In late 2019, U.S. News and World Report put it very bluntly: "California, the land of golden dreams, has become America's worst housing nightmare." With median home prices exceeding $600,000, and a dearth of affordable housing, the Golden State accounts for a quarter of the total U.S. homeless population, though it is only home to 12 percent of the country's population. As short-term rental platforms like U.S. News and World Report, VRBO and HomeAway change both housing and vacation rental landscapes, they potentially leave rising rents and still less affordable housing in their wake with opportunistic property owners snatching up homes for the sole purpose of short-term rentals. Here's how the four biggest cities in the state have risen to yet another housing challenge with local legislation.
Los Angeles: Home Sharing Ordinance
Airbnb itself cites Los Angeles Council File 14-1635-S2, better known as the Home Sharing Ordinance, as the basis of its legality to operate in the City of Angels. New legislation in response to online home-sharing platforms went into effect in November of 2019, and was last amended in February 2020. The Home Sharing Ordinance makes it legal to share a home in L.A. for short-term rentals only if the listing is the host's primary residence and not subject to rent stabilization laws. Primary residence, in this case, means that the host lives there for a minimum of six months of the year. As of spring 2020, the city is drafting new legislation focusing on the short-term rental of second homes and additional properties.
The ordinance applies to short-term home sharing of entire homes and private rooms, with stays capped at under 30 nights. Here's how the key points of the ordinance break down:
- Hosts must obtain a valid registration number from the Los Angeles City Planning department and pay the applicable fees.
- Hosts are limited to renting either all or a portion of their primary residence to one group of guests, as in one booking at a time. This is known as accessory use of the residence.
- Each rented room, except kitchens, is capped at two overnight adult guests at a time.
- Accessory use is capped at 120 days per calendar year. Registered hosts can apply for extended home sharing for an additional $850 fee at 2020 rates.
- To share multiple private rooms in a single residence, hosts must undergo the same registration process as extended home sharing, but still may book only one listing at the property at any given time.
- Second homes and vacation rentals are not eligible for home sharing.
- Hosts must maintain working fire safety equipment on the premises and maintain at least three years' worth of home-sharing records.
Read More: Primary Residence Vs. Secondary Residence
San Diego: Still in Flux
In 2018, the city of San Diego attempted to pass new ordinances for short-term vacation rentals, but failed to do so; it hasn't made much notable progress since. Assemblywoman Tasha Boerner Horvath's Assembly Bill 1731, which aims to limit short-term vacation rentals in both residential and state coastal zones to properties with a full-time resident on site, remains on hold as of March 2020.
In the meantime, local hosts are subject to the San Diego Municipal Code Section 35.0113, which deals with transient occupancy. Per the SDMC, anyone renting property to transients for less than 30 days at a time simply needs a Transient Occupancy Registration Certificate, which can be attained online, by mail or in person via the Office of the City Treasurer. In San Diego, transient occupancy rules focus primarily on taxation, and hosts in the city are subject to a transient occupancy tax rate of 10.5 percent on all lodging earnings. Until the city finally passes legislation more clearly targeted at online home-sharing platforms, Mayor Kevin Faulconer has pledged not to crack down on short-term rentals.
San Jose: Code of Ordinances
In contrast to San Diego's lack of targeted legislation, San Jose's City Council got the jump on regulating short-term rentals back in 2014. It should come as no surprise that the unofficial capital of Silicon Valley actually worked side-by-side with Airbnb, one of the tech startups that helped coin the term "unicorn," to come up with the rules. The city's Code of Ordinances Section 20.80 allows all legal homes and apartments to act as short-term rentals and assesses a transient occupancy tax of 10 percent.
Just because San Jose doesn't require hosts to have a permit or certification to offer short-term rentals doesn't mean anything goes, though. Here's how Surf City, U.S.A., regulates the issue:
- Transient occupancy must be an incidental use, not the primary use, of the dwelling.
- When the host is present in a single-family dwelling, occupancy is capped at three guests. Two guests can stay in each unit of a multi-family property. When the host isn't there, up to 10 people can stay, depending on the type of property.
- When not present, the host must provide written notice and contact info to a local point of contact, which the code defines as a person available 24/7 for the duration of transient occupancy.
- Transient occupancy is limited to 180 days per calendar year when the host isn't present. When present, hosts are free to offer short-term rentals for 365 days a year.
- The rented unit must have the appropriate number of required parking spaces for its type and must comply with current housing code requirements.
- The host must maintain records documenting compliance with these criteria for at least three years.
San Francisco: Regulation of Short-Term Rentals
Perhaps expectedly, with Airbnb headquarters in the city, San Francisco originally legalized and regulated short-term home rentals in 2014 with a 7 to 4 vote from SF's board of supervisors limiting host-off-site rentals and establishing a public registry with the city's planning department. Though, to be fair, Airbnb had already been active for six years in the city. The public registration mandate actually drove Airbnb to sue the city, as the company felt that the registration process made it too difficult for hosts to comply. In 2017, the city and the company worked out new laws for all short-term vacation rentals (not just Airbnbs), which hold steady as of 2020.
In the Golden City, hosts operating from a primary residence where they reside for a minimum of 275 days per year can offer rentals, but they still need the Short-Term Residential Rental Certificate and a Business Registration Certificate originally mandated in 2014. However, in tandem with the newer legislation, Airbnb offers a streamlined online registration process to help hosts quickly get this sorted out. Other basic rules include:
- Secondary residences are not eligible for short-term rentals.
- No more than five distinct short-term renters may occupy a unit simultaneously.
- Hosts must have a minimum of $500,000 in liability insurance coverage or rent through a platform that offers equivalent coverage.
- All short-term rental property must adhere to current building code standards.
- Hosts must pay federal income tax on their earnings and may be required to pay business personal property taxes. Airbnb directly collects transient occupancy taxes from the guests and pays them to the city.
As San Francisco's tumultuous legislation process and legal battles illustrate, regulating short-term rentals is still new and rocky territory. Just like the short-term rental market itself, plenty of local legislation is still evolving.
- Bloomberg: How California Became America's Housing Market Nightmare
- City of Los Angeles: Office of the City Clerk: 14-1635-S2
- Airbnb: Help Center: Los Angeles, California
- Los Angeles City Planning: Home-Sharing
- City of San Diego: Office of the City Treasurer: Transient Occupancy Tax/Tourism Marketing District
- San Diego Municipal Code: Chapter 3, Article 4, Division 1: Transient Occupancy Tax
- The Mercury News: San Jose Set to Legalize, Tax Airbnb Stays Like Hotel Rooms
- City of San Jose: Code of Ordinances: Part 2.5 - Transient Occupancy as an Incidental Use to a Residence, 20.80.150 – Definitions
- Tech Crunch: San Francisco Legalizes, Regulates Airbnb with 7-4 Vote, Lots of Amendments
- Tech Crunch: Airbnb Settles Lawsuit with San Francisco
- San Francisco Office of Short-Term Rentals: About Short-Term Rentals
- Legal Beagle: Short-Term Rental Laws in California: Regulations, Airbnb & More
- Legal Beagle: California Rent Control Law: An Overview for 2020
- Legal Beagle: California Vacation Rental Laws: Airbnb Laws & Regulations
- Legal Beagle: Primary Residence Vs. Secondary Residence
- Legal Beagle: Occupancy Limit Regulations in California
- Legal Beagle: What Does Home Insurance in California Cover?
As a freelance writer and small business owner with a decade of experience, Dan has contributed legal- and finance-oriented content to diverse sources including Chron, Fortune, Zacks.com, Motley Fool and MSN Money, among others.