After years of study and debate, Chapel Hill is on the cusp of revising its ordinances to permit bed and breakfasts to operate in town. Unfortunately, the proposed regulatory requirements could snatch defeat from the jaws of that victory, by making it very difficult for B&B’s to be viable.
Exacerbating the situation, the regulations have taken so long that changing market conditions may no longer allow new traditional B&B’s to be competitive.
In 2010, town leaders traveled with the Chamber of Commerce to Asheville, where they learned that B&B’s were considered assets that enhanced neighborhoods. That trip started discussions which have brought us to this fall’s decision to abandon the ban on B&B’s.
Although soon to be legal, B&B’s will still have to meet multiple requirements, many of which are expected and not burdensome. Owners or a manager must live in the house. The property must offer reasonable on-site parking. Breakfast and evening happy hour are allowed, but only for guests. You can hang out a sign, but it must be small. Special events are very restricted.
But there are other rules that will likely be the kiss of death for most B&B’s, because they impact their ability to be profitable or obtain financing.
A B&B with up to four rooms can be approved relatively simply by the Planning Board. However, five or more rooms will need a Special Use Permit (SUP), the lengthy, unpredictable and politically fraught system that drives up costs and drives developers crazy.
A small, low-margin business like a B&B could not justify undergoing SUP approval. That means Chapel Hill B&B’s would effectively be limited to four guest rooms. Would they succeed here? A survey of B&B’s conducted by a national trade group suggests not. Typical B&B’s range up to 11 rooms, with the average offering six. Since Chapel Hill’s property costs and taxes are well above average, even an average B&B would not be profitable here.
The other challenge is the B&B permit would only last two years. The town manager would review any issues and could deny renewal. Try getting a bank to provide a business loan to a business that might be shut down after only two years. Think whether you would self-finance the capital improvements needed to convert a home to a B&B with that possibility.
Given the limited revenue potential and financing options, an astute businessperson will likely decide not to make the investment.
Of course, there are some people with extra rooms and a dream to run a B&B who still want to rent them out. Like it or not, they don’t need to get any town approval to do so. Scores of homes in Chapel Hill are doing so right now though an Internet service called Airbnb. Airbnb connects people who have spare bedrooms or apartments with travelers looking to avoid staying in hotels or motels.
Airbnb has changed the market, and its impact on traditional B&B’s has been dramatic. Suddenly, travelers have a proliferation of competitive options, often at lower cost, because Airbnb’s have much less overhead. Traditional B&B’s are losing bookings and going out of business. Raleigh’s last B&B closed this year.
Airbnb will also compete with Chapel Hill’s new ordinance. Chapel Hill, like most towns, doesn’t regulate Airbnb’s. It considers them short-term rentals. Let’s say you have up to four rooms you’d like to rent out. Why would you go through any approval process with the town when you could go online tonight and be in business tomorrow?
It’s a double whammy for B&B’s. The advent of Airbnb has made it hard for B&B’s to survive at exactly the same time Chapel Hill would make it difficult for B&B’s to succeed here under any circumstances.
For those in town who still oppose B&B’s, take heart, they are rapidly becoming a thing of the past, and these regulations are going to help keep it that way.
Mark Zimmerman lives and owns a small business in Chapel Hill. He can be reached at email@example.com