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Will San Diego finally adopt regulations legalizing Airbnb rentals?

Will San Diego finally adopt regulations legalizing Airbnb rentals?
SAN DIEGO, CA March 24th, 2017 | The crowd on both sides of the short-term rental issue wave their signs during a hearing of a San Diego City Council committee. (Eduardo Contreras / San Diego Union-Tribune)

San Diego’s elected leaders on Tuesday will weigh two rival proposals for regulating the city’s thousands of short-term rentals, following years of heated debate.

  • Short-term rentals on platforms like Airbnb are currently deemed illegal by the City Attorney’s office.
  • One proposal, drafted by four of the nine council members, would allow short-term rentals to operate year-round, but would require a three-night minimum stay in the heavily impacted coastal communities. Owners would be limited to no more than three short-term rentals.
  • A competing proposal is more restrictive, allowing hosts to rent out only their primary residence for up to 90 days a year.
  • Whatever regulations are eventually adopted, permits would be required, with part of the fee going to pay for 13 more code enforcement positions to address nuisance and noise violations.

Short-term rental debate: Here’s the full story

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Nearly three years ago, hundreds of people showed up at San Diego City Hall, half of them pleading with their elected leaders to shut down the short-term vacation rentals flooding their neighborhoods, the other half begging for restraint in over-regulating a home sharing enterprise they said was helping pay their bills.

This Tuesday, expect the same passionate pleas and the same deep divisions in the community as the City Council weighs two rival proposals for regulating the thousands of San Diego vacation rentals popularized by the online home sharing platform, Airbnb.

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What is different this time -- following multiple hours-long public hearings — is that a majority of the council appears poised to embrace new rules that would allow short-term rentals in residential neighborhoods while imposing some limitations on investor-owned properties. And in a nod to heavily impacted beach communities, a three-night minimum stay would be required in only those areas.

Still, major challenges remain for what is being billed as a compromise approach drafted by four of the nine council members. For one, there are lingering legal questions raised by the City Attorney’s Office, plus there is still a strong constituency favoring a competing proposal by City Councilwoman Barbara Bry that would allow individuals to rent out only their primary residences and for no more than 90 days a year.

Where there is little disagreement is over the need to act swiftly on long overdue regulations of a home-sharing industry that shows no signs of slowing.

In San Diego, listings on Airbnb alone, from shared rooms to entire homes, have nearly quadrupled to more than 8,400 in just three years, according to AirDNA, a company that tracks rental activity on the platform.

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“We can't keep doing the wild, wild West, and we can't do a ban,” said Councilman Scott Sherman, one of the four council members supporting the more permissive plan for short-term rentals. Theirs is a bipartisan coalition, with Democrats David Alvarez and Chris Ward joining Republicans Sherman and Mark Kersey. Councilman Chris Cate, also a Republican, has said he is supportive of their approach.

One of the more controversial provisions, though, would allow individuals to rent out up to three properties on a short-term basis, defined as less than 30 days. Sherman said he had been opposed to any limitation while Ward had favored allowing no more than one rental per operator.

“This is a compromise in the middle,” Sherman said. “I don't think at the end of the day you're going to have an effect on the housing stock because at some point you’ll reach a point of market saturation (of short-term rentals).”

Bry counters that her colleagues’ proposed regulations are not really a compromise because they continue to encourage the operation of investor rentals that she is certain are depleting the stock of vitally needed housing.

How many such rentals would actually revert to long-term housing were they curtailed remains open to debate. Some suggest that they would simply go underground, but Bry is convinced that the competing plan will only exacerbate the city’s shortage of housing.

“Our proposal truly focuses on the preservation of housing stock,” said Bry, whose council district includes La Jolla where hundreds of homes are being rented out on a short-term basis. “We’re not producing enough housing every year, and what’s clear is every year more and more residences are being turned into short-term rentals. If something close to the Ward proposal passes, investors will come here in droves to buy homes in our single-family neighborhoods and turn them into mini hotels.”

Just how many are there?

While figures vary wildly on the number of entire homes, condos and apartments that are being rented out on a short-term basis in San Diego, the best estimate to date is nearly 9,000. That’s according to a report released last week by Host Compliance, a San Francisco-based data analytics and consulting firm that works with dozens of cities across the country.

There also about 2,500 more homes, the company reports, where hosts remain on site and rent out their spare bedrooms. There is no disagreement among council members on that category of home sharing, which they support.

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While short-term rentals have popped up throughout San Diego, the Host Compliance analysis shows the heaviest concentration is in 10 neighborhoods, with about half of the rentals in just five communities — Mission and Pacific Beach, downtown, La Jolla and Uptown.

In order to address the rising number of nuisance complaints around vacation rentals, any new regulations adopted by the council would require hosts to apply for a permit and pay a fee, now proposed at $912, which would help pay for 13 more code enforcement positions.

Like other cities that have wrestled with how to tame the Airbnb-fueled rise in vacation rentals, San Diego leaders are having to balance a number of vexing issues raised by both sides.

Bound up in the debate are growing concerns about the impact short-term rentals are having on the housing market vs. the rights of property owners to manage their homes as they see fit.

