San Diego’s tough regulations on short-term rentals spark battle in vacationland

Maurice Maio is the owner of San Diego Beach King, a vacation rental business in Mission Beach. But he didn’t sound like royalty on Tuesday, one day after the San Diego City Council passed an ordinance restricting short-term rentals and eliminated a proposal by the mayor to make an exception for the popular beach and bayside community.

“Eighty percent of the homes [using short-term rental accommodations] will be affected,” Maio said. “I think we’re likely to see a ghost-town effect in Mission Beach.”

With roughly 44% of its housing stock estimated to be short-term rentals, Mission Beach is considered ground zero in the great debate over how San Diego should regulate home-sharing platforms such as Airbnb.

Supporters of the new rule considered the 6-3 vote by the City Council a great victory, but others see it as a dire economic threat.

While the new regulations passed Monday will affect the entire city, they promise to significantly upend the longstanding vacation rental market in Mission Beach, where some estimates put the number of such rentals at more than 1,000.

In a move that will dramatically alter San Diego’s home-sharing landscape, the vote outlaws vacation rentals in secondary homes, limiting short-term stays to one’s primary residence only, for up to six months of the year.

While there had been a move to consider exempting the Mission Beach rentals that had been paying required transient occupancy taxes to the city, the council majority was unwilling to legislate any waivers.

“If we can’t short-term rental the property and it doesn’t pencil [out] to rent it on a monthly basis, then it’s a bloodbath for us,” Maio said. “We would have to consider selling.”

Maio was coy about how many properties his business rents — “less than five,” he said.

The new rules are supposed to go into effect by July 2019.

Roughly 1,500 of San Diego’s more than 11,000 short-term rentals are in Mission Beach, according to a report prepared last year by Host Compliance, a company that works with cities to monitor and enforce short-term rental regulations.

In Mission Beach, the vast majority of such rentals are second homes or, in some cases, investor properties, say vacation home management companies. The net effect of the new regulations, they say, will be to wipe out those rentals.

“We are not reacting well. Property owners in Mission Beach are freaking out because we all interpret this as a ban,” said Blaine Smith, owner of 710 Beach Rentals, which manages 140 rental homes, 85% of which are in Mission Beach. A Crown Point resident, Smith owns a vacation rental himself in Mission Beach, as do his parents, who live in Temecula.

“Some of these owners have owned properties for three, four decades,” he said. “Some owners are saying, should I sell because they can’t live there six months a year. Some have called saying this isn’t right and we’re going to sue the city. I was on the phone with my dad, and he’s extremely nervous and upset about this.”

Share San Diego, a coalition of some of the largest vacation rental companies as well as individual hosts, said Tuesday that it is planning to pursue legal action, asserting violation of equal rights and property rights under the U.S. Constitution.

Other cities, including New York and San Francisco, have legislated vacation rental rules that limit them to one’s primary residence.

“Without a doubt, Share San Diego and our members who participate in the sharing economy feel very strongly that property rights and constitutional rights were trampled on yesterday by the San Diego City Council,” said Jonah Mechanic, owner of SeaBreeze Vacation Rentals, which manages rentals in coastal San Diego. He estimates that of the 350 vacation rentals that companies in the coalition manage, 90% are not primary residences.

“We plan to pursue legal action to make sure all San Diego property owners, despite how they’re classified, are equally protected.”

Airbnb, which hired former San Diego City Atty. Jan Goldsmith to represent the company at Monday’s hearing, said Tuesday it had no further comment.

Council members, in voting for tighter restrictions, argued that their first obligation was to residents, who have been complaining for years that rotating cycles of vacationers are disrupting their quiet neighborhoods, depleting the supply of long-term housing and turning homes into mini hotels.

“The community that I represent, they’ve come out in force and they’ve said, ‘We don’t have any neighbors anymore — it’s just one big party all the time,’ ” said Councilwoman Lorie Zapf, who worked alongside Councilwoman Barbara Bry to craft the ordinance.

In cracking down on short-term rentals, the council also approved a registration program that would require the payment of an annual licensing fee of $949, which would help generate revenue to hire personnel to enforce the new laws. But because there will be considerably fewer hosts paying the fee, it’s unclear how robust of an enforcement program the city will be able to have. The fee was calculated based on allowing primary residence rentals, plus one additional short-term rental.

Those who fail to register their properties could face daily fines starting at $2,500 per violation. The hosting platforms would be subject to even stiffer penalties for failing to help ensure their hosts are properly licensed.

Some critics say short-term rental demand is so strong and the ordinance so strict that it will encourage cheating.

“Look, you can’t stop bad actors from trying to game the system,” Zapf said. “But I can assure you that neighbors will be keeping an eye out. It’s very clear when something is up for rental — you have people coming and going. … The fines are incredibly steep to prevent the underground [economy], but if people want to try it, that’s on them.”

Meanwhile, the new regulations still must pass muster with the California Coastal Commission, which has long favored short-term rentals as an affordable option for overnight lodging along the coast. While other coastal cities, including San Francisco, have embraced regulations that limit vacation rentals to primary residences only, the commission has not taken a uniform approach with every city, said Deborah Lee, the commission’s district manager for the San Diego area.

In a letter she sent to council members last week, Lee said the staff liked the idea originally proposed by Mayor Kevin Faulconer of not limiting vacation rentals in Mission Beach given the “decades-long popularity” of home-sharing there.

While the commission staff has not seen the exact language of what the council approved, Lee said it is concerned about the “fact that this will reduce the inventory” of more affordable lodging in the community.

“So far, the city has not put this in any context,” Lee said. “They didn’t show the number of [overnight] units they have or the range of affordability for hotels and what’s in the vacation rental market. We had also recommended that they not adopt a maximum stay, and the council has gone with six months so we are concerned about those elements.

“But in fairness to the city, we haven’t seen the final ordinance. Hopefully, they’ll bring forward the analysis.”

Gary Wonacott, president of the Mission Beach Town Council, fought for tighter regulations and predicted the impact would not be huge for most Mission Beach residents who rent out their properties.

“They can convert to long-term rentals, and they’re going to do very well, I believe,” Wonacott said. “My wife and I have three long-term rentals, and we’re OK. You don’t have to have short-term rentals in Mission Beach to survive.”

However, Aaron Steele is worried the new regulation will dramatically affect him.

Steele, his wife and two children outgrew the two-bedroom, 1,000-square-foot home they own in Mission Beach and use the money they get from short-term rentals to pay the lion’s share of the larger home they rent nearby.

The new regulations would not allow them to continue doing that.

“We might have to move out of where we live just to accommodate” the ordinance, Steele said. “That makes no sense at all.”

Not all Mission Beach vacation rental owners are wringing their hands over the council’s decision.

Pacific Beach resident Ed Nodland, who has been renting out his two-bedroom Mission Beach cottage for short-term stays since about 2008, said he and his wife would likely switch to long-term renters once the new regulations go into effect.

“The income changes a little bit, but we’ll just rent it out for longer periods of time, 30 days or more or maybe for a two-year period,” he said. “We’re not ones to fight changing times.”

Lori Weisberg and Rob Nikolewski write for the San Diego Union-Tribune.