August 19, 2022

The Nerve

Where Government Gets Exposed

Property rights at center of battles over short-term rentals

By RICK BRUNDRETT

Editor’s Note: The Nerve today is featuring the first of two initial stories on short-term rentals in South Carolina.

With South Carolina’s tourism season in full swing, many summer visitors are looking for short-term rentals through popular sites such as Airbnb and Vrbo.

As of May, there were 41,715 Airbnb or Vrbo available rentals in South Carolina, a 17% increase over the previous year and a 27% jump from May 2019, according to information provided to The Nerve by AirDNA, which tracks short-term rentals worldwide.

But the growing popularity of short-term rentals (STRs) in the Palmetto State hasn’t been a welcome trend in some S.C. municipalities. Across the state, local governments have adopted or are considering ordinances that critics contend severely restrict or effectively ban STRs in residential areas.

The capital city of Columbia, for example, has proposed an effective ban on most STRs in residential areas, while the town of Mount Pleasant, which already imposes an annual cap on the number of STRs, is considering other restrictions.

“Honest and hardworking hosts, like the ones in this room, they’re going to be forced out of those cities,” David Bergmann, co-owner of a Columbia STR property-management company known as Heartwood Furnished Homes, warned Columbia officials at an April hearing. “And the bad actors who are willing to operate illegally have stepped up to meet demand in those cities.”

The South Carolina Policy Council – The Nerve’s parent organization – has identified at least 11 municipalities that have existing or proposed STR ordinances: Charleston, Columbia, Folly Beach, Greenville, Hilton Head, Mauldin, Mount Pleasant, North Charleston, Rock Hill, Spartanburg and Travelers Rest.

Asked for its position on STR regulations, Scott Slatton, spokesman for the Municipal Association of South Carolina, told The Nerve in a written statement last month, “The Municipal Association supports the efforts of local elected officials to balance residents’ demands to minimize the effects of STRs on their neighborhoods, protect the property rights of residents and STR owners/operators, and ensure the safety of renters of STRs,” adding the association “assists all cities and towns who seek guidance on any matter, including STR regulations.”

State Rep. Lee Hewitt, R-Georgetown, doesn’t believe municipalities or counties should ban STRs. He was the main sponsor of a bill this year that was aimed at prohibiting the practice.

“It’s an attack on private property rights,” Hewitt told The Nerve when contacted recently, contending that complete bans potentially are “discriminatory.”

Although his bill didn’t get out of committee, Hewitt said he plans to reintroduce it in next year’s legislative session, adding it moved further along this year as an approved House amendment to separate legislation.

Hewitt said had his bill passed, local governments that adopted bans could no longer collect property taxes on investor-owned STR homes based on a 6% assessment rate, but instead would receive taxes based on the owner-occupied rate of 4%.

“If you’re going to attack private property rights, then you need to look at that property and say, ‘OK, in the scheme of things, here’s how you’re being taxed,’” he said. “You’re a house just like the house next door, so we’re going to treat you just like the house next door.”

In addition to lowering property assessment rates if bans were enacted, the bill also would have stopped state payments to those municipalities or counties from the Local Government Fund.

Hewitt, the broker-in-charge of sales at Garden City Realty, which also manages vacation rentals, said besides paying property taxes, STR owners benefit their communities in other ways, noting that guests typically eat and shop locally, bolstering employment there while paying hospitality and sales taxes.

He questioned, for example, why the coastal town of Mount Pleasant is considering more STR restrictions – which he contended would reduce local tax revenues – while asking voters this November to approve a property tax hike to fund park and recreation projects.

“These cities and towns (that ban STRs) are screaming at the state, ‘We need more money,” Hewitt said. “Well, all they’re doing is hurting the state, cutting revenues to the state; and they’re also hurting their communities.”

Asked about Hewitt’s bill, Patrick Gleason, vice president of state affairs with the Washington, D.C.-based Americans for Tax Reform, said in a written statement to The Nerve that the legislation is a “great way for state lawmakers to prevent cities and counties from trampling the property rights of South Carolinians.”

Designed to ‘keep out people

A property rights attorney told The Nerve that South Carolina’s existing or proposed STR ordinances could result in court challenges depending on the types of restrictions.

“Any time you’re erecting a barrier to the exercise of property rights, there are going to be constitutional implications in enacting that policy,” said Ari Bargil, a lawyer with the Virginia-based Institute for Justice.

Bargil represented a Wilmington, N.C., couple who sued the city after it instituted a “lottery” system for STR owners, preventing them from continuing to rent their vacation property if they weren’t selected in a given year. In April, the N.C. Court of Appeals ruled that the city’s STR ordinance violated that state’s constitution.

Asked about the legality of Columbia’s proposed ordinance and Charleston’s existing law aimed at banning investor-owned STRs in residential areas, Bargil replied, “I see that as an attack on short-term rentals as such,” adding, “Unless there is a rational reason for that, it may well be unconstitutional under the South Carolina Constitution.”

Bargil also questioned the constitutionality of annual caps imposed by S.C. municipalities on the total number of allowed STRs. In addition, he said local governments could face legal challenges if they violate the “vested rights” doctrine – a main issue in the Wilmington, N.C., case – by banning or severely restricting STRs even though the affected property owners legally rented their houses before the bans or restrictions took effect.

And how should local governments deal with noise, trash or traffic issues at STRs? Bargil said most places have separate ordinances to address that, adding, “As long as they enforce them, then there shouldn’t be problems.”

Bargil said he sees restrictions on short-term rentals increasing nationwide in part because local governments want to blame large STR companies like Airbnb or Vrbo for their own failings to increase the housing supply in their communities in response to rising housing costs.

“This is a traditional supply-and-demand problem,” he said. “I think governments recognize this, but nevertheless it’s easier to point the finger at large corporate actors and say, ‘They’re the ones to blame, not us.’ And that’s why we see a lot of these ordinances.”

“What they’re really trying to do is keep out people and make them feel uncomfortable,” he added.

In the end, Bargil said municipalities must balance the “legitimate interests of the community” with the property rights of STR owners.

“No person has a right to rent a property and use it in a way that disrupts the enjoyment of those around them,” he said, though he warned, “Some of the things local governments are doing in response to short-term rentals toes the line of what might exceed the limitations on their powers.”

“This is something government has been doing for a really long time,” Bargil said.

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-3948273 or rick@thenerve.org. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.

Nerve stories are free to reprint and repost with permission by and credit to The Nerve.

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