Jerri Locke converted a garage to a tiny house in her backyard after her elderly parents both got sick at the same time.
She built it to be wheelchair accessible and with details perfect for them to live comfortably. But then their health improved, so she put the place up for short-term rental on Airbnb. Most of her tenants are business travelers, she says. Once, two young women rented it and came home so drunk at night that they couldn’t find the back house. But in two years, that’s the worst problem she’s had with renters.
A greater obstacle is the City of Dallas.
When she opened the Airbnb, she was sure she was following regulations. The app automatically takes out Texas sales tax and requires virtually no bookkeeping on the part of the host.
But in 2019 the City realized it wasn’t collecting its 7% hotel occupancy tax from short-term rentals. Locke and other hosts on sites like Airbnb, Homeaway and VRBO began receiving bills from a company the City hired to collect back taxes.
Between November and February, the City collected $245,000 in delinquent hotel occupancy taxes from short-term rental hosts; the tax goes to Visit Dallas, the City’s convention and visitor’s bureau. It’s unclear how the City is calculating back taxes on rentals that have in some cases been operating for years.
Going forward, the City requires Airbnb hosts to pay quarterly taxes by check, rather than allowing rental apps to collect the tax, as the State of Texas and other municipalities do. The City of Dallas Controller’s Office didn’t respond to questions submitted to the Public Information Office.
Some owners, including Locke, are throwing up their hands. “It’s complicated, and it had been so easy,” Locke says. “I’m probably going to quit.”
A City Council committee recently formed a task force to investigate how the City should regulate short-term rentals. Currently all that’s required to run an Airbnb in Dallas is to register it and pay the hotel occupancy tax.
Complaints of “nuisance” rentals, where absentee hosts allow partiers to take over properties in otherwise quiet neighborhoods, prompted City Council members to take action.
But in a hearing in February, some argued that the City already has ordinances about noise, overcrowding and other complaints that neighbors have about short-term rentals. Calling 911 for noise or 311 for code complaints ought to take care of it, but neighbors say that’s not enough.
“It’s complicated, and it had been so easy.”
Short-term rentals are proving difficult for cities to regulate. In 2016, the City of Austin imposed strict rules for short-term rentals, including a ban on short-term rentals where the owner doesn’t live onsite.
But a Texas appeals court ruled last year that Austin’s rules on short-term rentals are unconstitutional and struck them down.
It’s not just individuals who are operating short-term rentals. Corporations also are getting into the game. San Francisco-based Sonder, whose backers include Amazon founder Jeff Bezos, recently entered the Dallas market. The company has plans to rent an entire 27-story apartment building in Uptown and run all 270 units as short-term rentals for 10 years.
Small businesses also find extra revenue through short-term rentals.
AJ Vagabonds, a camping and outdoors boutique in the Bishop Arts District, has a tiny apartment above its shop.
“The only way we could make it pencil out financially was to create an additional revenue stream,” AJ Vagabonds owner Jason Roberts says.
“Airbnb helps you offset some costs. It allows us to make payroll and cover our rent.”
Bishop Arts landlord David Spence, who owns residential and commercial buildings, says he figures that a short-term rental can earn as much as twice the revenue of a one-year lease. One of his buildings, Emporium Pies, also has a tiny attic apartment. But he rents it to a long-term tenant because operating an inn — marketing it, cleaning it and washing the sheets — is too much trouble, he says.
“We’re supporting a lot of businesses.”
Roberts says small-time Airbnb hosts make a big impact on Dallas tourism. “I can go to any Marriott in any city and get the exact same pour-your-own waffle and do the generic type of chain shopping,” he says.
But staying in short-term rentals allows guests to get into neighborhoods, have a unique experience and shop local. Locke and other Airbnb hosts say they steer their guests to their favorite neighborhood restaurants, shops and services. “We’re supporting a lot of businesses,” while earning extra income, she says.
By the time her two daughters finished high school, she was still paying off debt she incurred adopting them from China and had nothing saved for their college. The Airbnb helped her put one of them through school at Southwestern University. “I couldn’t have done that otherwise,” she says.