Joel Burgess

jburgess@citizen-times.com

ASHEVILLE - When the City Council decided more than a year ago to ramp up enforcement against short-term rentals — also known as vacation rentals or "airbnbs" — people argued over effects on neighborhoods and whether they would hurt local residents looking for housing.

But another part of the debate was about who exactly owns the short-term rentals.

Are they locals scraping by who rent their homes to tourists to pay the mortgage?

Or are they out-of-town corporations buying up swaths of neighborhoods and throwing out long-term renters? Or something in between? Because the practice is illegal in most of Asheville, it's hard to get a good feel for reality.

But an analysis of seven months of city short-term rental investigation records by the Citizen-Times gives a glimpse at who is trying to tap into the tourist economy through the largely underground industry.

The investigations, obtained through a public records request, cover January to July and include 106 incidents involving 95 property owners. In some cases, rentals investigated turned out to be legal, including one where the rental was in the central business zoning district downtown where the practice is allowed.

Other cases were resolved by the owner getting a permit. But some involved multiple violations and the levying of fines. While the list investigations is not a comprehensive look at the short-term rental industry it is one of the best data sets available.

The Citizen-Times analysis comes as a volunteer task force is preparing to give recommendations on Dec. 13 to the council on whether to loosen Asheville's short-term rental ban.

Notable in the analysis was that more than half of short-term rental owners owned multiple properties. Those owners included individuals, corporations and legal formations such as revocable trusts. Most had only one property being used as a short-term rental, according to city records.

On the other hand, more than a third of rental owners had only one property, at least in Buncombe County. In some cases, these owners were renting out a portion of their homes while they stayed there.

A breakdown of findings:

Of 95 property owners on the enforcement list, at least 62 percent were multiple property owners, with other property in or outside the city. In some cases, they owned property outside North Carolina or even outside the continental United States.

Thirty-eight percent of owners had only one property in Asheville and the county and listed it as their home.

Twenty-seven percent were companies, groups or other legal formations. Half of those companies or groups were based out of town in places such as Las Vegas, Houston or Alabama.

Overall, 21 percent of owners, including individuals, corporations and legal formations, did not live in Asheville.

Supporters of the ban on short-term rentals or "STRs" say the figures reinforce the idea that practice is a moneymaker beyond simply being a secondary source of income for homeowners.

"When you have more than one house, there is wealth there, at least some level," said Vice Mayor Gwen Wisler. "The conversation that this is a survival method is a little harder to justify."

City Councilman Cecil Bothwell, a chief advocate for loosening the ban, declined to comment on the new demographic information, but said there were hundreds of short-term rentals, including more than 300 on airbnb.com, estimated to be operating in Asheville.

"It has never proven effective to regulate black markets," Bothwell said.

Instead the city should legalize, regulate and limit the rentals, he said.

From no big deal to enforcement smackdown

The short-term rental ban has been on the books for years, making it illegal to rent for less than 30 days in an area zoned for residential use.

For most of the ban's history there were no dedicated municipal staff and enforcement was complaint-driven, meaning someone had to bring a violation to the attention of the city before anything would be done. Fines were $100 a day and only levied if an owner refused to comply.

But Asheville's popularity as a tourist destination grew and so did the internet-based business of renting out homes through websites such as Airbnb and Vacation Rentals by Owner. By 2014, complaints too had grown. Detractors said the rentals were turning parts of neighborhoods into defacto hotel districts, stripping them of their comfortable feel and at times causing disruptions with parking problems and late-night partying.

Others worried the practice was making it harder and more expensive for locals to find long-term rentals.

Short-term rental advocates pushed back, saying the practice was more lucrative and easier than long-term renting and allowed owners to invest more in the housing stock. That kept up neighborhoods and boosted their value. Many said neighbors didn't know about the rentals or were not bothered by them.

Another key argument was that the practice allowed locals to reap some benefits of the booming tourist economy, the success of which was evident in new hotels springing up around downtown. In some cases, owners said short-term rentals kept them from economic hardship.

By the summer of 2015, airbnb.com had listings that included a house at $550 a night in the Montford area. A three-bedroom house on Town Mountain Road was going for $4,340 a week on vrbo.com. City staff estimated there could be more than 700 short-term rentals in Asheville, most illegal.

