Want To Be An Airbnb Host in San Diego? Good Luck – You’re On Your Own

The City of San Diego continues to discuss options for regulations and rules around short-term rentals on sites like Airbnb.  Short-term rentals are rentals for less than a full calendar month and have been the topic of discussion at a number of City Council and committee hearings over the last few years.

I recently received an inquiry from a San Diego resident that would like to rent out one or two bedrooms in the home they live in – sharing a room or home with guests is often referred to as “home-sharing”.  Home-sharing is frequently brought up in the short-term rental debate with both sides typically saying there is no issue with this type of activity.  (However, home-sharing is the only type of short-term rental I’m aware of that the City of San Diego took to court, and ultimately the judge decided that this type of activity is not allowed under current rules and issued a fine to that host.)

The prospective host in this case was looking to do the right thing and get clarity from the City before hosting on Airbnb.  They contacted several City departments regarding how to fill out the right information for the Transient Occupancy Registration Certificate( “TORC”), if a Business Tax Certificate is required, what taxes they need to pay, and if there are other regulations they need to follow for lawfully renting out rooms via platforms such as Airbnb. 

 

On the response to the prospective host, the city was clear and straight-forward in providing the process to register for the TORC, what kind of taxes the host would need to pay, etc.  The Transient Occupancy Tax (i.e. hotel tax) is not part of the debate and proposed short-term rental rules – it is already in place and collected (and in the case of Airbnb remitted for all hosts on the platform each month by the platform itself).

However, in regard to other requirements for operating an Airbnb, the prospective host was directed to consult the Development Services Department (in charge of Land Use and Development). Surprisingly, when the host reached out to Development Services they were told  that since there are no official regulations or rules around short-term rentals, this kind of activity is currently not allowed in San Diego.  That’s when the host reached out to me, as part of my efforts with the Short-Term Rental Alliance of San Diego (STRASD) – seeking clarity the city couldn’t provide and how they should proceed.

The contradiction between the responses from different City departments is confusing but accurate.  Yes – you can register and pay the taxes for this sort of activity.  No – you can not engage in this type of activity in the first place.  This is the current status of short-term rentals in San Diego, at least for home-sharing situations.  It still seems that whole-home short-term rentals may be on firmer ground, although the current City Attorney has declared all short-term rentals illegal. [Note: the previous two City Attorneys held a different position, that short-term rentals were not illegal.]

This sort of lack of clarity is harmful to potential hosts like the one highlighted in this post – a San Diego resident seeking to improve their economic position and do so in a straight-forward and compliant manner in the type of short-term rental that is roundly approved of and supported.  We need clarity to support residents like this and should encourage this type of widespread entrepreneurial opportunity to give citizens more options and ability to chart their own desired course.  Hopefully in the months ahead we will see clarity that gives certainty to current and potential hosts and guests and that supports the opportunity that platforms like Airbnb and others gives to many thousands of San Diegans.

A screen shot of some home-sharing options currently available on Airbnb (taken 4-19-2018)

Prop 13 On My Block

Property taxes are typically described as a wealth tax – they are taxes levied on assets held rather than transactional taxes like income taxes (applied to wages as earned) or sales taxes (applied to goods when purchased).  Property taxes are applied to the same property each year.

Back in 1978 Proposition 13 was passed in California to place a limit on property tax increases.  Per Wikipedia, Section 1. (a) of Proposition 13:  “The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.”

Proposition 13 also placed some rules on how the value of a property is assessed or re-assessed.  Again, per Wikipedia: “Proposition 13 declared property taxes were to be assessed their 1975 value and restricted annual increases of the tax to an inflation factor, not to exceed 2% per year. A reassessment of the property tax can only be made a) when the property ownership changes or b) there is construction done.”

I was curious about the impact of Prop 13 on property taxes in San Diego after seeing some listings on Redfin and Zillow that had astoundingly low property taxes.  For example, the Banker’s Hill property shown below, currently for sale for $1,697,955, carries an annual property tax levy of $136.97.  That effective tax rate of .008% is far below the 1% established under Proposition 13.

I decided to take a look at the property values and property taxes on my block in North Park.  The houses are all pretty similar (outside of one empty lot that was purchased by a local church and razed for a small and scarcely used parking lot).  Below are the property values (per Zillow Zestimate) and property taxes paid (per San Diego County Treasurer website).  I’ve listed all the properties on both sides of the street but removed the addresses for privacy reasons.

Summary of property value estimates and property taxes on a block in North Park

Despite the homes on the block having pretty similar property values the amount of taxes paid and effective tax rate vary quite a bit.  I found it interesting to see the differences in a very small area of town summarized together.

Short-Term Rentals in San Diego – Economic Impact Analysis Report (Oct 2017)

Last month a press conference was held to release a study done on the economic impact of short-term rentals in San Diego for HomeAway / Expedia by Xpera Group.  The report follows a similar study commissioned by Airbnb and done by National University in October 2015.  Both full reports are included on this post for anyone interested in this issue.

A few highlights from the new study:

  • Total of $500M of impact in City of San Diego ($300M direct spending, $200 induced and indirect spending)
  • 3,00 jobs in City of San Diego
  • Transient Occupancy Tax (TOT or “hotel tax”) estimated to be $19M or more in 2017, a 200% increase over 2015 when the TOT from short-term rentals total $9.6M
  • In 2016, City of San Diego TOT was $202.8M of which $15.6M was from short-term rentals, a 7.7% share.
  • “Short term lodging guests tend to be much younger than hotel guests and have a higher percentage of females than hotels.”
  • Short-term guests typically stay longer than hotel guests, “roughly half of short term lodging room nights coming from trips of seven days or longer”
  • 7,436 total short-term lodging listings in City of San Diego, estimated (as of June 2017).  11,530 estimated for San Diego County.
  • In 2016 San Diego County had 30.4 million visitors, 17.4 million overnight visitors.  That would be an average of 47,671 overnight guests per night in the County.

The short-term rental issue continues to be a hot topic in San Diego and a good explainer for the current status can be found here on Voice of San Diego (from Nov 1, 2017).  A full City Council hearing is expected to be held on December 12 although a recent hearing was cancelled on short notice in October so we’ll see how the December hearing plays out.

a photo of my Airbnb listing in North Park
Short-term rentals in SD – Economic Impact Analysis – Xpera Group – October 2017
Short-term rentals in SD – Economic Impact Analysis – National University – Oct 2015