About 93% of short term rentals in Kansas City have been unauthorized, auditor report says

Shortfalls in Kansas City’s short term rental program are causing the city to miss out on millions of dollars, according to two reports recently released by the city auditor’s office.

The first report, released in late November, explored how short term rentals are or could be taxed. The second report investigated whether short term rental hosts are complying with city regulations.

The audit found that there are way more short term rentals operating in Kansas City than those that are registered as part of the city’s program. Since 2018, more than 4,000 short term rentals have been listed in Kansas City on a third party site. Since 2018 only 7% of active listings were registered with the city, the report said.

That means during the life of the program about 93% of short term rental units in the city have operated without a permit, which makes it hard for the city to regulate them, and to collect permit fees. As of 2022, 11% of the short term rentals have been compliant, which means 89% are still unauthorized.

Missing permit fees, as well as missed opportunities to tax rental units, the auditor’s report said, lost the city about $3.7 million dollars.

The audit comes after community members across the city raised concerns about unauthorized short term rentals that were disrupting and in some cases tearing at the fabric of their neighborhoods.

Financial impact of short term rentals

Despite the large number of units operating as short term rentals, the city cannot collect special tourism taxes or fees — like its convention and tourism tax and its hotel and motel occupancy fee — from them because they are not legally considered hotels. Missouri defines a hotel in Kansas City as having more than eight bedrooms for accommodating guests.

The auditor’s report found this to be a major missed opportunity for the city, and specifically programs like Visit KC, the Neighborhood Tourism and Development Fund and the convention center.

If it were able to tax short term rentals as hotels, the city would have collected millions of dollars in taxes and fees, according to the auditor.

Between July 2021 and August 2022, the city missed out on more than $2.6 million in potential tourism tax revenue from short term rentals.

In order to change the definition of a hotel to include short term rentals, the city would have to lobby state legislators to change the requirements for the convention and tourism tax. As for the hotel and motel occupancy fee, which is currently $1.50 per night, the city council would need to pass a ballot measure so local voters could vote to change the definition of a hotel.

This problem is somewhat unique to Kansas City. Other cities like St. Louis and Independence do not require that an establishment have eight or more rooms for guests before it is considered a hotel. Therefore, both cities can tax short term rentals like Airbnbs.

“We were told when we passed it that we needed to go to Jefferson City and get our hotel and motel tax altered…so then we could come back and craft a language for a ballot measure so voters could approve a hotel motel tax for Airbnb,” Fourth District-at-Large City Councilwoman Katherine Shields said during the council’s business meeting last week. “It seems like both of those things need to be looked at.”

The problem with permits

According to the report, the city’s permit regulations “are ineffective and inefficient.”

The issue of making sure that the short term rentals are registered with the city is two-fold. On one hand, those permits allow for city officials to regulate and monitor the short term rental activity in the city. On the other hand, the fees from those permits help make sure there is enough funding to support the program and staff.

According to the audit, the city has only received $129,000 in permit fees. With the vast majority of units not registered, it lost $1.1 million in permit fee revenue since the process began in 2018.

“Effective enforcement starts with permits,” City Auditor Douglas Jones said. “All subsequent enforcement actions related to operations and nuisances flow from short term rental units having a permit.”

When a short term rental host decides to rent out a unit without a permit, it does not violate city code until guests stay in the unit. This means that it is technically not against city code for a host to advertise, book or even accept money for a short term rental, since that all happens before a guest steps foot onto the property for their stay.

“We can’t use their listing as a probable cause for a violation,” 3rd District Councilman Eric Bunch said during the meeting. “The crux of it is we need to change our municipal code.”

To curb this, the auditor’s report recommends that the city planning and development department propose an ordinance to prohibit hosts from listing, offering or advertising short term rentals without a permit, which would allow the city to cite listings for units that aren’t registered.

The report also suggests that the city assign a point person to work with third party sites like Airbnb, Vrbo or Homeaway to develop clearer communication. The auditor also calls on the city to pass an ordinance that addresses the role these sites play in advertising unpermitted rentals.

The director of city planning and development Jeffrey Williams, said that his department is in agreement with the majority of the recommendations set by the audit, but emphasized the need for collaboration with fellow city departments to help truly enforce the program.

What to do about short term rental parties

The report found that 95% of the 311 calls related to short term rentals since 2018 were related to those units not having a permit. Many of those calls were also related to nuisance issues.

City council members at a meeting last week said that many of their residents have voiced concerns about parties and other nuisances related to short term rentals.

“When I think about the calls that come into my office from residents, in essence it’s really about the nuisance violations,” 5th District Councilwoman Ryana Parks-Shaw said.

In Kansas City, there aren’t many consequences for short term rental operators who are disruptive or unregistered. If a unit is permitted, the city can issue fees starting at $150, plus $45 in court costs and $250 for repeat offenders, and it can revoke the permit.

Some neighbors have proposed that the city raise those fees, but it’s not that simple. Fees for city code violations have a cap that is set by the state. The state legislature would have to remove or change that cap, according to Williams.

Enforcement of city codes also rely largely on complaints from neighbors and two code enforcers, who are responsible for investigating code violations beyond just short term rentals.

Williams said it will take the help of fellow city departments, like fire and police to address certain nuisance violations. He added that his staff typically work from 9 a.m. to 5 p.m., which means they aren’t available to respond to violations that occur after hours.

“We welcome the opportunity to work with other departments or the consideration that city planning and development is not the best department to be able to manage operation and be the place where we have all the tools and ordinances to appropriately enforce operations,” Williams said.

In 2020, Airbnb started its own campaign to try to reduce the amount of New Years Eve parties hosted in short term rentals listed on their site. According to the home sharing platform, they were able to block over 900 bookings in Kansas City last year as a part of the site’s various anti-party defenses.

Editor’s note: After original publication, we added the line, “As of 2022, 11% of the short term rentals have been compliant, which means 89% are still unauthorized.” This clarified that while only 7% of active listings have been registered during the entire span of time the program has been in place since 2018, the percent registered this year has been slightly higher, at 11%.