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FAQ About Proposal to Regulate Airbnb

I recently introduced a legislative package to regulate Airbnb in Montgomery County. Here is some basic information about the legislation that I hope answers some of the most frequently asked questions.

What does this legislation do?

This legislative package, Zoning Text Amendment 16-03 and Bill 2-16, works together to regulate short term rentals in Montgomery County. The Zoning Text Amendment would allow a Bed and Breakfast in residential and mixed-use zones under certain circumstances.  The Bill would establish a process and standards for licensing all dwellings used as a Bed and Breakfast, modernize the licensing requirements for hotels, and delete code sections pertaining to other forms of short term rentals (hostels, tourist homes, tourist cabin parks, rooming houses, and boarding houses) that have already been disallowed in the zoning code. The legislation would apply to all short term rentals, including those arranged through sites like Airbnb and HomeAway. Renters on Airbnb and similar sites would be required to be a licensed Bed & Breakfast in Montgomery County, and obey several new rules designed to protect visitors, neighbors, and hosts. This legislation follows legislation passed in 2015 that required short-term rentals to pay hotel/motel taxes (the current rate is 7%).

 

Aren’t short-term rentals already legal?

No, rentals for less than 30 days are illegal under current law unless they are licensed as a hotel or a Bed & Breakfast. However, this prohibition is weakly enforced, and there are hundreds of Montgomery County listings on sites like Airbnb and HomeAway.

 

Does the legislation protect existing residential communities?

The legislation includes three major protections to ensure that Airbnb does not change the character of existing residential communities:

  1. All hosts will be required to get a license (through an online process) and to certify that the units they rent meet all safety, parking and other requirements in County Code. This means the County will know where these rentals are occurring, can inspect the rentals as needed, and can close down rentals that are not properly licensed.
  2. All units that are rented must be the primary residence of the host. This means that investors cannot use multiple homes for short-term rentals (unlike long-term rentals, where this is allowed). It means that legal rentals will have an owner who lives at that address and is responsible for the property and relationships with neighbors.
  3. The number of renters allowed in a rental unit is limited to the same number allowed in any residential property – no more than five unrelated persons or a family of any size.  This rule prevents any homeowner from legally turning their basement into a hostel. The parking allowances will not be greater than any other household would be allowed.

These properties also will continue to be subject to county laws that protect neighborhoods: housing and building code rules governing the safety and appearance of homes in the County, the County’s Noise Ordinance restricting noise levels, all parking restrictions, zoning rules governing the allowed uses in different zones, and many other legal protections.

Rather than stretching county enforcement resources thin attempting to shut down all short term rentals, this framework will allow the county to focus on problem actors who may violate quality of life laws, whether they are short term renters, long term renters, or homeowners.

 

Won’t this increase housing prices in the County by diverting housing supply to short-term rentals?

This has certainly been an issue in other areas with very tight housing markets and high levels of tourism like New York and San Francisco. The requirement that the housing unit be the principal residence of the host will prevent investors (or anyone) from being able to legally turn a unit into a full-time Airbnb rental and should therefore minimize the impact on housing supply and prices.

 

Will these units have to pay the same taxes as hotels?

Yes. Last year, the Council approved legislation requiring all short-term rentals to pay the County’s hotel/motel tax. Both the County and the State of Maryland are currently working to develop an arrangement with Airbnb and similar sites to have the listing company collect the tax from the host and remit it directly to the appropriate jurisdiction. Airbnb already does this in other jurisdictions. The County has also begun seeking the tax directly from hosts. This process will be aided by a licensing requirement which will require certification that all taxes have been paid.

 

What is the process for approving these changes? How can I express my views?

There will be a public hearing on the legislation at 7:30pm on March 8 at the Council offices in Rockville. Learn more and sign up to speak here. You can also provide written comments for the record at any time by emailing county.council@montgomerycountymd.gov.  After the March 8th Public Hearing, the legislation will be heard by the Planning, Housing, and Economic Development Committee, which will make a recommendation to the full County Council.

Please feel free to contact my office at any time with questions or comments at Councilmember.Riemer@montgomerycountymd.gov.

