MEMORANDUM TO: FROM: Economic Development and Technology Committee David M. Reyes, Director of Planning and Community Development DATE: SUBJECT: Update on the Regulation of Short Term Rentals This memorandum provides an update on outreach efforts and additional research conducted by staff pertaining to the potential regulation of short-term rentals. This item was presented to the Economic Development and Technology Committee as an information item on September 15, 2016. At the meeting the Committee requested staff: 1. Conduct community meetings to solicit public input on how short-term rental activities should be regulated; 2. Return to the Committee with a summary of the feedback received at the community meetings; 3. Provide tabular information on regulations implemented by other jurisdictions, and 4. Provide information on Pasadena s existing rental regulations for hotels, bed and breakfasts, and the rental of single-family homes. BACKGROUND Short-term rentals consist of home-sharing, where a unit is shared, in whole or part, and vacation rentals, where the home is used exclusively for guests as a way of generating income. While the rental of homes on a short-term basis is not a new concept, the ease with which one can advertise short-term rentals online via hosting platforms has greatly changed the scale of this activity. Recently, mainstream tourist websites like Expedia and Hotels.com have begun advertising short-term rentals thus increasing the reach of short-term rental listings. As a result of the growing online presence, the global number of homes listed for short-term rental has grown to about 4 million, which represents a 13-fold increase over just the last five (5) years. There are numerous challenges and opportunities associated with codifying regulations for short-term rentals. As cities across the country are attempting to regulate this growing industry, some online platforms for homesharing and vacation rentals are filing lawsuits challenging ordinances which they believe are too restrictive. Home-sharing is defined differently amongst municipalities. In some communities, home-sharing is described as the short-term rental to guests where the primary resident is not required to host on-site during the guest stay. Other cities describe home-sharing as the short-term rental to guests in the home where the primary resident is required to host on-site during the guest stay. Home-sharing is generally not intended to include vacation rentals, where the home is not used as a primary residence and used exclusively for guests.
In the September 15, 2016 report to this committee, staff explained that supporters credit shortterm rentals with providing financial assistance during difficult financial times, enabling travelers to find a less expensive alternative to a hotel, and that short-term rental guests typically stay longer and spend more money in the communities in which they stay. Critics argue that shortterm rentals adversely impact neighborhood character, reduce long-term housing options, increase rents, skirt regulations (e.g. health and safety inspections), and potentially harm hospitality industry jobs and wages. OTHER MUNICIPAL REGULATIONS As requested by the Committee, Staff prepared the attached matrix (Attachment A ) which provides information regarding existing short-term rental regulations adopted by other major municipalities across the country including Los Angeles, New York, San Francisco and Portland among others. The information collected identifies several of the same elements that City staff solicited input on at the community meetings, including, whether to allow hosted or unhosted stays, limits on the number of days per year, and whether to require TOT tax remittance. 1. Hosted vs. Unhosted Stays: Based on the analysis of other cities, there is no consensus amongst the ordinances regarding whether short-term rentals are limited to owner-occupied units only or whether unhosted stays and vacation rentals should be permitted. The Cities of Austin, Palm Springs, San Jose, Nashville, Malibu and Sacramento all allow the rental of vacation homes. San Francisco allows owners to rent out their entire home (primary residence) for up to three months as long as they live on the property nine months out of the year. Further, amongst the ordinances evaluated, there was no distinction between owner-occupied condos and owner-occupied singlefamily homes. 2. Limit on the Number of Days: Malibu, San Francisco, San Jose, Santa Monica, Portland, Nashville, Austin, Palm Springs and New York do not have a limit on the number of days so long as the owner is on-site at the time of the stay. Los Angeles is the only city studied which imposed a limit (120 days) regardless of whether the owner is onsite or not. Sacramento, San Francisco and San Jose implemented limits on unhosted stays of 90 days (Sacramento and San Francisco) and 120 days in San Jose. 3. TOT Remittance: Every city surveyed required TOT remittance. The City of Portland collects TOT directly via AirBNB. The Committee inquired whether an owner-occupied property with multiple units where the secondary units are short-term rented would be considered hosted stays (i.e., home-sharing) or vacation rentals. Based on the analysis of other cities, second units and third units in singlefamily zones would typically be considered home-sharing. The applicant could be required to identify the structure that will be short-term rented on their City permit application (i.e., the main house, guest house, second unit, unit #101, etc.). The City could explore implementing a cap per census tract on the number of short-term rental permits that will be issued. Both Nashville and Austin have implemented caps per census tract. If the City proceeds in the direction of regulating hosted stays but not allowing unhosted stays and vacation home rentals, staff notes that courts have generally upheld local prohibitions of vacation rentals in residential neighborhoods. The most notable case involves the City of Carmel-by-the-Sea where owners of single family homes in the City challenged the Economic Development and Technology Committee Page 2
