Home Sweet Hotel?

Short-term rentals are drawing budget-conscious travelers. Why officials are cracking down

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For most travelers, hotels mean security and reliability—a standard level of service when sleeping away from home. But they can also be dull or cheesy, as far removed from an authentic local experience as your house is from the nearest tourist trap. They tend to be expensive too, all of which explains why my wife and I steered clear of hotels near the Louvre or the Champs Elysées when we planned our September trip to Paris. We didn't want to be surrounded by American chain restaurants, souvenir vendors and a constant parade of tour buses.

Instead, we searched the Web for vacation rentals, eventually zeroing in on a ground-floor apartment in the Marais neighborhood that charged half as much as a boutique hotel two blocks away. We asked questions about the property via e-mail and used PayPal to make a deposit. Two months later, at 10 p.m. on a misty Monday, we emerged from the Breguet-Sabin Métro stop and started wheeling our luggage down empty streets. With no cell-phone coverage and only a street map to guide us, we were more than a little nervous: Would the owner be there to hand off the keys? Would the apartment look as advertised? Would the address even exist?

Online vacation rentals have always been a gamble, but these days the stakes are higher. Traffic is up: financial pressure on travelers and mortgage payers alike is fueling an increase in the number of peer-to-peer short-term housing rentals. Unfortunately, rental scams are also on the rise, as are crackdowns by local governments in destinations from Maui to, yes, Paris, warning property owners of the need to comply with zoning and licensing regulations.

On websites run by Austin-based HomeAway Inc.—the parent company of HomeAway.com and VRBO.com (short for Vacation Rentals by Owner, which is the site I used to hunt for Paris apartments)—the number of listings has increased exponentially, from 51,000 in 2005 to 540,000 last month. The trend has also sparked the rise of dozens of other rental sites, including the hipsterish Airbnb.com which has started giving "SuperHost" badges to property owners who do things like leave homemade cookies for guests or make midnight pickups at the airport.

Talk to repeat users of these sites and they'll say low prices—and having a place to do laundry and cook breakfast—are only part of the allure. The main attraction? "Living like a local," says Michelle Madden, a food blogger based in New York City who has rented vacation homes in such places as Toronto and Park City, Utah.

But during a recent trip to Paris, Madden says she was dismayed to arrive at a run-down apartment whose years of wear and tear were not reflected in the photos she'd seen online. The sink in the "spa-like bathroom" would not drain; the "comfortable bed" was a cot. She now looks for properties with customer testimonials and asks the owner how recently the photos were taken. Requesting to send a friend to check out the property can also be enlightening, she notes, "because if the owner is reluctant, that says a lot."

There are plenty of horror stories about vacationers arriving in cities only to discover that the property they rented does not exist or is occupied by owners unaware that scammers were advertising it online. The Internet Crime Complaint Center (IC3) says claims of vacation-rental fraud in the U.S. were up 50% this summer compared with last. That increase came after the IC3 and FBI jointly issued a nationwide alert in March with warnings for those seeking a place to stay (don't wire money to a stranger, and check with a local official to see who owns the property) as well as those offering their homes as rentals (don't take checks, and if you do, make sure they clear).

Even successful rentals have become a point of contention in many communities, where noise and other complaints have led to crackdowns. This summer, lawmakers approved bans on renting residential property for less than 30 days in Chicago and New York City. And Minnesota officials recently sent letters to more than 600 cabin owners warning them that they need to adhere to the same licensing and regulatory requirements that hotels do. "Bringing people here for vacations is a boost to the economy, and we're very happy about that," says John Edman, director of Explore Minnesota Tourism. "But there are issues of fair competition when you talk about resorts that have secured all the needed licenses, and zoning issues, in terms of homeowners who are upset that the house next door has become a commercial business."

Of course, unless neighbors—or renters—complain, chances are good that government officials won't come knocking. And Edman acknowledges that in this economy, the supply of short-term rentals is probably only going to increase. "To keep paying the mortgage, more and more people are needing to generate rental income," he says. Reporting taxable rental income is still on the honor system. And although the IRS exempts from federal taxes any money generated by renting a home for fewer than 15 days a year, the peer-to-peer rental trend is hurting many states that rely on hotel taxes and licensing fees to fill budget gaps.

None of these issues occurred to me in Paris. Most late afternoons, we spent sipping wine in the living room with the windows open, listening to the faint sounds of someone singing opera scales nearby. The one-bedroom apartment turned out to be the centerpiece of a great vacation. And we're already starting to look for a beach condo to rent for our next dream trip, to New Zealand. But we'll be sure to interrogate the owner before we book it.