The sign pictured above is in the yard of a Mission Hills home. Although San Diego is one of the two most profitable cities for short-terms rentals, there is nothing in its municipal code that clearly defines a short-term rental.
This is the second of three articles about short-term rentals. The first article, City Cracking Down on Illegal Short-Term Rentals, described the efforts of the City to crack down on illegal short-term rentals. This article explains how cities across the country are dealing with the exponential growth in short-term rentals that are fueled by websites like Airbnb, VRBO, and Flipkey, which allow residents and owners of homes and apartments to connect online with would-be renters. A third article will focus on how other beach communities in Southern California are dealing with this issue.
San Francisco
One of the first cities to address short-term rentals was San Francisco, the home of Airbnb, when in October 2014 it amended its zoning regulations to allow short-term rentals in residential neighborhoods. Previously they had been deemed commercial businesses and not allowed. The ordinance allows residents to rent rooms or their homes for up to 90 days a year or year around, if the host is present when the property is rented. Hosts who rent their properties through Airbnb must sign a registry, carry liability insurance, and collect and remit to the city its transient occupancy tax, which Airbnb has agreed to do on behalf of the hosts.
Although the passage of the ordinance in 2014 was preceded by two years of meetings and public forums, it quickly faced pushback from housing advocates and others. The opponents contended that it did not do enough to protect renters and landlords and to preserve low-income housing. In response, the city amended the ordinance in July of this year. The amendment created and Office of Short-Term Rental Administration and Enforcement. However, an effort to reduce the number of days that a property could be rented from 90 to 75 days was rejected. Also rejected was a requirement to require Airbnb to file quarterly reports with the city. Opponents continue to challenge the ordinance and will place a measure on the ballot in November that would restrict all short-term rentals to a total of 75 days per year.
Data collected by the San Francisco Chronicle indicates that in May 2015 there were 5,459 short-term rentals in San Francisco advertised on the websites Airbnb, HomeAway, and Flipkey, an increase of over 25 percent from the year before. Further, only about 700 of the hosts have registered, as required by the city ordinance and at least 350 of the listings on Airbnb and hundreds more on competing sites are advertised as full time vacation rentals despite the 90 day per year limitation.
Portland
Like San Francisco, Portland endorsed short-term rentals early on when it allowed them in private homes in mid-2014 and expanded their approval to apartments and condominiums in January 2015. Despite its early approval of short-term rentals, Portland is headed for a showdown with Airbnb, the largest online vacation rental site, which is worth $25.5 billion, making it the third largest venture backed company in the world, and which touts listings in 34,000 cities in nearly 200 countries.
Despite requiring permits for short-term rentals since August 2014, only 135 hosts have requested permits despite the fact 1,600 hosts are listed on Airbnb alone. The city has responded by requiring Airbnb and its competitors to provide the names and addresses of its local hosts so that the city can ensure that the properties have been inspected and permitted, at a cost pf $178, and are paying the city’s lodging tax. Further, the websites are required to collect the lodging tax on behalf of the city, to refrain from posting advertisements from hosts who do not have permits, and to include in each advertisement the permit number for the property.
In the words of Portland City Commissioner Nick Fish, who voted for the ordinance, “The industry has made it clear they do not intend to play ball with use on the enforcement side.” While Airbnb has agreed to collect the lodging tax, HomeAway and Flipkey are resisting the requirement. The Short Term Rental Advisory Center that lobbies for Airbnb, HomeAway and Flipkey stated, “Deputizing short-term rental platforms as a policing mechanism is simply an abdication of responsibility by the City of Portland and a violation of the privacy of the platforms’ end users Making the regulatory process for rental providers easy and affordable is the only path to improving compliance, which will ultimately lead to greater economic benefits to the entire city.”
So far the city has not been enforcing the requirement to obtain a permit unless there was a formal complaint. This may change since the Revenue Bureau, which requested the new ordinance, has assumed responsibility for the ordinance. The ordinance allows the city to fine hosts and the internet companies up to $500 for every property that is not in compliance with the ordinance, which could result in fines of tens of thousands of dollars to Airbnb and the other companies like it.
San Diego
While San Diego has no formal policy on short-term rentals, an analysis of the profit potential of short-term rentals indicates that of 15 cities, it and Miami are the two most profitable cities on Airbnb. According to the analysis, in San Diego a two bedroom apartment rents for an average of $226 a night. Based on an average occupancy rate of 71 percent or 260 nights, it generates $58,750 in revenue. Annual expenses for rent, utilities, the internet, etc. average $27,269. The difference between the revenue and expenses is a profit of $31,481. (The average profit for the 15 cities included in the study for a two bedroom apartment is $20,619.)
Despite having no formal policy on short-term rentals, San Diego entered into an agreement with Airbnb in July of this year to collect the city’s 10.5 percent transient occupancy tax for its listings in San Diego. Previously, hosts were required to collect and remit to the city the tax but it was not always happening. In March the city sent 250 letter to short-term rental property owners informing them of the requirement to register their properties, pay hotel taxes including back taxes, and up to a 25 percent fine. At the time the city sent the letters only about half of the 187 registered operators had paid $105,000 in taxes and penalties. Last fiscal year the city collected $5.6 million from short-term rentals.
Philadelphia and New York
In advance of the 2016 Democratic National Convention and the visit by Pope Francis, Philadelphia has changed its zoning regulations to allow short-term rentals in residential zones provided they pay an 8.5 percent hotel tax and are not rented for more than 180 days per year.
In contrast, a judge in New York as ruled that Airbnb is illegal in New York City. The decision found that New Yorker’s who offer their residences on the website are violating a state regulation designed to dissuade landlords from operating their buildings as illegal hotels. The law enacted in 2011 prohibits apartment occupants from renting out their spaces for less than 29 days. The city is considering sharply ramping up enforcement and penalties.
All of the cities described above as well as the Southern California beach communities that will be the subject of the next article are contending with the same issue that Michael Hiltzik of the Los Angeles Times describes as follows:
“The rental or subletting of rooms, apartments or homes to transient tenants, even where strictly illegal, used to be sufficiently scattered to be winked at. Once Airbnb and its fellows provided the means to turn this activity into a commercial enterprise, its potential destabilize whole neighborhoods became impossible to ignore. The character of a building, block, neighborhood or entire city is inextricably linked to the nature of occupancy, whether it’s a community of owners, longtime renters or tourists.”
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John Tato
Staff Writer
eCoronado.com
