The Campaign to Reform the Short-Term Rental Ordinance and How One-Quarter of Licenses May Be Out of Compliance

2022 Map of STVRs by AirDNA

Steven Mihailovich, writing in the Pt Loma-OB Monthly, gave an excellent account of a local planning board leader’s campaign to reform the city’s short-term rental ordinance — and how OB is currently being negatively affected by its defects.

In his April 10 post, Mihailovich — one of the Peninsula’s better writers these days — quoted Kevin Hastings, vice chairman of the Ocean Beach Planning Board, extensively as Hastings explained the situation at a March 27 public meeting of the group that used to call themselves the OB Town Council (more on that later).

Now calling themselves, under legal advice, the OB Community Foundation, the former town council board had called for a townhall gathering on housing, and luckily for them, Hastings showed up to give the meeting some substance. Of course, the campaign to reform the ordinance is not just Hastings’ campaign, but he is OB’s foremost expert on short-term rentals – and he and others on the planning board like Tracy Dezenso are getting the word out about why it needs to be reformed.

This campaign is especially timely, because the City Council is expected to do an annual review of the ordinance in May.

Kevin said,

“This is a citizen-led effort to get in front of that [review]. Really, we’re just trying to steer that and not get steamrolled when this comes up. … If we don’t do something, this is just going to get worse.”

Here are some important bullet points Mihailovich gathered from the meeting / Hastings’ presentation:

• an estimated 8 percent of Ocean Beach’s housing stock converted to short-term accommodations rented by visitors through online platforms like Airbnb;
• it’s an industry routinely plagued by deception and fraud and dominated by corporations;
• it has been almost a year since the city of San Diego’s residential short-term rental ordinance went into effect to regulate the STR business and limit its scope by granting single licenses to individual property owners seeking extra income;
• the City Council is expected to do an annual review of the ordinance in May.

As explained, the ordinance classifies STRs into four tiers:

• Tier 1 for residences (houses or apartments) rented out for 20 days or less annually
• Tier 2 for home-share rentals where the owner lives onsite
• Tier 3 for whole-home rentals totaling more than 20 days per year
• Tier 4, which applies exclusively to Mission Beach and allows for 30 percent of its housing to be used as STRs

Primary Source of Contention: Tier 3 STRs

Tier 3 STRs are the primary source of contention. The ordinance restricts them to 1 percent of San Diego’s housing, or 5,419 total residences.

Hastings explained:

• Of the licensed Tier 3 STRs, 495 are in Ocean Beach, making up 6.2 percent of the community’s 7,958 homes,
• Nearly half of the licenses granted — 2,222 of the total 4,587 as of the day of the forum — are concentrated in the coastal communities of Ocean Beach, Pacific Beach, La Jolla and the Point Loma Peninsula.

Again, Hastings:

“We have more [STRs] in the city than we have unhoused. So if you don’t think that number is a big deal, tell me that the number of unhoused people on the street is not a big deal.”

Another huge problem, Hastings warned, is that some STR operators skirt the law by using their Tier 2 licenses to operate whole-home rentals. His calculations show that applies to half of the Tier 2 properties in Ocean Beach, accounting for the 8 percent total.

These startling revelations by Hastings just kept coming. He said that although the ordinance was premised on one license per person,  332 STRs, or two-thirds of the total in OB, are owned by people with more than one license.

He said 222 STRs, or 45 percent of the total, are held by 37 people with three or more licenses, often in corporate structures.

Hastings noted the case of Michael Mills, who obtained more than 100 STR licenses by asking people in his social networks to put their names to applications for two-year licenses to operate at his Ocean Beach properties. “I could actually apply for a vacation rental license on your house without your permission under the current system,” Hastings contended.

Hastings argued at the forum that Tier 3 licenses could be restricted to people with a verified interest in the property. “That’s really the only way to prevent them from circumventing these limits on how many they can have,” he said. “This is really a minor change. It’s going to cut out some of these people like Michael Mills.”