On Aug. 25, after growing debate and heated public meetings, the council voted 5-2 to increase fines to $500 and to hire a full-time enforcement officer. The situation mirrored fights in other popular tourist destinations around the country and world, including San Francisco, New Orleans and Berlin, Germany.

In a sign of what was at stake, the San Francisco-based Airbnb hired lobbyists to meet with council members and a group of rental owners brought a lawsuit against the city that was eventually dropped with the hope that restrictions would relax after the task force recommendations in December.

Political winds changed with the November 2015 election. Two new council members were swept in having been buoyed by voters wanting the ban loosened. In a compromise, the new council voted to make it easier for people to rent up to two rooms in their homes on a short-term basis, something called a "homestay."

The difference is that the full-time resident has to be staying at the house when there are paying guests, so that renters share the home with the resident. Residents hosting homestays have to get a city permit.

The council also formed the task force to look at allowing short-term rentals in backyard cottages, attached apartments or other so-called accessory dwelling units.

Enforcement spending, meanwhile, has climbed from practically nothing in 2014 to $121,000 this year, even with the new anti-ban council members. The spending covers a full-time and a part-time employee and a contract with a digital rental search service. Despite the stepped-up enforcement, those cited for violations are given 30 days to comply before fines are levied.

Keeping their heads down

Throughout the debate, some owners told council members the rentals were the only way they could own a home in the increasingly expensive city, while rental opponents warned of out-of-town profiteers stripping Asheville of its character. But clear demographic information was tough to get. Increasing enforcement made it tougher with new internet advertisements concealing owners or exact locations, said city enforcement officer Shannon Morgan.

"We run into a problem of finding these properties because they don’t list any addresses and they are moving away from showing the outside of the house," he said.

"What I can tell you for sure is it’s not slowing down. It’s a very profitable thing for people to do. And people feel the risk is worth it."

With more enforcement has come more information about owners. Using the list of investigations of 95 rental owners plus government property records and state incorporation data banks, the Citizen-Times was able to learn more about owners, including that the majority on the list, 59, owned multiple properties.

Those ranged from owners with more than a half-dozen properties in and outside Asheville to an owner with two properties on small side-by-side lots.

In another, but overlapping category 26 of the 95 owners were not individuals or couples, but instead corporations, groups or other legal formations. Thirteen of those were based outside Asheville.

Some examples of the different categories:

Parkway Court LLC that had three listed STRs in units at 28 Maxwell St. just north of downtown. That property was worth $206,900, according to tax records. Another property at 32 Maxwell was listed under the LLC whose registered agent was listed by the state at Reid Thompson.

An STR at 98 Ora St. in the Southside neighborhood was owned by ZLP LLC in Las Vegas, Nevada. The home and property are worth $209,300. The corporation's managing agents were Zohar and Loren Lahav of Las Vegas.

Kristine Macken and Lisa Schmid of St. Thomas in the U.S. Virgin Islands owned 3 Von Ruck Court at the base of Town Mountain in North Asheville. The home is valued at $249,400. Macken owns two properties in the Virgin Islands, according to that territory's GIS records.

A real estate investment

The property owner with the most properties on the city enforcement list was an out-of-town company run by a Brevard realtor.

Pete Kuehne, who owned some properties under his name and some under Kuehne Holdings, LLC, said he had seven Asheville short-term rentals at one time, including a home at 24 Wanoca Ave. in Oakley now valued at $250,000. Kuehne, said he bought the properties in 2009 but after enforcement actions decided to sell some.

"I invested in Asheville because I thought it was a good place to put my retirement money and I started out with my properties being long-term rentals. But that didn’t work out very well," he said. "I had problems with people who didn’t pay their rent. And had problems with properties being damaged."

The short-term rentals brought in more money and people treated the houses better, he said. He was able to put money into maintenance and improvements, something that is important, he said, since potential customers are swayed by past renter reviews. He also had three to four people working part-time managing and cleaning the homes, he said. Kuehne declined to give an estimate of the payroll. Because the homes were vacant much of the time it cut down on parking problems, he said.

Kuehne said he made a point paying the hotel occupancy tax, even though the rentals weren't officially recognized.

