Airbnb, Vrbo, and Booking.com can provide a quick overview of the listings in your community. Websites like Inside Airbnb can also be used to provide data in some cities. Your building enforcement and public safety departments might also have data related to complaints. Consider the number of listings compared to the overall number of available units in your community. Also consider the number of formal lodging units in and near your community and vacancy rates. 
4. Evaluate the impact of STRs on the local housing supply and affordability. If possible, document the number of STRs over time as well as the types of units being listed, their price points, and where they are located. How does the monthly income from an STR compare to typical rental prices (accounting for reasonable vacancy assumptions)? Is there any evidence that rents or home prices are increasing in the areas where STRs are most prevalent? Is there evidence that landlords are converting long-term rentals or owner-occupied homes to STRs? Discussions with local realtors, homeowner associations, and tenant associations can shed light on the potential impact that STRs are having on long-term rentals and neighborhoods.
5. Consider the current and potential role of ADUs as STRs. Hone in on the use of ADUs as STRs in your community as a specific type of rental opportunity. Are STRs more common in the areas where ADUs are clustered or where the development of new ADUs is more feasible? Is it more common for an ADU to be used as an STR than other housing types? Understanding the specific characteristics of ADUs as both short-term and long-term rentals can help ensure that local policies are tailored to the problem they are aiming to solve.
6. Consider the experience in other communities. Look at examples of STR regulations in other communities that share similar characteristics to your local housing situation. Consider how the regulations apply to all housing types as well as to ADUs. Interview staff from those communities to understand how well the policies are working to achieve stated goals as well as challenges and any lessons learned.
7. Engage ADU owners and the broader community. Present the data and information about the prevalence and use of STRs in the community, the impact they have on the local supply of housing as well as affordability. Provide an overview of potential responses based on the experiences in other communities. Use the engagement process to clarify policy goals, evaluate options (including required staffing and resources for implementation and enforcement), and consider potential unintended consequences and how they might be mitigated. Ensure that the engagement process hears from homeowners, renters, housing advocates, local businesses, and tourism professionals.
8. Evaluate and enact tailored measures. Use the list below as a starting point for considering potential measures that could be adopted to achieve your stated policy goals without impeding the creation of new ADUs. Potential policy responses can include but are not limited to:
   • Higher taxes or fees on all STRs (not just ADUs) to support affordable housing initiatives
   • Caps on STR licenses, which can vary by area, or prohibitions in certain areas
   • Limits on the number of nights a unit can be used as an STR or the amount of space that can be used as an STR (though this can be challenging to enforce)
   • Requirements for owner occupancy of properties with STRs to prevent full-time conversions (which, in the case of ADUs, could apply to the primary residence or ADU)
   • Stronger enforcement of existing regulations (with STR fees covering enforcement costs)
9. Enforce and monitor your program. Ensure the policy adoption process includes workable mechanisms for enforcement and monitoring, and conduct an annual review to evaluate whether the policy is achieving its stated goals as well as to identify and address any enforcement issues.

ADUs are singled out for STR regulation rather than housing units as a whole. 

• It is common for neighbors to hone in on ADUs as a path toward increasing STRs and to express concerns, but ADUs should be treated as just one housing type among many in the regulation of STRs. A prohibition on ADUs as STRs while allowing every other home on a street to be an STR is unlikely to achieve the goals listed above. ADUs are a strategy for adding to the local housing supply. Regulations should address STR impacts on housing generally, with ADU-specific regulations being just one part of a larger policy strategy.

STR regulations can be difficult to enforce.

• The design and adoption of STR regulations must include a workable enforcement mechanism, with clarity about the processes, systems, staffing, and budget that will be needed to ensure that the adopted policies are being followed.

Enforcement of STR regulations often rely on complaints, which can lead to inconsistent application of the law. 

• Many aspects of local enforcement are carried out on a complaint basis. To ensure fairness, an STR enforcement strategy should be proactive and applied consistently. While complaints might be one way in which program infractions are brought to light, they should not be the only way.

• Sheridan: The City’s ADU ordinance allows properties with an accessory dwelling unit to be granted one short-term rental license, in accordance with the City’s home-based business regulations. The license can apply to either the accessory dwelling unit or the single-family dwelling, but not both, and the property owner must reside in one of the units.
• Wheat Ridge: ADUs cannot be used as "whole home" short-term rentals STRs but may be operated as "partial home" STRs, as long as the property owner lives onsite. A short-term rental license is required for a partial home STR in an ADU, and applicants must verify that they continuously reside in one of the dwellings.
• Longmont: ADUs are not permitted to operate as short-term rentals, except in Planned Unit Developments like Prospect and Riverside at Mill Village, where the site plan specifically allows for such use.
• Grand Junction: See the Grand Junction case study for more details.
  In 2023, City Council adopted an ADU production program with fee waivers and incentives up to $15,000. In exchange, the property owner agrees to not use the ADU for short term rentals for seven years. In order to get the extra incentive the owner must make less than 140% of AMI.
  

• Allowing Multiple ADUs on the Same Lot: If allowing multiple ADUs on one lot, consider if those need to be regulated for short-term rentals differently. Neighbors may be less supportive of multiple ADUs if both are rented short-term. 
• Incentivizing Affordable ADU Rentals: Homeowners unable to use their ADU as a short-term rental may be more likely to consider participation in a program providing incentives to rent their ADU to specific populations. (Conversely, allowing potentially quite lucrative short-term rentals of ADUs may limit participation in this program.)
• ADU Technical Assistance for Homeowners: It is vital to be clear about the requirements and consequences of your Short-Term Rental Regulation so ADU owners know their opportunities and restrictions before they get too far in the planning and development process. 
• Waiving or Reducing ADU-related fees for Low- and Moderate-Income Households
  Waiving or Reducing ADU-Related Fees for All Applicants: See these strategies for details on fee waiver/reduction mechanisms that could also be used as incentives for short-term rental regulation programs.