*This letter from The Chamber, CHALT, local hoteliers, and a former Mayor of Chapel Hill was emailed to the Chapel Hill Town Council on Tuesday, May 18, 2021 expressing support for the draft short-term rental (STR) ordinance with three caveats. 

Dear Chapel Hill Town Council,

Thank you for your leadership and hard work in developing a framework for regulating short-term rentals (STRs) - an important and complicated emerging business phenomenon. 

The final ordinance will provide a much-needed framework to get STR operators out of the shadows, give them a clear and proper path to permit for their commercial activity, and help them operate safely in appropriate, allowable zones.

As you know, our study group, including The Chamber, CHALT, local hoteliers, and a former mayor, have put a great deal of time and reflection into the matter. We believe there are many positive elements in the version of the ordinance before you, and there are some areas that require strengthening. 

In our view, the current version of the ordinance would be suitable for adoption with the following three changes: 

1) Prohibit Dedicated STRs in all Residential Zones, including the R4, R5, and R6 zones and the town’s historic districts. 

Running an STR is fundamentally a business activity--an activity that involves the provision of lodging to transients in exchange for payment-- and should be treated and regulated as such. That said, there are differences between renting a room out of a house with a permanent resident (“Primary STR”) and the buying of investment properties to operate exclusively as pseudo-hotels in residential neighborhoods (a.k.a. investor-owned STRs or “Dedicated STR”).

As the regulatory process has unfolded, council has expressed stronger and stronger concern about the appropriateness of Dedicated STRs, a high-turnover commercial activity, in residential zones. To that end, council charged staff in March 2021 to draft an ordinance that prohibits Dedicated STRs in residential zones, which was reflected in earlier drafts. The current version, however, permits Dedicated STRs in the R4, R5, R6 districts, as well as in the Historic Districts. The R4, R5, and R6 districts allow for higher density than single-family districts and permit a greater variety of housing types, such as townhouses and condominiums. These units provide homeownership and long-term rental opportunities for a broader range of households, and such units shouldn’t be directed into the Dedicated STR market.

We highly recommend you follow the lead of other university communities, including Berkeley, Boulder, Charlottesville, Lawrence, Madison, and Nashville, and prohibit Dedicated STRs in all residential zones.

2) Raise Minimum Rental Age and Prohibit Special Events. 

The current draft of the ordinance sets a minimum rental age of a primary STR renter at 18, down from age 21 in prior drafts. We recommend setting the minimum rental age at 21, so as to foster a level of maturity consistent with a neighborhood’s residential character. To the same end, we recommend reinstating the draft language that would prohibit STRs from being used as the sites of parties and other “special events.”

3) Include Notification Requirements. 

The current draft ordinance removes the previously included requirement that, at the time of application, neighboring property owners located with 100 feet of an intended short-term rental lot receive notification containing the address of the proposed STR property and the name and contact information of the designated responsible party. Knowing where STRs exist in a neighborhood and who to contact in the case of a problem will help to reduce potential conflicts and promote clearer understanding of any issues that might arise with STRs.

In conclusion, despite being more permissive than what is currently allowed in the LUMO and what our STR Study Group originally proposed, we can support this current draft ordinance with these three changes. We believe a revised draft ordinance with these three updates would deliver a fair and reasonable framework and reflect a grand compromise among many diverse perspectives.

Sincerely,

Aaron Nelson and Katie Loovis, The Chamber For a Greater Chapel Hill-Carrboro

Julie McClintock and John Quinterno, Chapel Hill Alliance for a Livable Town

Anthony Carey, Managing Director, The Siena Hotel

Manish Atma, President & CEO, Atma Hotel Group

Mark Sherburne, Area General Manager, The Carolina Inn

D. R. Bryan, President, Bryan Properties, Inc, and Co-owner, Hyatt Place Chapel Hill

Rosemary Waldorf, Former Mayor of Chapel Hill

Timeline

• (STR Rapid Growth) The Chamber started looking into short-term rentals back in early 2019 at the encouragement of local hoteliers. The short-term rental market in our community was growing rapidly with ~40% year-over-year growth and was approaching 20% market share in overnight lodging (Source: AirDNA via Orange County Visitors Bureau, 2019). These figures made us sit up and take a good look at the issue.
  
