California Coastal Commission rulings have big impact on vacation rentals

The short-term rental business has had a tumultuous time over the past several years as it’s grown into a popular and profitable industry. This growth has been dogged by controversy as vacation rental operators, governments, and residents spar over how to balance the needs of travelers and hosts with those of their communities.

The California Coastal Commission may be a surprising stakeholder in this struggle, but it’s had an important influence on the vacation rental debate in coastal parts of the state.

The commission, established by voter initiative in 1972, was made permanent with the passage of  the California Coastal Act of 1976. The quasi-judicial state agency has a mandate to protect and enhance California’s coast by planning and regulating the use of land and water in the coastal zone. It has the power to approve or deny local government policies that affect coastal resources — and this is where short-term rentals come in.

Cities and counties within the coastal zone are required to create Local Coastal Programs (LCPs), which must be approved by the commission. Short-term rental rules for coastal areas can affect LCPs.

In one of the commission’s most high-profile recent decisions, San Diego created new short-term rental rules that changed how land would be used in the coastal zone. This required an amendment to the city’s LCP and Coastal Commission approval.

According to the city of San Diego, around 39% of the city’s vacation rentals were located in the coastal zone as of September 2021. The vast majority of those, 93%, were whole-home rentals, with an average nightly rate of $306.

The commission’s approval of San Diego’s short-term rental amendment will affect thousands of vacation rentals in the city. Under the new rules, the total number of whole-home vacation rentals will be capped at 1% of the city’s housing stock, except for Mission Beach, where vacation rentals would be capped at 30% of housing stock.

Once the law goes into effect, as early as this fall, a total of around 6,500 vacation rental permits will be available throughout San Diego — a reduction of 48% from the 12,300 short-term rentals operating now, according to the Coastal Commission. While the commission approved the new law, it added a caveat that the city must assess the impact of the regulations on coastal access in seven years.

Ensuring access

Coastal access has been a central issue in the commission’s rulings on short-term rentals. In many cases, the commission has treated vacation rentals as an important way to offer affordable access to these areas.

This message has been consistent in the commission’s rulings. In Long Beach, the commission recently approved the city’s short-term rental rules — with four suggested changes designed to ensure accessibility, including:

• Allowing up to 350 unhosted short-term rentals in the coastal zone, even if the citywide cap of 800 is reached 
• Limiting the ability of multifamily building owners to prohibit short-term rentals
• Requiring “a commitment to non-discriminatory services and ADA-accessibility information in the registration process”
• Monitoring and reporting any impacts that vacation rental regulations have on public access, along with efforts to mitigate those impacts

The city’s initial vacation rental ordinance was passed in the summer of 2020, with another law passed later that year allowing unhosted short-term rentals within Long Beach.

An eye on affordability

Along with coastal access, the commission has also considered vacation rentals’ impact on community affordability.

Short-term rentals “provide a significant supplement for visitor accommodations promoting public access and visitor-serving opportunities to coastal communities … At the same time, the Commission has recognized legitimate community concerns over potential adverse impacts associated with vacation rentals, with respect to housing stock and affordability, community character, noise and traffic impacts,” the commission wrote in a 2020 report.

When the commission approved Laguna Beach’s short-term rental ordinance in 2020, it included a mandate to the city to review its law and report to the commission in three years as to whether new short-term rentals are contributing to the loss of lower-cost hotel and motel rooms or affordable housing.

The commission’s stance on accessibility has been backed up by the courts. In Santa Barbara, the commission supported vacation rental property manager Theo Kracke in his lawsuit challenging the city’s 2015 short-term rental rules, saying that its near ban violated the California Coastal Act. In 2019, a superior court judge ruled that Santa Barbara must allow vacation rentals in the coastal zone, and that decision was upheld by an appeals court in 2021. 

And in Manhattan Beach, the city attempted to ban short-term rentals, moving forward with the ban without Coastal Commission approval, stating that short-term rentals had never been legally allowed, and so the law did not represent a change. In a case brought by a Manhattan Beach short-term rental owner, a judge disagreed, ruling the city cannot enforce its ban on short-term rentals in residential areas of the coastal zone unless it amends its LCP, requiring approval by the commission. 

Key gatekeeper

While the courts have made it clear that governments must get the approval of the California Coastal Commission for their short-term rental laws, the commission has made it clear that governments must allow short-term rentals in order to preserve coastal access. As local governments work on the best ways to accommodate short-term rentals and community needs going forward, the commission will continue to have a powerful seat at the table.

MyLodgeTax can help California vacation rental hosts comply with all their lodging tax obligations. For more on lodging taxes in California, see our state Vacation Rental Tax Guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.

Cover photo by Canva