CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
10/10/2022
1 SUBJECT:
Short-term Rental Program Update and Discussion of Options for Future Amendments to Existing Regulations
RECOMMENDED ACTION:
Discuss the City’s existing Short-term Rental (STR) Program and information about residential property sales resulting in subsequent STR use and provide direction on whether amendments to the STR Program regulations are warranted at this time.
STAFF CONTACT:
Christian Murdock, AICP, Planning Director
(650) 738-7341
[email protected]
Yulia Carter, Assistant City Manager
(650) 738-7301
[email protected]
BACKGROUND/DISCUSSION:
The term “short-term rental” refers to the use of all or a portion of a residential dwelling unit for a rental of less than 30 consecutive days. The popularity of STRs has increased steadily over the past decade due in part to the convenience of booking provided by companies such as Airbnb and VRBO and the increased availability of STRs as an alternative to a traditional hotel or motel. STRs can also provide a source of income for owners and occupants of the residential dwelling units offered for rent as STRs.
A residential dwelling unit being offered as an STR may be exclusively used as an STR (i.e., unhosted) or the property owner/renter may reside on the property (i.e., hosted). Hosted STRs may be offered for rent by guests while the owner/renter is on-premises or may be offered for rent by guests periodically between occupancy by the property owner/renter. Because STRs utilize existing residential dwelling units, STRs are primarily interspersed within single-family residential neighborhoods or throughout apartment/condominium units in multi-family residential buildings. As such, STRs can have negative impacts on noise, garbage, and parking availability in a community. STRs can also have negative impacts on the availability of residential dwelling units for long-term housing needs in a community through the use of homes only as STRs, potentially causing a reduction in the supply of housing stock which can contribute to higher housing costs.
The increasing number of STRs in Pacifica led the City Council to adopt Ordinance No. 835- C.S. (“Ordinance”) in 2018. The Ordinance established a permit requirement for operation of an STR, certain operating requirements, and permit revocation and enforcement processes. The Pacifica City Council 2
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operating requirements established in the Ordinance also included certain guest safety standards including a requirement that a diagram of exits, fire extinguisher locations, and fire and police contact numbers be printed and on-site for the renter.
The Ordinance appoints the Assistant City Manager or designee as the responsible City official for administration of the STR permit process. Other staff primarily in the Finance Division of the Administrative Services Department are responsible for assisting applicants with completing their business license tax, TOT, and STR permit registrations. The City engaged a consultant, HdL in July 2021 to assist with annual filing and management services for the transient occupancy tax (TOT) returns and requirements for City hotels/motels, including TOT compliance verifications for STRs.
Since enactment of the Ordinance, the City has registered numerous STRs. HdL and City staff have identified a total of 172 total STR properties1 as of September 30, 2022. HdL has brought 148 of them to compliance by either helping them to register (101 properties) or close/ cease STR activities (47 properties), while 24
STR properties remain unresponsive,
subject to priority compliance
enforcement efforts by HdL. Therefore,
as of September 30, 2022 the City had
101 active registered and compliant
STRs.
It is important to note that the STR
advertisement count is a fluid number
that constantly changes. For
comparison, below is the STR map
distributed throughout Pacifica at the
time this report was written as shown in
Figure 1, (blue dots are listings with
identified properties, red dots show noncompliant properties being contacted, and yellow dots are listings in an
approximate location but that are not yet
associated with an identified property).
On June 13, 2022, City staff provided a
comprehensive update to the Council on implementation of the City’s STR Program2. At that meeting staff provided a detailed report on implementation of the STR Program, which included:
STR locations in Pacifica, the Transient Occupancy Tax (TOT) collections from STRs, the impact STRs have on the City’s housing stock, unpermitted STRs and City enforcement activities.
At that June 13th meeting, staff summarized the status of the STR Program as follows:
1 The number of active STR listings frequently changes as new properties are added and existing properties are removed by operators.
2 City Council Agenda Report, Item No. 14.
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• The City’s STR Program is still relatively new;
• STRs comprise a small share of dwelling units3(less than 1%), especially low for a coastal community;
• Some STR concentration observed in West Sharp Park and Pedro Point neighborhoods; • No evidence of significant neighborhood problems or impacts to public health, safety and welfare.
The City Manager’s recommendation, at that time, was to not undertake any modifications to the STR Program and to continue to gather data on the number and types of STRs, continue to work to identify unregistered STRs and assess and enforce as necessary any Accessory Dwelling Units (ADUs) as STRs. Ultimately, the City Council did not direct any changes to the STR Program but did direct that potential revisions to the STR Program be revisited during the Council goal setting in 2023.
Since the June 13th meeting there have been some concerns from members of the public relating to the sale of residential property in Pacifica for the singular purpose of using the property as an STR. These types of purchases can have a negative impact on the community as they remove an entire housing unit from the housing stock available for long-term residential use. As a result of these recent concerns, Councilmember Beckmeyer requested that this item be agendized for an initial Council discussion about this specific concern.
