By KENDRA SITTON | Uptown News
The short-term vacation rental industry has continued to grow in San Diego, fueling tourist spending and jobs, as well as fears these properties are taking housing stock off the market.
Estimates of how many whole-home rentals are available at any given time in the city range from 8,000 to 16,000.
No one knows the exact number of short-term rentals (STRs) — defining that statistic gets complicated as some homes are listed on multiple platforms and others have owners that occupy it part of the year — but it does appear to be a growing industry even as the specifics are fuzzy.
Data compiled by AllTheRooms.com shows listings in San Diego just on Airbnb grew 72% from 6,885 in June 2017 to 9,502 in May 2019. As of May, 464 of those properties are available in North Park alone, followed by 309 in Bankers Hill, and 293 in Hillcrest. Each neighborhood saw growth in Airbnb listings over the two years studied, although North Park did see a slight drop off in 2019.
The future of the industry is in limbo as politicians and activists push for regulations. An effort for Sacramento to regulate San Diego’s short-term rentals failed after the author of AB 1731 withdrew the bill amid claims it would’ve taken away local control and driven homeowners to use sketchy rental platforms in order to continue renting their homes.
Previously, City Attorney Mara Elliott determined San Diego’s code did not allow for STRs in single-family residential zones. However, that has yet to be enforced. In a column that ran in Uptown News earlier this month, she called for the industry to be regulated “in a clear and objective manner that respects the rights of all property owners, protects our quality of life, and preserves our housing stock.” She pointed out instead of passing new laws, the city has relied on existing laws to regulate an industry that has been innovated by Silicon Valley.
Efforts to change the state law, or to change city policy, have stalled, leaving STRs to grow unchecked in many localities in the region. While some smaller areas, like Coronado, have banned them outright, other cities have failed to intervene causing the industry to flourish — and continue to line the city’s general fund through the Transient Occupancy Tax (TOT).
The industry’s growth comes at the chagrin of Save San Diego Neighborhoods, a group which worries the STRs are taking away housing stock and harming homeowners who are neighbors to tourists instead of residents.
“The code has no provision whatsoever for allowing any kind of vacation rentals. Every single one is illegal under the code. It’s a permissive zoning code, which means only permitted uses are allowed. Using residential housing as a hotel is not a permitted use,” said board member Matt Vallenti.
A flashpoint in the debate has become The Louisiana, a mixed-use property on University Avenue. Mayoral candidate Barbara Bry held a press conference there in early September to demand the city enforce existing regulations on STRs. She has been using the issue as part of her platform while Todd Gloria has pushed to increase housing stock by increasing construction.
The bottom floor of the newly completed development is dedicated to restaurant The Louisiana Purchase, a nail salon and a record store. Two units are designated as affordable housing. The other 15 units are leased by Sonder, a short-term vacation rental company that leases large groups of apartments directly from developers. Sonder is a cross between a hotel and a home-share with better amenities than a home-share but with costs significantly less than a hotel.
In an email exchange, the company said, “Sonder helps developers to stabilize their projects and reach their target occupancy rate more quickly than the traditional lease-up timeline. This partnership enables developers to break ground on new projects at a faster pace and increase the number of housing projects they can work on.”
However, Vallenti takes issue with this model because although the building is located in a commercial zone and could easily be operated as a hotel, the developers received approval from local planning groups and the city under the assumption that the building would help relieve the housing crisis, he said.
“If you allow a developer and a landlord to build new apartment buildings under the theory that it’s going to help our housing crisis, but then you turn a blind eye to those units being used as mini-hotels, you are making the housing crisis that much worse,” he said.
The case of Sonder at The Louisiana is rare but egregious to those worried about STRs stealing away housing stock.
Jonah Mechanic, the president of Share San Diego, said the vast majority of whole-home STRs are part-time. He claims those properties are typically rented out by homeowners who only live in San Diego part-time because they are their second homes or they are retirees funding their own vacations. “The true value in short-term rentals is accessibility to your home when you want.”
“The future of the business is part time. These are people who are not fortunate enough to live in San Diego full time, but hope one day they can. A lot of these clients live on the East Coast because of work obligations or family obligations and they love coming to San Diego. So they buy a house out here, they use it as much as they can. When they’re not using it, they offset expenses by renting it,” Mechanic said. “They’re not investors. They’re not making money. They’re not turning a profit, but they certainly are offsetting some of the carrying costs.”
One woman who rents a small studio at her North Park home on Airbnb explained she did it because the studio is not built for long-term use. Melissa Spence let a friend live in the studio for a few months, but said she chose to put it on Airbnb because otherwise it would be used as guest room or a place for crafting.
“If we didn’t have it as an Airbnb, it really wouldn’t be utilized,” Spence said. “We currently are booked out for several months and it has been fun to occasionally get to know people a bit as they go in and out. For the most part, we still have privacy. It’s been a great income for us because we’re basically saving all of the money from that.”
Spence and her husband plan to use the money earned on Airbnb toward their next down payment when they move.
Mechanic deals exclusively with STRs along the coast, where he said the increasing number of rental options have meant prices have barely increased over the past decade because of a competitive market. That has meant it is more difficult to turn a profit, and in turn, has pushed investors out of the market entirely leaving it exclusively to actual homeowners.
“[Investors] certainly call and they certainly ask and we have to educate them about the true cost of running your home as a vacation rental. And once we get through all the numbers, they basically see that in essence, they could make more money by putting their money in a stock or a bond,” he said. “Even a 3 or 4% return is better than a minus 10%.”
He believes that as competition increases inland, that may happen there soon as well.
While his group did oppose the ill-fated AB 1731, Mechanic said he would be in favor of some regulations, including limiting what percent of a neighborhood’s housing can be made up of rentals so they would not override a community. “We would support a reasonable path that prevents short-term rentals from having too much impact on the neighborhood,” he said.
In addition, he is pushing for San Diego to levy a fee, not a tax, that would fund services particular to STRs.
He gave an example of what that would look like: “$900 would be your registration fee and not a tax so the city could bookmark those funds for specific purpose. So rather than the $4.5 million in [TOT] to the general fund, we are firm believers that [the fees] should go towards forming a neighborhood noise and nuisance [police unit] or in enforcing a code compliance department.”
A similar system exists in Palm Springs, where neighbors can directly call police dedicated to enforcing rules on STRs when they have a noise complaint.
“We certainly understand that if not monitored and if not regulated, there will always be bad actors and we are in full support of the industry generating funds through a permit fee that ensures that the bad actors are limited,” Mechanic said. Another idea would be to connect a Social Security number to a rental, so each person would be limited to having only one rental property in an effort to push major investors out.
At a maximum estimate of 16,000 whole-home rentals, Mechanic points out STRs make up very little of the entire housing stock in San Diego. Critics argue they make up a much larger portion of the housing stock that is actually available for people to rent or buy.
“There’s a deficit of available units and at any given time there’s always going to be a relatively few number of housing units that are vacant. The vacation rentals that we currently have actually make up a large percentage of the total number of units that are available for someone to live in. So if you are a resident who needs a new place, you’re competing essentially with people from out of town who just want to spend a few nights there and use it as a hotel for many of the available units,” Vallenti said.
A study conducted by the city in 2018 did not answer whether short-term vacation rentals impact housing stock.
Sonder said it is “incredibly important” to them to follow San Diego’s regulations and be a good neighbor. At the moment, those regulations are not enforced under the mayor or simply do not exist as legislation fails to pass or is repealed. With no action from City Council and Sacramento’s legislative season over, the industry could flourish, and infuriate onlookers, through the next election cycle.
— Kendra Sitton can be reached at firstname.lastname@example.org.