 

What about existing Bed & Breakfasts?

There have been six Bed & Breakfasts approved under the old rules in Montgomery County. All but one have had those approvals revoked by the Board of Appeals because the owner abandoned the use. Any other Bed & Breakfasts currently operating in the County are evidently operating without a license and would be required to operate under the same rules as other short-term rentals in the proposed legislation.

 

Are there any additional parking requirements?

The legislation does not impose any additional parking requirements over those that apply to residential property generally, but it does limit the number of occupants allowed at any time to the size of 1 household (5 unrelated individuals or a family of any size) and the unit must meet the existing parking requirements for their zone.

 

What about Homeowners/Condo Association Rules or Rental Agreements?

This legislation does not supersede other legal restrictions on the use of property. Rental agreements, homeowners association covenants, or condominium agreements may preclude a tenant or property owner from using their housing unit for any rental purpose.  If these restrictions on property rental are violated, it is the responsibility of the landlord, homeowner’s association or condominium association to enforce their restrictions.

 

Why is there so much about hotels in the Bill?

On the advice of the Council’s land use attorney, we took the opportunity to do some technical clean up to the hotel section of the County Code. This code had not been amended in decades. These changes are largely stylistic and have no bearing on the Airbnb issue. Hotels and Bed & Breakfasts (i.e. short-term rentals) remain separate legal categories with very different requirements for licensing, inspections, etc.

 

Why not just leave the zoning law in place that makes them illegal?

Although short term rentals are not legal, there are already hundreds of listings on these websites in our county. Our resources are limited, and enforcing a complete prohibition is not realistic. In addition, most or nearly all of these listings are posted by residents who have a reasonable and responsible use in mind. Allowing responsible rentals allows the County to focus our enforcement resources on listings that are truly disruptive to the community. There are also many ways in which responsible short term rentals can augment the County’s stock of hotel rooms to provide benefit to the community, including providing short term stays for business travelers and tourists; family and friends of medical patients at facilities like NIH; families temporarily displaced from their permanent residence by fire, flooding, or renovations; and others looking for a more “homey” experience. Not to mention, the opportunity for homeowners who have extra space to make additional income – including seniors and empty nesters. This application of internet technology is here to stay, and the best course for county government is to adapt to that reality.

 

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DLC vs. Private Sector: A Wholesale Price Comparison

Throughout discussions on the Department of Liquor Control (DLC), there have been many assertions about DLC’s prices. Some claim they are too high, others claim they are lower than private competitors, but so far all of these claims have been anecdotal. Fortunately, this is an empirical question that can be tested. To provide all of us with an objective answer to this question, I asked my staff to undertake such a study. Through much painstaking work, Tommy Heyboer on my staff has completed a wholesale price study comparing the prices DLC charges Montgomery County licensees with the prices of the same products charged by private wholesalers elsewhere in Maryland. We compared DLC prices to private sector prices for 771 randomly selected products, enough to state the average price differences with 95% confidence.

The study finds that DLC’s wholesale prices on stock products are essentially equal with private sector prices elsewhere in Maryland, while DLC wholesale prices on special order products are about 10% more expensive than those products would be elsewhere in Maryland.

The Council’s Office of Legislative Oversight and staff from the County Executive’s office, CountyStat, and DLC have reviewed the study and provided extensive feedback. I want to thank them for their numerous comments, which greatly strengthened the narrative and conclusions.


DLC vs. Private Sector: A Wholesale Price Comparison1

Summary
Based on a careful analysis of Department of Liquor Control (DLC) and private sector pricing data, DLC’s wholesale stock prices are roughly equivalent to private sector prices in Maryland while DLC’s wholesale special order prices are about 10% more expensive than private sector prices. This empirical analysis a) confirms anecdotal evidence from restauranteurs and retailers and b) follows logically from the fact that DLC is layering an additional markup to special orders when purchasing them from other distributors while DLC buys most stock items directly from manufacturers. The Council’s Office of Legislative Oversight (OLO), CountyStat, and DLC reviewed this analysis and provided comments that were incorporated into the study.