constitutionality of a city ban on vacation rentals from operating within residential properties. The owners alleged that the ordinance constituted a taking in violation of the Fifth Amendment of the U.S. Constitution and that the ordinance was arbitrary, irrational, overbroad and unconstitutionally vague and in violation of the equal protection and due process clauses of the Fourteenth Amendment of the U.S. Constitution. The Court of Appeal rejected each of the plaintiff s claims and affirmed the constitutionality of Carmel s vacation rental prohibition. The Court reasoned that maintenance of the character of residential neighborhoods is a proper purpose of local zoning laws and recognized that residential character of a neighborhood is threatened when a significant number of residences are occupied not by permanent residents but by a stream of short-term visitors. CURRENT ZONING CODE REGULATIONS FOR RENTAL ACCOMODATIONS As requested by this Committee, staff has compiled a matrix which identifies the City s current regulations pertaining to hotels, motels, bed and breakfasts and rentals of single-family homes (Attachment B ). The purpose of this matrix is to provide information about existing Pasadena regulations that could potentially be applied to short-term rentals. One of the inquiries from the Committee was whether the regulations for Bed & Breakfasts can be applied uniformly to short-term rentals. It does not appear that short-term rentals fall under the City s existing definition of a bed and breakfast. A bed and breakfast is only permitted in a structure designated as a landmark. The use is defined as: An establishment offering lodging on less than a weekly basis in a converted single-family or multi-family dwelling, with incidental eating and drinking service for lodgers only provided from a single kitchen on the premises. Fundamentally, a short-term rental would not fall under this definition because the unit should still be a single-family or multi-family unit, and incidental eating and drinking is not typically provided for the renters; although sometimes access to a kitchen is granted. Further, similar to the Hotel and Motel use, a Bed & Breakfast is considered a commercial use subject to compliance with commercial building codes and the Americans with Disabilities Act, meaning that these types of lodging facilities must have accessible parking, path of travel, counters, door knobs, etc. Also, the property amenities are considered public, including on-site pools, gardens, and recreational areas. To the contrary, operators of short-term rentals often have restrictions on areas available to their renters; they may or may not allow access to certain private amenities. Hotels and Motels and Bed and Breakfast uses both require a discretionary application (CUP for Hotels and MCUP for Bed and Breakfast) which must be approved by the Hearing Officer at a noticed public hearing. There are also regulations such as parking requirements, ADA access, on-site management, and for Bed and Breakfast uses a limitation of a maximum of 5 guest rooms that can be rented on a less than weekly basis. For Hotels and Motels a minimum oneovernight stay is required. Economic Development and Technology Committee Page 3
SUMMARY OF COMMUNITY MEETINGS & OUTREACH TO STAKEHOLDER GROUPS Planning and Community Development staff conducted two community meetings on December 1 st and December 3 rd. Staff also engaged key stakeholder groups to listen to their points-of-view on regulation. A comprehensive summary of the comments received and a tabular summary on the regulatory research is summarized below. Community Meetings The community meetings were two-hour sessions formatted to provide the public with background information on the recent growth of the global short-term market as well as information on the different types of short-term rental accommodations. The focus of the meetings was to solicit input on potential regulations related to the following key characteristics of short-term rentals: 1. Hosted vs. Unhosted Stays The community was asked to provide input as to whether the City should allow any or all of the following types of accommodations: a) Hosted stays where the property is occupied by the owner during the entire length of the stay. The rental may be a portion of the home or an accessory dwelling unit; or, b) Unhosted stays at owner-occupied homes where the owner lives at the property but is not on-site during the stay. This may occur if the owner is on vacation and rents out a portion or all of their home during their vacation; or c) Unhosted stays at vacation homes where the owner does not live on-site and the home is used primarily for short-term rentals. 2. Owner-Occupied vs. Non-Owner Occupied The community was asked to provide input as to whether short-term rentals should be allowed within owner-occupied housing units only, or whether tenants should be allowed to sublease the units as short-term rentals if approved by their landlords. 3. Single-Family Homes vs. Multi-Family Units The community was asked to provide input as to whether the City should restrict shortterm rentals to single-family homes only or whether multi-family housing properties, such as condos and apartments should be allowed to short-term rent the units, if permitted by their respective homeowners association and CC&R s. 4. Limit on the Number of Days The community was asked to provide input as to whether the City should implement a limit on the number of days per calendar year that a property owner can short-term rent their property. 5. Remittance on Transient Occupancy Tax The community was asked to provide input as to whether short-term rentals of thirty (30) days or less should be required to remit transient occupancy tax (TOT) just as hotels and motels. The two community meetings were attended by a total of approximately 70 individuals, most of whom were advocates for the short-term rental market and who currently short-term rent their properties; there were few residents in attendance who expressed concern with the activity. Economic Development and Technology Committee Page 4