ANALYSIS:
Staff has worked with HdL to attempt to identify and analyze available data pertaining to the sale of properties to determine if there is indeed a correlation between the purchase of residential property and conversion of those properties to STRs. Data that is available on residential sales does not give details on the intended use of the residential property (i.e., was it purchased for family use or long-term rental or STR) at the time of purchase. However, HdL was able to prepare a chart that compares the residential properties sold in the last three years with properties advertised or registered as an STR4.
3 Overall, the 103 STRs identified by HdL in the June 13, 2022, report comprise less than 1 percent of Pacifica’s total housing stock.
4 This data is limited by only including the date of the last sale. It will not include data if a residence was sold multiple times over the last 3 years. Since the objective is to find the rate of conversion to STR in the City, historical sales do not have a noticeable impact on the figures listed.
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Count Year Rate
Total Residential Property Sales in 2019 321 2019 4.7%
Residential Properties sold in 2019 and advertised or registered as STR 15 2020 4.7% 2021 4.6%
%STR Conversion 4.673% 2022 8.1%
Count
Total Residential Property Sales in 2020 342
Residential Properties sold in 2020 years and advertised or registered as STR 16 %STR Conversion 4.678%
Count
Total Residential Property Sales in 2021 410
Residential Properties sold in 2021 and advertised or registered as STR 19 %STR Conversion 4.634%
Count
Total Residential Property Sales in 2022 YTD 260
Residential Properties sold in 2022 YTD and advertised or registered as STR 21 %STR Conversion 8.077%
*Totals for 2022 datra as of 9/30/2022
Pacifica, CA - STR Conversion Analysis- 2019 Conversion Rates Pacifica, CA - STR Conversion Analysis-2020
Pacifica, CA - STR Conversion Analysis - 2021
Pacifica, CA - STR Conversion Analysis - 2022
Pacifica STR Conversion Analysis (January 2019 - September 2022)
4.7% 4.7% 4.6%
8.1%
0.0%
2.5%
5.0%
7.5%
10.0%
2019 2020 2021 2022
Conversion Rate over Time
As can be seen in the foregoing chart, the number of residential properties sold in the last three years and advertised or registered as STR has varied from year to year, with the highest number being 21 in 2022, which shows an uptick of the STR conversions from an average 4.6% of sold properties in 2019-2021 to 8.1% in 2022 year-to-date. The partial year figure for January to September 2022 was 21 out of 260 sales. While the data show that the proportion of sales that resulted in advertising or registering as an STR varied between 2019 and 2022 (primarily because the number of residential properties sold varied each year), the actual count of properties converted to STRs from year to year has not varied significantly from 2019 to 2022.
Potential Amendment to STR Program
If Council determines that the STR Program needs to be revised to address the conversion of residential properties to STRs, staff has identified three regulatory options that may address this concern.
Option No. 1: Impose a Cap on the Total Number of STR Permits Issued in Pacifica Imposing a cap or limit on the total number of STR Permits issued in Pacifica could effectively curb the purchase of residential property for STRs. By imposing a cap on STR Permits the City may not be as attractive to those buyers who are purchasing residential property for the sole purpose of using that property as STRs. Through this type of regulation, once the total cap has been reached on STR Permits, no further STR Permits would be issued until an STR Permit has been revoked or relinquished.
If Council is inclined to impose a cap, staff would recommend limiting the STR Permits to 175 Pacifica City Council 5
October 10, 2022
given the total number of STRs currently permitted, the number of STR applicants that are currently pending processing of their applications, and those STRs that may be brought into compliance between now and the adoption of the ordinance in response to enforcement correspondence already sent by the City. This option would not require any further staff analysis to determine the appropriate limit and the revisions to the Ordinance that would be required are anticipated to be fairly straight forward. Imposing and enforcing a cap will present administrative challenges beyond the current program administration, but staff anticipates those impacts to be manageable.
Option No. 2: Limit the Total Number of Times an STR Can Be Rented A limit on the total number of times that STRs can be rented during a calendar year could also deter the purchase of residential property for only STR use. If a prospective buyer is purchasing the property with the desire to use the property as a full-time STR then they would need to assess whether a limitation on the total number of times an STR can be used would still meet their needs. Once the maximum number of rentals in a calendar year has been reached then the property could no longer be utilized as an STR until the following year.
If Council is inclined to impose a limit on the number of times an STR can be rented, staff would need to perform more analysis in order to determine what length of rental period would be appropriate. For example, the City of Daly City limits STRs to a maximum of 100 days per year for unhosted stays, while Redwood City limits STRs to a maximum of 120 days per year for unhosted STRs. Both cities have no limit on hosted STRs. This option would likely require significant amendments to the Ordinance to specify the maximum rental period. This option would also be more difficult to enforce as it may be difficult to determine actual days that the STRs are rented.
Option No. 3: Limit the Number of STR Permits that Can Be Issued to Each Person Currently, each property that operates as an STR in Pacifica must obtain an STR Permit and there is no limit on the number of STR Permits that may be issued to one person. A limit on the total number of STR Permits that can be issued to a single person could deter the purchase of residential property for exclusive use as an STR because they may not be able to obtain an STR Permit for multiple properties.