Results
The following tables summarize the results.2 3

Wholesale Special Order Price Difference: DLC vs. Private Sector
Count May 2015
Price Difference
Post Markup Reduction
Price Difference
Special Order Beer 47 21.53% 12.15%
Special Order Keg 18 39.02% 39.02%
Special Order Liquor 36 -1.99% -1.99%
Special Order Wine 315 8.73% 8.73%
Total / Avg 416 10.56% 9.50%
Note: The individual product categories (special order beer, kegs etc..) price differences are not statistically valid in themselves because they do not have sufficient N. They are shown only to provide context.
Wholesale Stock Price Difference: DLC vs. Private Sector
Count May 2015
Price Difference
Stock Beer 89 -5.11%
Stock Keg 28 -7.41%
Stock Liquor 76 -0.69%
Stock Wine 162 4.51%
Total / Avg 355 0.04%
Note: The individual product categories (stock beer, kegs etc..) price differences are not statistically valid in themselves because they do not have sufficient N. They are shown only to provide context.

The data indicate that:

  • Stock prices are essentially equal between the DLC and the private sector
  • DLC special order prices are about 10% more expensive than the private sector
  • DLC stock and special order liquor prices are less than the private sector

Research Design and Methodology
DLC provided the wholesale prices for every product in its inventory. Private sector wholesale pricing data came from the Maryland Beverage Journal4 and directly from several distributors5. DLC’s inventory was separated into stock and special orders and then each list was randomized6 separately. To achieve a 95% confidence level with a 5% confidence interval, each sample had, at least, an N of 3557. Further, the samples’ split of wine, beer, and liquor closely aligns with the actual proportions of DLC’s inventory; if beer products comprised X% of the inventory, they comprised X% of the sample. This study uses frontline private sector prices from May 2015 and compares them to the DLC prices. To determine the overall price differences, this study used price differences in percentage terms of each item (where a positive percent indicates DLC being more expensive by that percent and a negative percent vice versa) and then averaged the differences for each sample.

It is important to note that DLC did decrease the markup on special order beer8 over the summer after the study was underway. To determine whether the markup reduction had a significant effect on the price difference, the study shows both the sample with May 2015 special order beer prices and the same sample with the markup-reduced prices on special order beer. The markup reduction on special order beer reduced the price difference from 21.53% to 12.15% on those products. However, it only reduced the overall special order price difference by 1%. Therefore, the markup reduction did not produce a significant effect on the overall analysis. The table above shows both results.

Since the table above shows that special order beer is between 12% or 21% more expensive and special order kegs are nearly 40% more expensive, one could argue those product types are driving the bulk of the overall price difference. While it is true that they are part of the sample, they do not “punch above their weight,” so to speak. First, special order beer and kegs comprise about 15% of the sample, which, not coincidentally, is the same percentage of special order beer and kegs in the entire inventory. Special order wine, however, comprises over 75% of the sample.

Previous Price Comparisons
While both OLO and CountyStat have performed separate price comparisons, these analyses lack the inferential power provided by a statistically significant sample. Rather, they focused on the most popular DLC products. Those analyses say some interesting things about price differences on these specific products. However, they cannot say whether the trends identified apply to moderately popular and less-popular products or more importantly, to stock and special order products more broadly. In other words, the real question, “are DLC prices more expensive?” was still largely unanswered.
Executive Branch staff asked whether the analysis should use weighted averages based on the volume of a product sold by DLC. This analysis does not follow this methodology, because it is designed to answer a very specific question: “are DLC wholesale prices higher or lower than the Maryland private sector?” A random sample of the entire DLC inventory captures the price differences over the full breadth of products.

CountyStat’s and OLO’s price analyses focused on the impact on licensees of the prices of the most popular, most high-volume items, which answers a slightly different question. It is best to view this analysis as supplementing the results of OLO and CountyStat.

If licensees are price-sensitive when making purchasing decisions (and they presumably are), relatively higher prices on special order products will likely depress sales of these products compared to lower-priced items. DLC’s sales numbers cannot reflect the absence of sales, so using weighted averages based on sales volume could skew the results. Testimony from licensees to the Ad Hoc Committee on Liquor Control supports the assertion that licensees take price into consideration when deciding which products to order.

Second and more importantly, this analysis calculates overall price difference by averaging the price differences of each individual product, not by simply averaging the average of each product category. Therefore, if one calculates the weighted average of each product category in the sample, they would find that it too equals 10.5%. That said, the price difference in each product category is not statistically significant, given the insufficient amount of N for each product category. Those numbers simply provide additional context.

It is important to note once again, that the price studies done by the Office of Legislative Oversight and CountyStat shed some insight on the question of, “What effect do price differences of the most popular items have on licensees?”. In discussions before the Ad Hoc Committee, representatives from the DLC and CountyStat sought to focus attention on price comparisons of popular items, such as the top 50 products sold in stock or special order. One key challenge for this methodology is that it does not allow us to draw strong conclusions because the sample sizes are small.

The goal was to go beyond this limited view of the pricing and draw stronger inferences on DLC pricing overall. As discussed above, this why a statistically significant sample is more appropriate.


Endnotes
1 Prepared by Tommy Heyboer, Deputy Chief of Staff to Councilmember Hans Riemer. Special thanks to the County Executive’s staff and the Council Office of Legislative Oversight for insightful comments and suggestions.
2 The average price differences of each product category (beer, kegs, liquor, and wine) are shown for context, but given the relatively small N for each individual product category, they do not constitute statistically significant results on their own.
3 Weighted averages must be used for the individual product category price differences to add up to the total average.
4 As of May 2015
5 Distributors include Bond Distributing, Legends Ltd., and the Country Vintner
6 Once separated into stock and special order lists, a random number (using the RAND() function) was assigned to each product and then the lists were ordered from small to large. The items included in each sample are, at least, the first 355 items with DLC and private sector prices.
7 An N of 355 for the sample is based on an inventory of ~4,700 stock products and ~27,000 special order products
8 The DLC reduced their special order beer markup by 28.5%. It went from 35% to 25%. See the August 2015 DLC Newslink here.

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Storm preparation

Following is information I hope is helpful as you prepare for the storm.

Road Plowing
Montgomery County Department of Transportation (MCDOT) will begin with a “pre-treatment” of County roads (a salt and water mix) before the snowfall. Plowing will begin once three inches of snow or more have accumulated. MCDOT will prioritize emergency and primary roads and then move on to residential streets. There is a map on the County website that allows you to follow along the County’s progress in real time, which can be accessed here: http://www7.montgomerycountymd.gov/snowmap/. You can search for a specific address or street. You may also find useful information in the County’s FAQ about snow removal here: http://www.montgomerycountymd.gov/DOT-highway/snow/snowplow.html

Many if not most of the biggest roads in the County are state highways. These are the numbered roads. Pre-treatment and snow removal on those roads is conducted by the State Highway Administration (SHA). You can view their winter fact sheet here and/or contact them directly here. Requests or complaints about state highways that our county DOT receives are forwarded to SHA for action. The state makes its own decisions about pretreatment and removal; as we saw on Wednesday night of this week, there have been times when the County acts to pre-treat the roads but the state does not.

Sidewalk Snow Removal
Two years ago when the County last experienced a storm of this magnitude, we saw or heard reports of pedestrians walking in the street on major roads, mothers pushing strollers over sidewalks that had not been cleared, seniors and individuals with mobility challenges unable to enter a street crossing because it was blocked by snow, and even motorized wheelchairs moving in traffic lanes on state highways (in this case, University Blvd) because sidewalks were impassable. This is why clearing sidewalks of snow is so important. Residents must clear their sidewalks from snow within 24 hours after a snow event. Please consider whether your neighbors are able to clear sidewalk snow, and if not, how you might be able to help them find a solution. For more information on this issue, visit the County’s sidewalk snow website, http://www.montgomerycountymd.gov/safesidewalks/.

Last year I authored legislation, which the Council supported, to require the county to create a Sidewalk Snow Removal Plan. We are waiting for the presentation of this plan to the County Council. In the mean time, my observation is that residents are pulling together to meet this challenge much better than in the past, as are businesses and the government. But we have more to do. Please let me know your experiences so that I can be better informed as we continue developing the Plan.

Power Outages
According to Pepco, this storm may bring power outages. If you experience an outage, it is very important to report the outage to Pepco. Here is a website to use, http://www.pepco.com/pages/connectwithus/outages/outagemaps.aspx. Here is how to prepare for a power outage, http://www.ready.gov/power-outage,

County Parks Open for Sledding
Last year, friends asked me if they were allowed to sled on County golf course property. I inquired with the Parks Department and Casey Anderson, Chairman of the MNCPPC. I learned that there is no policy against sledding. In subsequent discussions at the Council I requested that Parks actively encourage this recreational activity by mapping great sledding hills and getting the word out. So I am delighted to share the Park’s Department newest release: Best Hills for Sledding in Montgomery County Parks!

Be Prepared
For more information, visit Montgomery County’s emergency management office website, http://www.montgomerycountymd.gov/mcg/emergency/stayinformed.html

Sign up for alerts on this snow storm as well as other important by information by visiting Alert Montgomery.

If you need assistance from the County at any time, call 311.

Please contact me by emailing Councilmember.Riemer@montgomerycountymd.gov with any questions or concerns you may have. My team and I will be “on call” during this weekend to assist you.

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Update on our bicycle safety efforts

According to the Washington Area Bicyclist Association (WABA), Montgomery County is finally catching up – and in some ways surpassing – the District and Northern Virginia when it comes to next generation bicycle planning and infrastructure.

The evidence abounds. The County constructed its first protected bike lane on Woodglen Ave (White Flint) in 2014 and is on the verge of constructing another one on Spring St. (Silver Spring) this summer. Thanks to the efforts of the Greater Olney Civic Association, Councilmember Navarro and myself, the County is strongly considering a separated bike lane on Bowie Mill Rd. in the near future.

Meanwhile, the County’s planning department is diligently working on an update to the County’s Bicycle Master Plan that will incorporate a data-driven approach with the latest in industry best practices. Early work for the Bicycle Master Plan has produced separated bike lane network plans for White Flint, the Shady Grove Life Sciences Center, and Silver Spring (in progress).

Woodglen Ave Protected Bike Lane
Woodglen Drive Protected Bike Lane image from Montgomery Planning

The progress is due, in large part, to a fundamental shift in thinking about bicycling in the County. After decades of largely leaving bicyclists to their own devices, the County has begun to intentionally reorient its planning and policy in favor of bicycle safety. Research shows that people are more likely to bicycle in lower-stress environments that provide protection from motor vehicles and separation from pedestrians. We should design biking infrastructure for the people who want to bike, but do not because they do not feel safe doing so—by providing safe, low-stress connections between the County’s activity centers, transit hubs, and neighborhoods. If we can reach this group of people, the use of biking as a mode of transportation will climb considerably.

This shift in policy did not happen by accident, but rather is a result of a concerted effort by bicycle advocates, planners, engineers, and County officials. Events like the First and Second Great MoCo Bicycle Summits I hosted brought together the bicycling community around the common goal of better, safer bicycle infrastructure. Indeed, the momentum created by the second summit led directly to the White Flint and Silver Spring separated bike lane networks that Planning released this fall.

While many positive things are already in motion, we must keep our foot on the pedal (or our bike in high gear). Below are a few ways you can help us keep moving forward:

  1. Get involved with the Bicycle Master Plan. You can share your insights by attending meetings and/or commenting on an interactive cycle concerns map. Also be sure to sign up for email updates from the team.
  2. Help us secure more funding for bicycle safety infrastructure. The County’s capital budget process is just around the corner, and there are number of bicycle projects in the budget, including the Bicycle Pedestrian Priority Areas (BiPPA), that we need to fully fund. You can write to the County Executive (ocemail@montgomerycountymd.gov) and the County Council (county.council@montgomerycountymd.gov) to let them know you support safe bicycle infrastructure in the County.
  3. Plan on attending the Third Annual Great MoCo Bicycle Summit, which will be held early this Summer (exact date tbd). As always, we will have a group bike ride, refreshments, top-notch presentations, and most importantly, a great gathering of bicycle enthusiasts.