Short-term rentals have long been a controversial topic in Rhode Island and particularly in Newport County.
Wednesday, September 11th, the City of Newport City Council met to hear some recommendations from the Zoning Officer to ban any new short-term rentals in those few remaining districts in Newport that allow short-term rentals.
If you are in the short-term rental market or you're an investor looking to invest in the Newport property market, this is news you need to know.
On Wednesday, September 11th in 2024, the City of Newport Council met in their chambers in an open public hearing to discuss some proposals that were being forwarded by the Zoning Department. And these included banning any new short-term rentals in the remaining districts that allow short-term rentals in Newport. What does this mean? The actual proposal will ban any new short-term rentals in the business districts that are currently called the limited business district, the waterfront business district, the general business district and general commercial.
Currently, you can do a short-term rental in commercial zones, general business or waterfront business by right.
Under current ordinances a property in the General Business Zone (GB) or the Waterfront Business Zone (WB) has a "right" to operate a business such as a short term rental. The business is subject to business licensing requirements but this type of business is specifically permitted in city code.
The proposed ordinance change would remove the right to operate a short term rental from the current list of permissible uses. That menas is a buyer purchased a property in the Waterfront Business district or the General Business district and the property wasn't currently licensed as a short term rental, that business type would not be an option
If you currently have a short-term rental in one of these zones and that rental is licensed, registered with the state, registered with the city, and you have followed all the rules, you can continue that use.
Under general zoning principles in the United States, if you have an existing short-term rental property, even if you're in maybe a limited business zone and you have a special use variance, the concept is that that's a vested interest, meaning that your property, that interest that approval for your rental will travel with the property. So when you sell the property, you can sell that right with that.
So if this ordinance passes, essentially what means that if you currently have the ability and you are appropriately licensed and registered and your dues are paid, you can continue to do your short-term rental, but nobody new coming in that buys a different building that's not currently registered for that use would be able to start up a new business.
So why is this happening now?
In the 2023 Rhode Island legislative session the RI Legislature changed some zoning laws at the state level as part of a larger effort to increase housing stock in Rhode Island.
Essentially the legislature removed some administrative barriers that made it hard to convert commercial buildings into residential buildings. Rhode Island has a lot of old and unused commercial properties that could be converted to housing inventory if it were a little bit easier to do so. So the state on the state level removed some barriers to converting those properties.
In Newport, the concern is that by removing those barriers, somebody could go in, turn an old school into 24 apartments and then turn each of those apartments into an Airbnb rental, thereby essentially frustrating the purpose of changing those rules.
So the zoning department is coming through and saying, "Look, the way we can stop that, we've already stopped it in residential zones because if you convert a school that's otherwise in a residential zone, short-term rentals are already banned in residential zones." But there is that loophole in commercial zones or in business zones that you could convert an old... I don't know, the electric company for example, say that that was still there. You could convert the electric company into apartments and then turn all those apartments into short-term rentals.
The problem is there's not a lot of rules about it. They don't have strict parking rules if you're in the waterfront or the general business. There's very little regulation that the city can apply to a short-term rental.
So the City Council approved, and I think it was a four to two vote. I'm not really sure who voted for or against, and that's their job. That's what they do. So if they approve this at the next reading, which I believe is in two weeks, that means that no new properties will be able to get a short-term rental license in any of those zones in Newport, which means no new short-term rentals anywhere in Newport. If you currently have your license, you will be able to sell your property with that license.
What is properties with Short Term Rental licenses sell for more than those without?
One of the things that we may see come under fire after this is several City Council members at Newport brought up the idea that if they didn't remove the right to grandfather this licensing, would those houses be used essentially like liquor licenses are used this morning or in Newport currently? The idea being that right now, a liquor license in Newport because there's a set number of them and you have to sell them, they are hundreds of thousands of dollars and that could be hyperbolic, but I know that they're very, very expensive. And so for example, one of the Council members pointed out that then you would have two houses that were both in the waterfront district, waterfront business district, and one house because it had a short-term rental license would be worth more than the other house.
And that may or may not be a fair assessment. If you compare that to say that one house in the waterfront district was waterfront, but its twin house was built next to it and completely blocked from the waterfront, the waterfront property is worth more than the non-waterfront property. Well, that's the same thing with these licenses. If you sell a property that has a short-term license capability, someone might be willing to pay more money for that. And I think that's just a rule of... That's just the free market. So it'll be interesting to see if the Council decides to move forward with that. There was quite a bit of conversation, particularly Council members Lima, formerly McCalla, and Councilman Carlin. They were advised by City Solicitor, Chris Behan, that they are dealing with long-standing American vested property rights if they try to change zoning laws in the way that they propose.
And there was a little bit of some devil-may-care attitude like, "Fine, let people sue us," which maybe we don't act against our legal counsel and open the city up for expensive lawsuits. The good news probably, and everybody's going to view this differently, is it does mean that there's no more growth of short-term rentals. No new people can come in and turn new properties into short-term rentals. It does not address the overwhelming number of hotels, but as was pointed out by Mayor Shea and Councilman Aramley, this is not what this particular ordinance was designed to do. They'll probably address that in future ordinances. So if you currently have a license and you are keeping it up to date and you're registering every year, it doesn't sound like you have anything to worry about with this new regulation. If you are currently operating without the proper registrations, there is a lot of enforced or reinvigorated or reinforced enforcement coming your way.
Things were discussed like possibilities of bench warrants and injunctive relief and increasing fines from the current 1,000 to 5,000 and some other things. So I think there is a renewed appetite to enforce the existing rules, particularly those in the residential areas that are not permissible. So if you're doing that, you might want to pay attention. So stay tuned to this space. We'll keep an eye on this. We expect to hear more on this in the next two weeks. My guess is this ordinance will pass. So make sure you keep your registrations up to date. I'm Sandy Warner with Warner Realty Group, making the complex simple.