If Council is inclined to impose a limit on the number of STR Permits that can be issued to one person, staff would need to conduct more analysis in order to determine what the appropriate limit would be for STR Permits and the best approach to regulating in this manner. This option would likely require significant amendments to the Ordinance to provide a distinction between third party agencies that administer the use of the property as an STR and actual owners of the property. This option would also be difficult to enforce because it will require careful analysis of each person applying for an STR Permit to determine whether they have other STR Permits, a task further complicated by the common use of limited liability companies (LLCs) and other ownership structures that make determining the actual beneficial owner challenging.
Other Options
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There may be other options not listed above that the Council may wish to discuss, however staff’s preliminary analysis has focused on the three primary options above. Staff is aware that one city imposes a “waiting period” on new purchases before conversion to an STR is allowed.
However it is staff’s assessment that this option does not address the neighborhood impact concern, as there is no neighborhood impact difference between a long-term homeowner suddenly deciding to STR their property and a homeowner selling their property and it being immediately converted.
Practical Constraints to Revising STR Program at this Time As discussed at the meeting on June 13th, there are a number of revisions to the STR Program that Council could decide to undertake. If Council is inclined to undertake revisions to the STR Program at this time, there are some practical constraints such as staff time and certification of an amended ordinance by the California Coastal Commission (CCC) before it may take effect in the Coastal Zone, that must also be considered to determine whether and to what extent revisions can be made at this time. The Council should also consider the potential fiscal impacts of new regulations that would restrict STR rentals in light of the City’s overall fiscal condition5.
With regard to staff time, any amendment to the Ordinance would involve some amount of staff analysis and preparation. The Ordinance is found in Article 49 of the City’s Zoning Code and thus any amendments to the Ordinance would need to be prepared by the Planning Department. As Council is aware the Planning Department recently initiated the Housing Element update and is focusing on those efforts in order to meet applicable deadlines for adoption. As a zoning ordinance, any amendment would also need to undergo a public hearing and recommendation by the Planning Commission prior to consideration by the City Council.
With regard to the CCC’s consideration, no Ordinance amendments would become effective in the Coastal Zone until the CCC certifies an amendment to the City's local coastal program (LCP) pursuant to Section 30514 of the California Public Resources Code. The CCC is generally not supportive of outright STR bans in the Coastal Zone but has supported other STR programs with reasonable regulations. For example, the CCC recently denied a request from the City of Malibu for an LCP amendment to allow only hosted STRs, finding that the proposed amendment would unduly restrict the rental of residential units to visitors and diminish the public’s ability to access and recreate on the coast.6 Certification of LCP amendments can take several months or longer, which would affect how quickly an amendment to the Ordinance could take effect in the Coastal Zone. The Council could consider a separate numerical cap within the Coastal Zone so that a numerical cap could take effect more quickly outside the Coastal Zone.
Staff Recommendation
Given the foregoing constraints, if Council is inclined to give direction to revise the STR Program at this time, the City Manager would recommend selecting Option No. 1 because it would require the least amount of staff time and provide the most straight forward approach to 5 The City has received more than $2.1 million in TOT revenue from registered STRs since FY 2018- 2019. Based on the most recent HdL estimates the City could be receiving approximately $1.3 million in TOT revenue annually if all STRs it has identified as active on the current market were brought into compliance.
6 https://documents.coastal.ca.gov/reports/2022/8/F10a/F10a-8-2022-report.pdf Pacifica City Council 7
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addressing the concern that sale of residential property in Pacifica is being converted to STRs.
However, as stated above, any amendments to the Ordinance would require consideration by the Planning Commission and would not become effective in the Coastal Zone until the CCC certifies an amendment to the City’s LCP.
ALTERNATIVE ACTION:
City Council may direct staff to explore any alternative options.
RELATION TO CITY COUNCIL GOALS AND WORK PLAN:
• “Fiscal Sustainability” The City’s efforts to ensure registration of all STRs should increase tax revenues in a manner consistent with this City Council Goal. • “An Engaged Community” Consideration of the STR program in a public forum expands public participation in a manner consistent with this City Council Goal. • “A Healthy and Compassionate Community” Evaluating the relationship of STRs to the City’s housing stock is consistent with this City Council Goal.
FISCAL IMPACT:
Any revisions to the STR Program that limit the STR Permits or rental opportunities would have an impact on the City’s revenue received from the STR Program through TOT or business license payments. It is also important to note that the compliance process takes time and staff is working diligently with the consultant on monitoring compliance activities. Out of 172 STR properties that were recently identified by HdL and staff, 148 (86%) have been brought into compliance by either helping property owners with their filings or close their ads and ceasing further business activities. The remaining unresponsive and non-compliant STRs are now being assessed for back taxes, penalties and interest and are in the process of collections by HdL.
The FY2021-22 year-to-date TOT revenues from STR reached $1.04 million, which is a 75% increase from the $593K in FY 2020-21 and is a result of the increased post-COVID activity level as well as compliance efforts. Staff will continue monitoring STR activities to ensure compliance with the policy options chosen by the City Council.
ORIGINATED BY:
City Manager's Office
ATTACHMENT LIST: