San Diego lottery for short-term rental licenses should give priority to ‘good actors,’ council insists

As the city of San Diego prepares to implement in July its first-ever regulations for short-term vacation rentals, officials unveiled on Monday a lottery system that both longtime hosts and City Council members said failed to give priority to responsible operators, as promised earlier this year.

The council asked Mayor Todd Gloria’s office to go back to the drawing board and return within a month with a new proposal that will reward those who are “good actors,” a request that was made in February when elected leaders first approved new regulations governing the citywide operation of the increasingly popular home-sharing industry.

The city’s new ordinance specifically caps the number of whole-home rentals that operate more than 20 days in a year at 1 percent of San Diego’s more than 540,000 housing units, or about 5,400. A separate, more generous allocation was made for Mission Beach, a longtime mecca for Airbnb-style rentals. More active whole-home rentals there will be limited to 30 percent of the community’s total dwelling units, or about 1,100.

Council President Jennifer Campbell, whose office shepherded the new regulatory effort over the last year, told city staff Monday that she wants to see a lottery that gives preference to those operators who have no pending code enforcement actions in the last three years, have paid their transient occupancy tax on time, and who’ve hosted at least 90 nights of bookings in the last year.

“I am looking forward to the positive impacts this will have in our city,” she said.

The council did not indicate whether it will revisit the revised proposal during a formal council session.

Monday’s hearing was presented as an informational hearing and therefore did not require a vote, but that didn’t prevent Airbnb, as well as numerous vacation rental hosts, from airing their complaints about the proposal, which they fear would bring their longstanding operations to an abrupt end.

“We urge the city to include prior booking history of at least 90 days over a 12-month period for lottery eligibility,” said John Choi, Airbnb’s senior public policy manager. “... Without prioritization of good actor hosts, we believe San Diego places itself squarely as an outlier city. Other cities that have legalized vacation rentals and limited permits as San Diego does have typically grandfathered previously operating hosts.”

While the city treasurer’s office said that the home-sharing platforms do not ordinarily share rental activity of their individual hosts, Campbell said she has been assured by the companies that they are willing to provide the city with the necessary verification.

Several council members appeared irritated that their instructions, which were to implement a lottery system that would prioritize hosts who have been paying required taxes and have operated responsibly, were ignored.

“There’s a lot riding on getting this system right and so it feels a little bit like déjà vu to not have a system as we instructed,” said Councilman Raul Campillo. “... If our constituents hear us and the media prints the words we say and then we come back and don’t have a system as aligned per policy ... it destroys the credibility and makes the public not believe we’re serious about doing this.”

Equally perturbed was Councilman Stephen Whitburn, who said he went back and listened to the council motion from February to reaffirm his recollection.

“I want the permit process to prioritize responsible, existing operators who have demonstrated they follow the rules,” he said. “That’s what my constituents want and I’m confident that is what most San Diegans want. When I learned the proposed lottery system coming before us today did not give preference to good actors, I was surprised.”

Eligibility under the process outlined Monday by the city treasurer’s office said only that to qualify for a license, hosts could not have any pending city enforcement actions for “violations of any provision of the San Diego Municipal Code (SDMC), unless the approval of a license is required to resolve the enforcement action.” They would also have to apply for a TOT license, if they had not already.

The new regulations governing vacation rentals, scheduled to go into effect July 1 of next year, allow for only one two-year license per host.

Whatever lottery system is eventually embraced by the council, it will apply only to the rental of entire homes for more than 20 days out of the year. An unlimited number of licenses will be allowed for vacation rentals of less than 20 days a year or home-sharing operations where a host rents out a room or two.

In order to ensure that residents from all communities have the ability to secure a license, the citywide lottery — except for Mission Beach — would tie allotments in each community planning area to the percentage of applications received. So for example, if 30 percent of the applications came from La Jolla, that same percentage of the available licenses for the city, outside of Mission Beach, would be awarded to La Jolla applicants. The selection would be random for each community.

In order to fund the administration and enforcement of the vacation rental regulations, license and application fees will be required. The council on Monday approved a fee schedule that ranges from $100 for a two-year license for hosts who rent out their properties for less than 20 days a year to $1,000 for those who are renting out entire homes for more than 20 days out of the year. Application fees will range from $25 to $70.

The revenue will cover the hiring of about 15 new positions, including nine in the area of code enforcement.

An added wrinkle to the expected start next summer of the new short-term rental regulations is the question of when the California Coastal Commission, which has jurisdiction over the beach communities, will sign off. City officials have said they will not implement any of the new citywide rules until the commission has weighed in.

If the coastal agency were able to formally certify the regulations by April, the effective date could remain July 1, but any delays by the commission would jeopardize that start date, said Elyse Lowe, director of the city’s development services department.

A number of hosts complained that starting the new program before the end of the busy summer season will be a hardship, given that many are accepting reservations already for the summer months. Councilwoman Vivian Moreno, who pressed the council to consider a later start date, such as Oct. 1, cast the lone no vote on the new fee schedule.

“Rolling out a new regulatory system during one of the busiest weeks of the busiest seasons for vacation rentals I think is asking for trouble,” she said, “especially given that the tourism industry was hit so hard by COVID-19.”

In a report to the council, city staff said the lottery application process would start no later than March 31, with results of the random drawing known no later than May 31. Those dates, though, could change, depending on what happens with the Coastal Commission.