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Bad news for local landlords when San Diego reduces short-term rentals in 2021.

On April 6 the San Diego City Council passed new regulations limiting Airbnb-type rentals. As a result, short-term rentals volume expects to decline by 30%.

Council President Jennifer Campbell got support for the new rules from Airbnb and other well-known home-sharing companies. Also, the local hotel workers union supported the new rules.

Critics of the new rules claim that the city should prevent all short-term rentals because they overrun peaceful neighborhoods.

Delayed Enforcement: The new regulations won’t go into effect until July 2022. That gives San Diego short-term landlords a little over a year to prepare.

 

How San Diego’s New Rules Affects Short-Term Rentals

The new plan limits more than 540,000 housing units to 1 percent (5,400) for entire home rentals available for more than 20 days in a year. Minimum two-night stay rentals are subject to the new cap.

Mission Beach received an exception due to its long history of vacation rentals. Their community is only limited to 30 percent of the total dwelling units amounting to around 1,100.

The City of San Diego’s Independent Budget Analysis (IBA) used data from pre-pandemic home-sharing activities. It estimates between 1,650 to 2,800 fewer whole-home rentals operating for more than 20 days per year. That amounts to a 20 percent to 30 percent reduction for short-term rentals.

 

Exceptions to San Diego’s New Rules on Short Term Rentals 2021

 

Three exceptions exist from the new short-term rentals rules:

  1. San Diego homeowners renting out entire homes for a maximum of 20 days per year are exempt;
  2. Maximum one night stays exempt;
  3. An exception allows individuals to rent a room or two as long as the homeowners live there; and
  4. Mission Beach community gets more short-term rentals per capita than the rest of the city.

 

What Remains Unknown about San Diego’s New Rules for Short Term Rentals 2021?

 

Remaining questions centers around how rental licenses become allocated for the limited short-term rentals and how much the license costs. The city council will set the fees later this year. In October, the council will update a proposal for licensing by a lottery system.

Also, the California Coastal Commission must approve the new rules relating to San Diego city beach communities. This commission can reject the city’s new rules.

 

How Much Will the City of San Diego Earn from the New Rules?

The city treasurer’s office predicts $1.7 million in start-up costs with $2.4 million more to administer the licensing process. That means the city must generate more than $4.1 million in the first year.

Council President Jennifer Campbell earlier proposed fees ranging from $50 for those renting their home for less than 20 days per year to $1,000 for more than 20 days per year. Using a $1,000 fee for the one percent (5,400) licensed equals $5.4 million which pays for the $4.1 million city costs with a profit of $1.3 million.

More revenue gets generated from the Mission Beach community with an extra 1,100 licenses equaling $1.1 million in fees for a profit of $2.4 million.

Ironically, the Office of the Independent Budget Analysis estimates less short-term rentals reduce the annual revenues from the city’s Transient Occupancy Tax (a hotel tax) from $7.3 million to $4.4 million. That’s a loss of $2.9 million! Leaving the city with a $500,000 shortfall. Should be interesting to see how the city finds more revenues from this ordinance.

 

The City of San Diego’s Fight for the New Short-Term Rentals Cap

 

Back in 2018, Expedia, the parent company of HomeAway, along with Airbnb and VRBO successfully killed a city council-approved referendum preventing second home short-term rentals. As a result, short-term vacation home rentals skyrocketed in San Diego.

On February 23, 2021, the San Diego City Council passed the first reading of the short-term rental ordinance by an 8 to 1 vote.

This came about through the efforts of City Council President Jennifer Campbell. She worked out a compromise between Airbnb and VRBO representing corporate rental services companies with homeowners. She believed the new regulations “crafted what’s best for the city after considering many perspectives”.

 

Highlights of How San Diego Reduces Short-Term Rentals in 2022

 

In a nutshell, here’s how the City of San Diego reduces short-term rentals in 2022:

  • Entire home short-term rentals capped at 1% of the entire city’s housing units allowing around 5,400 to get licensed;
  • Only allows short-term rental owners one license per person;
  • Allowing an exception for the Mission Beach community for up to 1,100 licenses;
  • Exempting all home-sharing room rentals when the owners occupy the home;
  • Allows part-time short-term rental operators to get a special license to accommodate high visitor events at a lower fee;
  • Requires the availability for a local contact to respond within one hour to disturbances at the home;
  • Creates a Good Neighbor Policy to enforce strict guidelines, set up fines for violations, and a license revocation process; and
  • Makes a yearly assessment of the program’s effectiveness and fairness.

 

How to Register for San Diego City Lodging Taxes for Short-Term Rentals

 

San Diego short-term rental owners must pay income taxes for their annual profits. Two types of taxes require reporting:

  1. Income taxes levied by the federal government and the State of California; and
  2. Lodging taxes levied by the City of San Diego.

 

The City of San Diego Transient Occupancy Tax requires a Transient Occupancy Registration Certificate to pay lodging taxes by the following:

  • Owns property within the City of San Diego;
  • Rents housing to transients for less than one month; or operates; and
  • Short-Term Residential Property of every type (houses, spaces, rooms) rented out by the homeowner or a property management company, or internet travel service (Airbnb or similar service).

You may obtain the Transient Occupancy Registration Certificate by submitting a completed application via:

Office of the City Treasurer
Attn: TOT/TMD Desk
PO Box 122289
San Diego, CA 92112-2289

 

Conclusion

 

Many local landlords didn’t like that San Diego reduces short-term rentals in 2021. After all, a 30% decline in short-term rentals means less business.

However, the new San Diego City ordinance doesn’t take effect until July of 2022. That gives time for homeowners and short-term rental operators time to prepare.

Mission Beach got a larger quota with more short-term rentals because of their long tradition of offering homes as vacation rentals.

Exceptions to the new rules include:

  • Homeowners renting their whole home for a maximum of 20 days per year;
  • Maximum one night stays;
  • Mission Beach gets more short-term rental units than the rest of the city and
  • Homeowners residing there can rent rooms to create housemates.

Later this year, the city council must establish a system for licensing and set fees. A lottery system proposal for licensing is pending council approval.

Also, the California Coastal Commission must approve this new ordinance for the city’s beach communities.

Currently, the cost for setting up and administering the new ordinance may cost more than the licensing revenues. A problem the city council must resolve to avoid a $500,000 shortfall.

History: An attempt began in 2018 to prevent all short-term rental houses. But efforts by Airbnb, Expedia, and other travel service companies stopped it. This caused short-term rentals to boom from the beaches to the peaceful neighborhoods where communities complained.

In 2021, the council president worked out a compromise between homeowners and the short-term rentals industry to approve the new ordinance.

Starting in July 2022 a limited number of San Diego short-term rental houses should prosper with less competition.

 

Need San Diego Property Management Services?

 

WeLease handles every type of housing rental property in the greater San Diego area. Our property management services cover single-family home rentals to large apartment complexes.

Contact us for all your property management needs no matter how small or large.

 

Steven Rich, MBA – Guest Blogger

 

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