Elected leaders also have been warned by the California Coastal Commission to not overly restrict a form of lodging that it says widens access to the coast by providing affordable overnight stays in typically high-cost communities.

In a letter delivered Friday to the city, the commission staff said it has concerns with a 90-day limitation on vacation rentals or any maximum-stay limit

Impact on housing supply

The report by Host Compliance sheds some light on just how frequently homes are being rented out and what share might otherwise be long-term housing were it not for the financial appeal of a vacation rental.

An estimated 22 percent of the city’s whole-home rentals, or 1,951 homes, are being rented out for more than 90 days a year, says the company, which scrubbed 24 home-sharing sites and filtered out repeat listings to come up with unique rentals. A far larger share — 57 percent — are being rented to visitors less than 31 days a year, suggesting many of those may already be occupied year-round and not available to people in need of long-term housing.

Airbnb executives strongly refute the notion that platforms like theirs are contributing to a housing shortage when short-term rentals represent a small fraction of the city’s housing stock — although they do account for a much larger share of the city’s more than 26,000 vacant units.

Lobbyists for the San Francisco company have met with a number of council members in recent months, as have neighborhood groups pushing for a crackdown on short-term rentals. In recent years, Airbnb has done battle with cities like San Francisco and New York, which have imposed more stringent restrictions. Bry’s proposal closely mirrors regulations in San Francisco.

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Meanwhile, Los Angeles, which also has been struggling to agree on regulations, is weighing a proposal to limit such rentals to 180 days a year but only in hosts’ primary residences.

“I started my career in labor and this is an issue I care about very much, but the reality is the mass just isn’t there,” said Christopher Nulty, Airbnb’s head of public affairs. “Trying to draw a line between decades of housing challenges in California and a platform that has existed for eight years is disingenuous. There’s always been a vacation industry in San Diego but now there will be clear rules to address issues that people have been concerned about for a long time.”

San Diego economist Alan Gin disagrees, asserting that any amount of short-term rentals diminishes the supply of housing in the face of mounting demand. A study released earlier this year by researchers from USC, UCLA and MIT lends some support to a correlation between short-term rentals and housing prices.

It found that for every 10 percent growth in Airbnb listings, rents increased by 0.42 percent and home prices by 0.76 percent.

“My guess is if a unit wasn’t used for Airbnb, it would be rented out, generating income,” Gin said. “I don’t think an absentee owner is just going to let the property sit there unused.”

Also underlying the debate over short-term rentals is a legal opinion issued earlier this year by City Attorney Mara Elliott, who broke with her predecessors and concluded that because they are not defined anywhere in San Diego's municipal code they are not allowed, despite a long history of vacation rentals in the city’s beach communities.

Her office also still has legal concerns with key provisions in the four council-member proposal, among them the limit on investor properties. It raises questions, she said, of "equal protection" by imposing different regulations for different types of short-term rental hosts.

Critics of vacation rentals have called on Elliott to enforce the law, but it’s not that simple, she said.

“I can't prosecute someone because the law is not clear in what they can and cannot do so we have to begin with what is a short-term rental? That's what we need to accomplish next week,” she said. “In my opinion they're clearly prohibited but the question is what is they?”

Hosts vs. neighborhoods

Until six months ago, Ronan Gray would feel his stress level rising as he headed home each night to Pacific Beach, wondering what new set of visitors would be occupying the house next door, what loud parties would be interrupting his family’s sleep.

In the months since the three-bedroom home was sold to new owners, he has slept through the night and his health has improved, but he said he’s no less determined to see the City Council outlaw the rentals he said are clearly illegal.

“In March, Mara Elliott said, you’re right, they’re not allowed in residential zones, and we believe there are good reasons why they shouldn’t be there,” said Gray, CEO of Save San Diego Neighborhoods, which has been holding rallies, lobbying council members and sending emails to build support for its position. “Why do they want to change the law? It’s to benefit a small group of people who own these. We just don’t want them.”

San Diego restaurateur David Contreras-Curiel, whose family owns a half-dozen restaurants, said he’s invested considerable money rehabbing the four short-term rentals he owns, which he estimates yield roughly twice the rent he would collect from long-term tenants. The revenue, he said, has helped him cover the last two years of his niece’s college tuition.

“I believe in regulations, but I don’t think you should be restricted as to what you can do with your property as long as you’re a responsible host,” said Curiel, who is contemplating opening a boutique hotel. “I’m in the hospitality business already so this is a different aspect of that where I’m hosting people in my home.”

San Diego hoteliers, like the hotel industry as a whole, have long argued for much tougher regulations of short-term rentals. They have come out in support of Bry’s proposal.

“This is not because the competitive nature of this,” insists Bill Evans of Evans Hotels, which operates hotels on Mission Bay and La Jolla. “My whole feeling about this issue is that it is about as anti-affordable housing as you can get. If our employees don’t have a place where they can live, they’ll move to another place where there is affordable housing.”

While the council’s ability to take action Tuesday seems more likely than ever, there is one thing that is certain, said Councilman Sherman.

“No one will be totally happy with whatever passes. It's such an emotional issue.”

Union-Tribune staff writer Phillip Molnar contributed to this report.

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