Short Term Rentals Outlawed – Maybe Not?
Are short term rentals really over in Santa Barbara? In June of 2015, the City decided to prohibit Short Term Rentals (STR), for stays under 30 days, unless the property was in a zone that allowed hotel use (R-4, C-2, and a few other commercial zones). This prohibition had 18 months of transition time until STRs ceased to be allowed on January 1, 2017.
The outlawing of STRs included both kinds of short-term rentals:
1. Whole homes and apartments completely rented on a short-term basis;
2. Airbnb properties where the owner was present on the property.
This affected $1.4 million of Transitory Occupancy Tax (TOT), the fee you pay to stay in a hotel, commonly known as the bed tax. So, the city effectively reduced its own income with this decision to restrict STRs.
Studies by economist Mark Schniepp found that priorto the recent bans in SB County, 1.7 percent of all the housing stock in the County was being used for STRs. In the City of Santa Barbara, 2.8 percent of the housing stock was used for STRs. So, the number of STRs was never a big percentage of the housing stock.
The primary reason the city decided to reduce STRs was the argument that STRs took long term rentals out of the marketplace, thus driving up the cost of renting. This had great appeal in a town where rents are already high, and persuaded the City Council and County Supervisors to vote for restrictions on STRs.
However, the change of rules did not put more homes on the long-term rental market. Some STR owners sold their properties, but most STRs simply converted to furnished rentals for 30 days or longer. These vacation homeowners are now catering to tourists who come to town for longer visits. There are not as many 30-day visitors as those who come for a week. Effectively, the income for these property owners dropped by 50 percent.
They still did not convert their properties to long term rentals, mainly because they still use the property periodically throughout the year as their personal vacation homes. So, the law has not had the intended outcome of providing more long-term rentals. The fact that rental rates have continued to increase since Jan 1, 2017, underscores the failure of prohibition of STRs as a solution to our affordable housing issue. The second complaint was that STRs created noise and disruption to neighborhoods. Actual counts of complaints revealed that this was a real but relatively isolated issue. The reasons the Council and Supervisors outlawed STRs was not very well backed up by evidence.
You would think it should be easy to create a STR in the correctly zoned areas of the city. However, the City has proven masterful at turning down owners who wish to do short term rentals in R-4 and C-2 zones. Many owners have thrown up their hands from the ways the City works to prevent short term rentals.
Santa Barbara County effectively ended STRs in October 2017 in all but a small coastal strip near the Miramar Hotel, currently hosting only 14 STRs. The County does allow “homestays” in up to three bedrooms in a home when the owner, or a long-term tenant, is present on the property.
The Coastal Commission, in a recent ruling, reprimanded the County and re-opened the Coastal Zone in the County, (not the City – yet), for short term rentals. This adds 142 rentals back into the rental pool. However, the County recently approved funding to revise their plan, which may still negatively affect STRs in the SB County Coastal Zone sometime in the future.
I recently spoke with Theo Kracke, owner of Paradise Rentals, who is in a lawsuit with the city attempting to overturn the STR ban, at least in the coastal areas of Santa Barbara. Should he be successful, this could re-open STRs to everyone below Cliff Drive on the Mesa and elsewhere along the ocean front. This should be decided by the fall of 2018.
There are several other lawsuits against the City of Santa Barbara regarding STRs. So, we have not heard the last word on whether short term rentals may again be available for people who wish to stay in a real home for their week-long visit to Santa Barbara.
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