The past decade has seen interest in the operation of short-term rentals explode with the growth of sites like Airbnb, Vrbo and others. However, governments have struggled with how to regulate this type of rental housing.

A short-term rental is defined as a property available for rent for a period of 30 consecutive days or less. In California, the legality of short-term rentals varies across different cities and even by neighborhood.

For example, Los Angeles requires owners of short-term rentals to obtain a permit, as well as include the registration number on all advertising. Most of these permits allow homeowners to only offer their short-term rental for no more than 120 days a year. Further, the residential neighborhoods under the strictest zoning regulations do not allow short-term rentals at all.

In San Francisco, the laws on short-term rentals actually loosened beginning in 2015, before which time all short-term rentals were illegal. Now, a homeowner may rent out their home as a short-term rental when they use the home as a residence for at least 275 days a year and rent it out as an un-hosted residence (when the homeowner is not present) for no more than 90 days a year. When these qualifications are met, the homeowner needs to register with the city as a business and receive a certificate as a short-term rental. The certificate number needs to be included in all advertising.

In San Diego, the current requirements are simply to receive a transient occupant registration certificate and pay the required taxes. However, beginning in 2021, this is likely to change significantly, as the city council will soon vote to cut the number of short-term rentals allowed in the city by half and assign approval via a lottery system.

With California’s many and varied restrictive regulations on short-term rentals, many would-be investors are choosing to put their cash in other areas. Others, including owner-occupants, find themselves unable to cover their full housing payments without the anticipated support from short-term rentals. And yet, the restrictions continue.

California’s problem with short-term rentals

Why do so many of California’s major metros have restrictions on short-term rentals?

The problem with short-term rentals is that, unlike hotels, which are designed for the purpose of short-term guests, short-term rentals take property that would otherwise be occupied by a long-term tenant or homeowner and remove it from the housing inventory. In a state already experiencing a severe housing shortage, short-term rentals further deplete what little housing we have in place.

Neighborhoods with a high density of short-term rentals experience:

  • higher rents;
  • reduced supply; and
  • the forcing out of long-term, lower-income residents, according to the Urban Institute.

Of course, one might point out correctly that COVID-19 has effectively made this conversation moot, as travel and the need for short-term rentals have become limited. In fact, short-term rentals were effectively banned in California at the end of 2020 due to stay-at-home orders.

But California will eventually return to its old days of attracting tourists and finding ways to house them, and homeowners will be seeking to cash in. Until that time, it’s worth noting that the state’s restrictions on short-term rentals are merely another sign of the true root of the housing market’s biggest problem: the housing shortage.

For example, in Los Angeles, where the short-term rental ban is one of the strictest in the state, for every four new residents who arrived during the 2010’s, just one new housing unit was built.

To combat our housing shortage, legislators need to focus on loosening restrictions where they can make the most impact. This means allowing greater density and fewer parking restrictions in high-demand areas that are close to public transit. It also means reducing permitting times and environmental review for much-needed low- and moderate-income housing. Creating greater incentives for builders of dense housing and homeowners who seek to add accessory dwelling units (ADUs) on their properties will also boost the housing inventory.

Agents can get involved in making these needs a reality by attending local city council meetings and letting their expert voices be heard on the need for more housing in their communities.