As Airbnb Scene Thrives, Hotels Want Regulation

Jul 4, 2018

Kevin Lewis inside his Bloomington bungalow on Locust Street. It was built in 1915 in Bloomington's then-Eastern edge neighborhood, now known as the Old East Side Historic District.
Credit Ryan Denham / WGLT

A semipro baseball team. A band performing at the Castle Theatre. A mom visiting to watch her son play college football. A family reunion. An author writing a book about historic Route 66.

They’ve all stayed at Kevin Lewis’ house—one of the top Airbnb destinations in Bloomington-Normal. Lewis turned his 103-year-old bungalow on Locust Street into a short-term rental property, first as a way to make some extra money during a financial slump. Almost two years later, he’s still doing it.

“Financially, I don’t need to do it anymore. Now I do it because I like it. I’m a schmoozer and a people person anyway,” Lewis said. “I’ve become good friends with (my guests).”

In bigger cities and vacation destinations, Airbnb is now just part of the vernacular. Ten years after launching in San Francisco, Airbnb has survived horror stories and big-city regulation to emerge as a poster child for the sharing economy, a go-to choice for travelers looking for a homey place to stay.

Lewis is part of Bloomington-Normal’s nascent Airbnb scene, which now has dozens of regular listings. While cities like Chicago began tackling Airbnb regulation years ago, downstate markets like Bloomington-Normal and Champaign are only reaching that point now.

On one side are traditional Bloomington-Normal hotels, many of which are struggling with low occupancies and see Airbnb hosts as unfair competition because they don’t pay the same local hotel taxes or abide by the same guest-safety rules. On the other side are Airbnb’s loyal guests and hosts who say home-based, short-term rentals meet a consumer need that hotels simply can’t replicate.

Caught in the middle are local governments like Bloomington and Normal, which have seen flattening (or falling) tax revenue and consider Airbnb as a one potential way of re-filling the coffers.

The Bloomington-Normal Hotel and Lodging Association has asked the Bloomington and Normal councils to take “swift” action on Airbnb regulation. Normal City Manager Pam Reece said city staff is researching the issue. Bloomington Mayor Tari Renner said he too is interested in the issue.

“This is an issue that demonstrates how technology has driven a market faster than we can react to it,” Reece said. “We’re willing to look at the topic and figure out what solutions we could potentially come up with for the problems associated with short-term rentals and their impact, but there’s no easy solutions.”

Lewis welcomed his first Airbnb guest at his Bloomington bungalow in November 2016. So was it weird that first time, having some stranger stay at his house?

“Yeah, it was a little different, because you’re opening up your home to people you don’t know. But I’ve had over 250 reservations completed, and I’ve yet—ever—to have an issue with any of my guests. They ’ve always just been beyond reproach. Full of integrity. It’s been a very rewarding experience.”

To be safe, Lewis added a new rider to his State Farm homeowners’ insurance—a product the Bloomington-based company recently began offering—on top of Airbnb’s coverage.

Local Governments React

Lewis objects to claims by hotel operators that Airbnb doesn’t pay its fair share in taxes. Indeed, Airbnb does collect and remit state hotel taxes for Illinois bookings, although the Illinois Department of Revenue declined to reveal how much, citing taxpayer confidentiality laws. An Airbnb spokesperson said Tuesday the amount was $9.3 million last year.

The concern, hotel operators say, is that Airbnb doesn’t pay local hotel taxes—separate from the state hotel tax. Bloomington and Normal city governments collect that 6 percent hotel tax, a portion of which goes to the Bloomington-Normal Area Convention and Visitors Bureau. Bloomington collects $1.6 million in local hotel taxes annually; Normal collects $1.3 million.

More and more municipalities are considering short-term rental regulations because of the revenue opportunity and potential guest-safety concerns, said Marc Gordon, president and CEO of the Illinois Hotel and Lodging Association. His organization has lobbied for regulations.

“We’re fine with competing. But what we don’t like is government giving them a free pass by not collecting the full amount of hotel tax and basically not regulating them,” Gordon said.

Renner said short-term rental regulation was a hot topic at the recent U.S. Conference of Mayors meeting he attended in Boston. But there’s not yet a good “model ordinance” being used in another city that would inform Bloomington’s efforts, he said. Chicago’s 2-year-old attempt at regulation has been “plagued by legal challenges, delays, and uneven enforcement,” the Chicago Tribune reported.

“It is something we’re going to talk about, whether or not it makes sense to implement the hotel/motel tax and make it more of a lodging tax so it does apply to short-term rentals,” said Reece.

Some Airbnb guests and hosts are open to some limited regulation, but not more taxes.