Mihailovich writes:

Community leaders in Ocean Beach have been arguing since shortly after the ordinance took effect last year that it wasn’t reducing the number of STRs but rather was making things worse by drawing in hosts who aren’t the property owners, such as in the Mills case, and allowing saturation in coastal areas by not having Tier 3 license caps for individual neighborhoods.

Other recommendations include

• restricting licenses for apartment buildings to two units or 25 percent of the total, whichever is greater;
• not reissuing licenses for one year for properties where licenses have been revoked;
• capping licenses to a certain percentage per community planning area;
• penalizing listing platforms for non-compliance; and
• requiring Tier 2 STRs to report their bookings to the city. (Regular STR enforcement is handled by the San Diego Development Services Department. The treasurer’s office issues licenses.)

The proposals have been endorsed by the OB Planning Board and the Pacific Beach Town Council, and backers plan to shop them around to garner more public support before taking them to the City Council when the ordinance is evaluated.

Hastings claimed:

“There are things that can … bring back hundreds of long-term affordable housing units just within Ocean Beach alone and really thousands across the city,” said Hastings, who estimated that a quarter of the total STRs are not in compliance.

Mihailovich also quoted Jay Goldberg of NiceNeighbors San Diego, an organization that tracks STRs and reports illicit operations to the city. Goldberg said the official numbers don’t include prohibited STRs such as unattached casitas or accessory dwelling units (ADUs) built after 2017. He estimated that about 600 such structures in San Diego are illegally operated as STRs.

“A lot of [STRs’] marketing around this is that they’re all mom and pops, they’re just trying to earn extra income,” Goldberg said. “In San Diego, only a quarter of operators on the [Airbnb] platform have a single listing. Everyone else has more than one.”

STR platforms could alleviate some of the problems by refusing to list those that don’t have valid licenses or have been flagged for other violations, as required by the ordinance. “It would be upon the city to pursue those platforms to comply with the ordinance as written,” Goldberg said. “That would be very effective to have enforcement at the platform level. New York City has 100 percent compliance because Airbnb is liable for $10,000 a day or something like that for each individual listing that is not legal.”

Just as cities are responsible for conducting inspections of accommodations such as hotels that are seeking licenses, Hastings wondered what will happen when short-term renters encounter violations of the Americans with Disabilities Act and other building codes. “If someone is injured or loses their life, the city could be held liable for permitting that to be used as a hotel without meeting the fire codes of a hotel,” he said.

Here’s how Mihailovich described the situation with the non-OB Town Council:

The community forum was unofficially sponsored by the Ocean Beach Town Council, though the organization did not use that name under legal advice as it undergoes an audit related to a financial scandal that became public earlier this year, according to Town Council member and forum moderator Shelly Parks.

Parks was selected as president of the related Ocean Beach Community Foundation in March, but the title of Town Council president is not official until the financial issue is resolved.

The council revealed at its January meeting that former board President Corey Bruins had become the sole authorized agent and signatory of OBTC’s two primary bank accounts.

As a result of a grant application in May last year, OBTC learned it had lost its 501(c)(4) nonprofit designation in February 2021 for failing to file required tax forms since 2017, the year Bruins became the board’s treasurer. The U.S. Internal Revenue Service automatically revoked the status for failure to file returns for at least three consecutive years.

Though 501(c)(4) organizations are exempt from income taxation, they generally are required to file annual returns with the IRS reporting their income and expenses.

Bruins became board president in July 2021 and was removed days before this January’s meeting.

An independent certified public accountant hired by the board is conducting an audit of all the organization’s accounts and finances from 2017 to the present.

The group also has initiated measures such as forming a finance committee, revising bylaws and consolidating finances with access available to all board members.

Parks has estimated the audit likely won’t be completed until the end of May, with the findings made public at the June OBTC meeting.