Houston Business Journal
By Florian Martin – Reporter, Houston Business Journal
Galveston has long been a destination for visitors booking short-term rentals, but the number has increased significantly since the start of the Covid-19 pandemic.
The city, which receives hotel occupancy taxes from short-term rentals, welcomes the trend, but it wants to ensure that it gets the full bang for its buck. A five-year, $1.3 million contract with a software company is meant to help with that.
The Galveston Park Board has started using Rentalscape, a short-term rental registration and collection software and platform by San Diego, California-based Deckard Technologies. Those offering short-term rentals register on a website and pay a $250 fee every year, which supports administrative staff, enforcement personnel, a dedicated complaint call center and the Rentalscape program.
The program scrapes listings on short-term rental websites, such as Airbnb, Vrbo and FlipKey, and cross-references them with its database of registered businesses.
That has already helped the Park Board identify noncompliant listings to either get them in compliance or removed.
“Beforehand, it was all manual,” said Bryson Frazier, CFO of the Galveston Park Board. “We were trying to find these things ourselves or we were relying on tips from citizens, so that's a huge help.”
With the new system, the Park Board hopes to bring compliance up to 100% from currently about 88%.
The increase should more than pay for the expense for the program, Frazier said, especially considering the fast growth of short-term rental offerings in Galveston since the start of the pandemic.
That number went up from 2,800 registered short-term rentals in 2020 to 4,890 in 2022, a 71% increase.
That translated to $13 million in revenue from hotel occupancy taxes for the city since August 2021, according to the Park Board.
In fact, short-term rentals account for more hotel occupancy taxes than hotels on the island — 53%. Galveston has about 5,000 hotel rooms and an equal number of short-term rental units. The difference is the rate. In 2022, a hotel room had an average daily rate of $159, whereas so far in 2023, the average rate for a short-term rental — which could be an entire house — is $238, according to the Park Board.
Joanna Yates and her husband, Brian Yates, opened up the third floor of their building on 23rd Street in Galveston’s The Strand District to short-term renters about a year before the start of the pandemic.
After a few months of no business during the shutdown, it has boomed ever since, Joanna Yates said.
“The weekend the island basically opened and (the city) said y'all can come to the island, (tourists) poured, poured here,” she said. “It was kind of crazy, actually.”
That vacation frenzy calmed down soon, but Yates’ Whiteside Town Flats have continued to see high occupancy, especially in the spring and fall, Joanna said.
While a large part of Galveston vacationers rent places near the beaches — the beach-heavy west end of the island has the highest number of listings, according to Frazier — Yates’ customers are more likely to explore the downtown area.
The Yateses have registered their short-term rental every year, Joanna said. She welcomes the city’s effort to get more hosts into compliance, and she didn’t mind when the annual registration fee went up from $50 to $250 last October.
“They have to have regulations so that people don't just open their properties up and not pay their (hotel occupancy) tax but also invade neighborhoods, which is a problem as well,” she said.
The platforms the Yateses list their apartment on — Airbnb and Vrbo — collect the taxes for the host, she said.
Rentalscape is also meant to make life easier for short-term rental hosts. It facilitates managing property registrations, renewals and hotel occupancy tax payments and assists users in calculating taxes due.
Besides Galveston, other Texas cities that use the program include Fort Worth, South Padre Island, Plano, Nacogdoches, Boerne, Grapevine and Rowlett, according to the Galveston Park Board.
While Galveston’s short-term rental market is booming compared to two years ago, it may be affected by the drop in the number of second-home buyers since last year. After jumping by 1,000 or more registered listings year over year in both 2021 and 2022, the Park Board estimates this year won’t differ much from last year, with 4,800 to 5,000 listings by the end of 2023.
During the pandemic, Galveston’s housing market was red-hot, in large part thanks to people buying homes meant as second residences or short-term rentals. That stopped when mortgage rates kept growing.
“Once the interest rates spiked up, … the second-home buyers went silent,” Amy Chance, real estate agent with Compass Real Estate, told the Houston Business Journal last year.