Coastal Commission approves timeshare definition for fractional home ownership in Newport Beach

The dust appears to have settled on fractional home ownership in Newport Beach for now, following a unanimous Coastal Commission decision Thursday afternoon that upheld the city’s efforts to prevent the practice in residential neighborhoods.

Fractional home ownership is a growing real estate trend wherein several owners enter an agreement with one another to purchase a property. Time at those properties is then split on the basis of the “share” that each party owns. While owners and property brokers like Pacaso have contended that this is unlike timeshares as the individuals own the houses and contribute to the local economy, residents have said the practice is a new coat of paint covering old issues.

“The California Coastal Commission’s decision today has unintended consequences that will adversely impact tens of thousands of co-owners across the state. We remain committed to advocating for fair and equitable access to coastal properties for homeowners, as co-ownership is a decades-old practice across the U.S. and on the California coast,” said Pacaso spokeswoman Chrissy Bruchey. “Pacaso will continue to advocate for co-owners as we evaluate next steps in this process.”

Neighbors of these fractional ownership properties say that their neighborhoods face the same issues as with short-term rentals in the city: increased traffic, noise and parking.

In May, the Newport Beach City Council moved to include fractional home ownership under the umbrella of timeshares. By doing so, it requires those properties — currently about 12, according to city staff — to abide by the same regulations and requirements that guide timeshares, which includes their prohibition in all residential zones.

This would exclude properties that already exist, which are considered legal non-conforming and will continue operating as they are. This change in city code has been in effect inland but was not enforceable in Newport Beach’s coastal zone until the state Coastal Commission approved the amendments in the local coastal program and confirmed their compliance with the land use plan.

Discussion from both sides of the argument focused on the merits of fractional home ownership versus their impacts on residents.

In his comments to the commission, Pacaso co-founder and chief executive officer Austin Allison said that traditional second home ownership is not only out of reach for most people but that they are only in use typically for a short period of the year. Allison argued second homes remove housing stock from local communities but that the fractional home ownership model ensures that those houses are used year-round.

“Allowing a city to ban co-ownership by calling co-ownership a timeshare will have grave consequences that are unintended, impacting thousands of homeowners today and tomorrow,” Allison said. “We believe that we can and should be a part of the solution, especially in coastal zones where housing is inaccessible to so many people.”

He and outside counsel DJ Moore requested a continuance of the item to allow for Pacaso to develop a working group and examine the issue further. The company operates about nine properties in the city on the behalf of its owners and recently filed a lawsuit against it in federal court in September.

Commissioners disagreed with Pacaso representatives, with Coastal Commissioner Vice Chair Caryl Hart describing the topic at hand as “black and white.”

“Our role today is to look at what the city has done on the behalf of the residents of the city and determine whether or not the [implementation plan] is in any way out of conformity or inconsistent with their land use plan,” Hart said, before adding that she agreed with staff recommendation to certify the changes as submitted.

Other commissioners, including Justin Cummings, Mike Wilson, Meagan Harmon, Paloma Aguirre and Linda Escalante, spoke to the housing affordability crisis in California broadly. Cummings said the affordability issue circled around whether or not people could pay rent, never mind whether or not they could afford a home, and that arguments around second homes were not compelling.

Wilson agreed, adding that housing was being treated as an investment and contended that fractional home ownership was not the same thing as co-housing.

“It’s co-ownership of an investment,” said Wilson, “I think part of this is around definitions and we’re going to have to talk more and more about what is housing? What is a home? What is a resident? ... these people are not registered to vote in these places. They’re not engaged citizens in these communities.

“Visiting and having a barbecue with a neighbor is not being part of the PTA or a volunteer firefighter. We’re robbing these communities of citizenry through these mechanisms. The character of a community ... is the humans that need to be in these spaces ... affordability is about renters and about first-time homebuyers and your residency. Vacation homes, second homes — that’s a hard place for us to get into.”

Harmon floated the possibility of a housing workshop to look at the issue comprehensively, which other commissioners agreed with.

“The Commission’s decision to uphold Newport Beach’s fractional ownership ordinance reinforces the importance of local control over critical housing issues that impact our community. Many of our residents have expressed concerns about noise, parking, high turnover and other adverse neighborhood impacts that often arise with short-term stays,” reads a statement from the city after the decision. “Thankfully, the Coastal Commission recognized the negative impacts that arise from fractional ownership and sided with the residents of Newport Beach to help preserve the quality of life and neighborhood character in our coastal residential areas.”