Puerto Rico Debates Short-Term Rental Regulation – News is My Business

The Senate rejected Bill 1557, leaving the STR sector without clear regulations.

Countries and cities around the world are grappling with defining, regulating and taxing short-term rentals (STRs), including Puerto Rico. Just last week, the Puerto Rico Senate voted against House Bill 1557, which would have regulated this growing sector of the tourism industry, drawing mixed reactions from groups representing hotels, small inns, STRs and residents.

The big sticking point is whether STRs are residential or commercial. But to determine that, regulators need to agree on what STRs are and aren’t, and address issues like zoning and housing.

The Basics of Short-Term Rentals
A short-term rental, also known as a transient rental and vacation rental, is the rental of any residential dwelling, home unit, or accessory building for a short period of time. STRs typically include furnished accommodations and stays of less than 30 days, but the maximum length may vary depending on the jurisdiction in which the rental is located.

STRs are estimated to be a global market worth $140 billion and account for 20% of the global rental market.

STRs are transforming the travel industry by offering property owners and investors new revenue opportunities. However, the rapid growth of this market is prompting regulatory measures to balance the benefits and challenges.

A patchy regulatory landscape
STR regulations vary widely by city and country. They typically address aspects such as registration, licensing, zoning, taxes, building codes and safety requirements, as well as housing preservation and affordability, neighborhood disruption, and operational rules regarding noise, parking and waste disposal.

Some jurisdictions differentiate STR properties into residential and commercial or mixed-use areas. Some divide STRs based on whether the property owner is present or absent when the property is rented.

In the United States and Canada, there is no national legal framework for regulating STRs, which are primarily determined at the state and local level, leaving property owners and travelers to navigate a complex legal maze.

Similarly, the STR regulatory landscape in Europe, the UK and Asia is continually evolving, with different countries applying different regulations regarding registration, licensing, zoning, taxation and safety standards.

STR: Residential or commercial?
Whether STRs should be considered residential or commercial depends on the jurisdiction, but many countries, such as Puerto Rico, struggle to make a clear decision.

In Puerto Rico, most groups representing hotels and small inns agree that STRs should be regulated as commercial businesses, while reservation companies and most property owners do not support that classification.

René Acosta, co-president of Viva Puerto Rico Short-Term Alliance, told News is my Business that, at least for now, STRs should remain defined as residential rather than commercial.

“If a short-term rental in a residential area is set up as a small hotel, rents cars, offers massages and so on, that is a commercial activity,” he said.

Reclassification to commercial would not be beneficial for this sector as it would result in the outflow of thousands of STRs from the local market.

“If short-term rentals are changed to commercial, what will happen to people who are renting out their houses or apartments? They know, everyone knows, that they will not get a permit for commercial rental of a property located in a residential area, so they will leave,” he said.

Viva believes that around half of local STRs will exit the market.

“It wouldn’t be a disaster, but it would put a damper on tourism because it would have a significant impact on the offering and prices, and people who stay in short-term rentals don’t necessarily want to stay in a hotel,” he said, noting that many young travelers now prefer to stay in STRs.

“More importantly, la Junta (The Financial Oversight and Management Board for Puerto Rico) would never approve such a change because it would mean less room taxes for tourism, which depends on that money, and less supplies,” he said. “And the governor has said he would veto such a measure.”

Acosta expressed disappointment over the Senate’s rejection of HB 1557, as it represented the beginning of a much-needed process of regulating the rapidly growing local STR sector.

“The bill had many good points, but opponents focused on the commercial definition and ignored many helpful measures that, for example, would have given municipalities autonomy to regulate short-term rentals. Opponents can celebrate because the bill was not approved, but we remain the same, the status quo, without regulation,” he said.

“We have spent almost two years working on this bill, and after hearings, amendments, more hearings and amendments, we have nothing,” he added.

“We want to solve this,” Acosta continued. “Maybe there’s a better way to define what’s commercial and what’s not. We want to meet with all parties to come to a consensus on a solution that works for everyone.”