“Beyond (taxes), if they want to regulate it, I’m fine with that,” said Lewis. “Being a superhost, it’s pretty evident the services I provide—the amenities, the location, the condition of my home—exceed peoples’ expectations, so I wouldn’t have any issues with that.”

Champaign’s Airbnb market is more mature, typically with four to five times more listings than Bloomington-Normal. Yet even with more properties, Champaign has only received a few citizen complaints related to them.

“It’s my understanding we have a lively scene, but it’s not overwhelming,” said Ben LeRoy, associate planner for the City of Champaign’s Planning and Development Department. “We have not been either flooded with angry complaints from neighbors nor have we been besieged by a bunch of people asking, ‘Do you license this? What do we need to do to be an Airbnb?’”

Champaign city staff is exploring options for licensing, regulating, and possibly taxing short-term residential units, with plans to bring a “menu of options” to the city council, he said.

"We're fine with competing. But what we don't like is government giving them a free pass."

Collecting local hotel taxes is doable, he said, but it may be burdensome on staff resources. They could also try to work out a tax-remittance agreement with Airbnb—like the state did—although that’s a less transparent option, he said. Another option is to not collect the taxes at all, he said.

“There are trade-offs there, and it’s our job as staff to dig into those trade-offs and present them to the city council. And it’s the council’s job to decide which makes the most sense,” LeRoy said.

One reason municipalities are slow to enact restrictions is that any monitoring or inspection regimen “would be a nightmare” because there are so many AirBnb listings, said Peter Tomaras, a veteran of the Champaign-Urbana and statewide hotel scenes who now works as a consultant.

“Even though municipalities everywhere are looking at it, they’re just not getting around to doing anything about it,” said Tomaras.

The Airbnb issue is similar to one faced by Bloomington and Normal governments in 2015 when they began regulating ride-sharing businesses like Uber and Lyft. They created an annual fee for a so-called “transportation network company” (TNC) license, allowing TNCs to do their own background checks and vehicle safety inspections.

Now is the time to enact regulation, said Ray Ceresa, president of the Bloomington-Normal Hotel and Lodging Association.

“Sixty Airbnb listings? That’s 60 hotel rooms. They’re taking away 60 hotel rooms from us,” Ceresa said recently on WGLT’s Sound Ideas. “We know Airbnb is not going away, just like Uber and Lyft aren’t going away. We recognize that. All we ask is they play by the same rules as the hotels do.”

“It’s already out of control in Champaign-Urbana. We need to act upon it now before it gets out of control and it’s like, ‘What do we do now? There’s way too many of them.’”

Hotel vs. Airbnb Experience

Steve Heissler of Normal said comparing his ranch-style home to a hotel is apples-to-oranges.

Heissler and his wife, Cathy, travel a lot, so they rent out their house six to eight months out of the year. They don’t accept any one-night bookings or corporate visitors via State Farm or Country Financial. They want out-of-town travelers who stay at least two nights.

“I was blown away by (the demand). It was very successful from Day 1,” said Heissler during a phone interview from an Airbnb at the base of Mount Rainer in Washington state.

Why do Bloomington-Normal visitors choose Airbnb when there’s a glut of hotel rooms that are getting cheaper and cheaper?

“I’m offering something that their traditional hospitality is not offering,” said Heissler, referring to his dog-friendly home with a fenced-in yard. Some people want a full kitchen or space for multiple guests.

“Not that (hotels) couldn’t. But they’re not willing or not creative enough. I’m offering something to the community that a lot of people aren’t,” said Heissler, who said he’s open to local governments creating a registry of short-term rental properties with a small licensing fee.

Bloomington-Normal hotels are struggling with low occupancy rates, which were at a “dismal” 44 percent this spring, according to Ceresa, who is also general manager at the DoubleTree Hotel in Bloomington. He said short-term rentals like Airbnb were one of the reasons.

Rachel Iversen of Bloomington disputes that. She rents out her home up to five days a month and uses Airbnb as a guest twice a year. It’s cheaper to travel, she said, and she likes how her hosts become a built-in guide for her trip.

“Airbnb has a culture. It takes a certain type of person to open their house to strangers. I really enjoy getting to meet people through the experience of staying in their house,” Iversen said.

A bigger reason for low occupancy rates, she said, is all the new hotels that have opened up in the past several years, such as the Hyatt Place in Uptown Normal and the Radisson in north Normal.

“It’s not the same people staying in hotels that are staying in Airbnbs. I know it does impact them somewhat, but not nearly in any significantly way. Especially in a smaller area like Bloomington-Normal. There are a lot of other reasons why hotel-occupancy rates are so low. They just seem to want to throw Airbnb under the bus,” Iversen said.