  
• (Current Law) In discussions with town staff, we learned that the town already had regulations for short-term rentals and a path for permit (see Image 1 below), and on any given night there were ~300 listings on the short-term market, but fewer than a dozen had a permit and the town was not enforcing its rules (Source: AirDNA via Orange County Visitors Bureau, 2019).
  
  
• (Investor-Owned STRs) In discussions with short-term rental operators, we learned that it is often more lucrative to list the investment properties on the short-term rental market rather than make them available for traditional, long-term use (i.e. affordable workforce housing). That being the case, it was no surprise to learn that a majority of the short-term rental listings in Chapel Hill were (and still are) the entire house listing, most often in residential neighborhoods (Source: AirDNA, Oct 2020).
  
  
• (Neighborhood Impacts) The Chamber found common ground with CHALT as we unpacked the impacts of investor-owned short-term rentals on neighborhoods. Operators of investor-owned STRs were maximizing profits at the expense of the local neighborhoods, which are not built for this type of high-turnover commercial activity, and with negative impacts on the affordable housing supply.
  
  
• (Commercial Activity) The Chamber concluded that investor-owned short-term rental operators were (and still are) turning homes into pseudo hotels for commercial activity (changing “use” without permit) and competing with an unfair advantage – dodging the permitting process, breaking local land use laws, and avoiding the litany of health and safety rules and protocols required of overnight lodging facilities.
  
  
• (Joint Petition) In comparison to other college communities such as Berkley, Boulder, Lawrence, and Madison that prohibited Dedicated STRs entirely (Source: UNC School of Government), Chapel Hill was experiencing rapid and unenforced STR growth. The Chamber concluded that the town needed to figure out how to enforce their current law or change their law. We submitted a joint petition with CHALT, local hoteliers, and a former Mayor in June 2019 asking Council to address the matter.
  
  
• (Task Force) After we submitted the petition, our diverse collaborative operated in good faith to support what we were told would be a 6-month Task Force process that would culminate in a fair and reasonable ordinance.
  
  
• (Covid Impacts) After the Task Force, a delay followed, and the pandemic ensued. During this time, hotels suffered but STRs continued to break records. Hotel occupancy, average daily rate (ADR), and revenue per available room (RevPAR) declined significantly (down 70% according to the Orange County Visitors Bureau) while short-term rentals operating in our community broke records with their highest ADR ($143 in September 2020) and highest occupancy percentage (69% in August 2020) to date (Source: AirDNA Trend Analysis, October 2020 via Orange County Visitors Bureau).
  
  
• (Zones) In early 2021, staff presented a draft ordinance that allowed Dedicated STRs in all zones. While the current Chapel Hill Land Use Management Ordinance (LUMO) only permits Dedicated STRs in commercial zone and our joint collaborative has recommended they not be permitted in any zone (similar to other college communities, including Berkeley, Boulder, Lawrence, Madison, etc.), the draft ordinance went in the opposite direction and allowed in all zones, including residential. (joint response to the shockingly permissive direction in Dec 2020)
  
  
• (Neighborhood Concerns) Residents quickly became concerned that their communities were going to be rezoned to allow this commercial activity and more than 75 emails were sent to Council from residents expressing shared concern about Dedicated STRs. Thankfully, in March 2021, Council directed staff to update the draft ordinance so that Dedicated STRs are only permitted in Commercial and Blue Hill District, not residential.
  
  
• (Current Status) After two years of discussion, learning, and debate, we believe the draft ordinance is ready for adoption with three changes, the most important being prohibiting Dedicated STRs in residential zones.
  
  
• (Bottom line) While this draft ordinance is more permissive than the current LUMO and our original petition, with the three changes (listed above), we will be ready to give it our full support.

Image 1: The Current Chapel Hill Law Regulating Short-Term Rentals

Source: Town of Chapel Hill

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