After the enforcement actions, Kuehne has turned his remaining homes into long-term rentals or medium-term rentals where people can stay for 30 days or more. That's in part because the long-term market has gotten so much better, allowing him to rent for $1,500 and higher a month, he said.

Still, he said the city should ease the ban and switch back to complaint-driven enforcement. Kuehne said he doesn't buy the argument that short-term rentals are hurting the housing market for locals, since his homes would be too expensive for those most in need. He also thinks it's the hotel industry that's influencing the city to crack down.

If enforcement was eased, the market would serve as a regulator, he said, and keep there from being too many of the rentals, since a large supply would depress prices.

At this point, Kuehne said he "won't invest another penny in Asheville."

"There’s no reason to penalize people for working hard and trying to make money."

Wringing money from a home

There were 36 people with only one property listed in Asheville and whose home address was listed at that property. Home values ranged from $103,700 for a 640-square-foot house in East West Asheville to $592,200 for a 5,193-square-foot home near the Grove Park Inn in North Asheville.

The average property price on the list was $244,171. It's not clear how much owners were charging tourists staying there.

The single owners were hard to reach and reluctant to comment.

One owner, who has a home valued at $149,000 in Kenilworth said his experience with the city made him not want to talk.

Another owner interviewed Tuesday said she was out of the country, but does only own one property that she rented on a short-term basis until being caught by the city recently. She asked that her name not be used.

One who would speak was Angela Cunningham, an artist who bought her first home in 2015 on Brucemont Circle north of West Asheville's hip main drag of Haywood Road.

Cunningham, a 39-year-old painter, said she was scraping to get by when she was renting. She bought the 720-square-foot home with the intention of renting out part of it short-term.

"That was one of the big things I was looking for in order to afford my home was a place where I could run an airbnb," she said.

The situation allowed her to pay her monthly mortgage of nearly $900, paint in her home studio and rent out her small upstairs, she said. Plus, she said she enjoys meeting the tourists who stay with her and telling them about Asheville.

Cunningham said she didn't know the city rules about short-term rentals until she was contacted by a city enforcement officer. Luckily, what she was doing met the definition of a homestay, so to become legal she only had to purchase a permit and add more smoke alarms.

"If they were to take this away from me, I'd be really struggling," she said.

How to regulate?

City officials say state law doesn't allow them to be very nimble with regulation. The state forbids regulating according to number of properties owned, value of the property or location of the owner, so rules have to be the same for all. There could be some flexibility, though, if the city treated each short-term rental as a rezoning request, some have argued, including attorney Derek Allen who headed up the owner lawsuit.

Others who want to lift the ban, such as Bothwell, say regulating and limiting short-term rentals could avoid big problems while helping small property owners. It would also get the city out of the business of enforcing a rule that people will continue to break, the councilman said.

"If we were to create a licensing program, as we now have for homestays, we would get a handle on the situation," he said. That would let the city put a cap on the number of licenses and how long people can have them, he said.

"We could inspect and require insurance as well as notification of neighbors and provision of 24/7 contact information for the operators."

But ban proponents, such as Wisler say because the city made it easier to do homestays that should help people who really need the extra money. Homestays avoid some of the problems opponents have associated with short-term rentals, the vice mayor said.

"I feel like that does help to address problems for people who really need the cash flow to just stay in their home."

As for the housing shortage, council members such as Gordon Smith say it's affecting differently priced rentals, not just the cheapest.

Smith said the hotel industry has had no effect on his stance.

"I don't know what hoteliers want," he said.

Relations in general between the council and hoteliers have been strained. The council has tried with little success to wrest some of the hotel tax from the Buncombe County Tourism Development Authority, which is made up mostly of hotel and lodging owners and managers. The council wants to dedicate some of the annual $18 million for basic city services.

Years ago the authority held a forum on the short-term rental issue, but quickly bowed out of the argument and voted to take no official stance, said authority Executive Director Stephanie Brown.

Smith said he supports the ban because he wants homes to go to locals and for people not to "exploit our neighborhoods to create housing for tourists"

The councilman said he hopes current and former short-term rental owners will turn the homes into places for locals, something that he said the economy will now reward

"We have the hottest rental housing market in North Carolina."