Those in favor of the activity supported flexibility towards regulations. Although there was a general consensus to require TOT remittance, most of the attending community members opposed a City limit on the number of days that a home could be short-term rented and also were generally opposed to permitting and inspection requirements. Attendees also expressed a particular concern with why the City is taking up an issue with short-term rentals since the activity is not something new. Community members that are concerned with short-term rentals stated that this activity interrupts the sense of community that Pasadena neighborhoods have. If the City moves to regulate short-term rentals, these residents asked that the City impose requirements for the host to be on the property at all times and that the host must be the legal property owner. Below is a summary of the community meeting responses: 1. Hosted vs. Unhosted Stays There was overwhelming support for allowing both hosted an unhosted stays on owneroccupied properties so long as the property is the primary residence of the owner. Very few individuals supported allowing vacation homes as short-term rentals. Some community members suggested that we should define the property as a primary residence if the owner lives there at least six months out of the year. Some community members who were opposed to short-term rentals commented that limited hosted stays may be appropriate. 2. Owner-Occupied vs. Non-Owner Occupied The community was generally in support for allowing short-term rentals only within owner-occupied housing units and stated that tenants should not be allowed to sublease their units as short-term rentals. 3. Single-Family Homes vs. Apartments and Condos A majority of the attendees supported short-term renting single-family homes and also apartments and condos so long as the respective homeowner s associations approved of the activity and the units were not sub-leased. There was one comment to ban shortterm renting within single-family zoned properties and to allow it only within multiplefamily zoned properties in order to protect the character of established single-family neighborhoods. 4. Limit on the Number of Days The general consensus from those in support of the activity was to have no limit on the number of days that a property can be used as short-term rentals as long as the property is owner-occupied. There were a few recommendations for a limit of 180 days per year, and a handful of individuals were also in support of imposing a 180-day limit if the property is unhosted. Community members opposed to short-term renting suggested either a 30 or 60-day limit on hosted stays. 5. Remittance on Transient Occupancy Tax Community input from those in favor and against overwhelmingly supported the requirement for owners of short-term rentals to remit TOT tax; however, the community also urged staff to put the onus of TOT collection upon the hosting platforms. Stakeholder Meetings In addition to the community meetings, staff also met with representative of two large stakeholder groups. Staff met with Cerrell Associates, the public relations firm for HomeAway, a Economic Development and Technology Committee Page 5
subsidiary platform by Expedia which promotes vacation home rentals, and a representative from the Los Angeles Short-Term Rental Alliance (LA-STRA). Both groups were representing Pasadena property owners who used HomeAway as their platform for vacation rentals. They expressed concurrence with imposing City requirements to regulate short-term rentals, including permitting and inspections, collection of TOT, collection of administrative penalties for noncompliance, and also imposing a cap on the number of vacation rentals per census tract, but they did not support a limit on the number of days that a property can be short-term rented, or a ban on vacation rentals (unhosted stays). City staff also met with the Pasadena HomeShare Network, a group of residents in Pasadena who conduct hosted stays at their properties. Similar to Cerrell Associates and LA-STRA, members of the Pasadena Home-Share Network support a permit requirement, collection of TOT and no limit on the days that a property can be short-term rented; however, the HomeShare Network expressed concern with permitting vacation homes rentals where there is no host on site. They are also concerned with any additional City inspection requirements imposed upon the activity. NEXT STEPS Additional opportunities for public and stakeholder input will follow during a second round of community meetings. The proposed schedule is as follows: February- March 2017: Return to the Committee with draft regulations on short-term rentals. Following the Ed-Tech meeting, staff will conduct the second round of community meetings that present draft regulations. March-April 2017: Present the refined regulatory recommendations to the Planning Commission and City Council. Economic Development and Technology Committee Page 6