San Diego Investors: Here’s What to Expect Amidst New Short-Term Rental Rules

For years, San Diego residents have complained about the effects of short-term rentals on their communities and the local housing market. Some have reported that vacation rentals worsen the housing crisis by reducing available residential properties and driving up housing prices.

San Diego recently approved a measure that will nearly cut the number of short-term rentals in half, bringing the new total to around 6,500. So what does this mean for short-term rental owners throughout the city? In this article, we’ll review the current state of these rentals, what new laws are taking place, and how this will affect property owners.

New requirements cap the number of whole-home vacation short-term rentals available for more than 20 days per year to 1% of the city's more than 540,000 housing units. There’s more leeway in Mission Beach, however. There, the cap will be 30% of available units (around 1,080 of its inventory), since the area is so popular with vacationers.

If you're looking to rent out your home for vacation purposes, you'll have to identify which tier of permitting your home falls under and apply for a license. A lottery will then be conducted and the results of the library will be posted Friday, Dec. 16, 2022. To apply and also be notified when the lottery winners are announced, sign up to receive email updates at Sandiego.gov.

Under each tier, homeowners are allowed to operate only one short-term rental. These are how the permitting tiers break down:

Tier 1: Homes that will be rented out for less than 20 days in a calendar year. In this instance, the owner does not need to reside in the home.

Tier 2: Home share permits. In this situation, the homeowner occupies the home they are renting out for at least 275 days of the year. The home is their primary residence and includes duplex properties and eligible accessory dwelling units.

Tier 3: Whole-home rentals outside of Mission Beach. These are rented out for over 20 days per calendar year. In this scenario, the homeowner does not need to reside on the property. Guests are required to stay a minimum of two nights, and the total number of Tier 3 permits shall not exceed 1% of the city’s total housing units, excluding Mission Beach. The total number of Tier 3 licenses will be reevaluated every two years.

Tier 4: Whole-home Mission Beach rentals. The total number of units cannot exceed 30% of the total housing units in this area, and guests must stay a minimum of two nights.

Property owners who are looking to use their dwelling as a short-term rental must have a license by May 1, 2023. The Tier 3 & Tier 4 license application period will close on November 30, 2022, at 5:00 pm. The Tier 1 and Tier 2 license application period will remain open indefinitely.

Many who have been relying on short-term rental income for years are worried about what it would mean for them if they don’t win a license in the upcoming lottery. Those who don’t win a license will likely need to offer their property as a long-term rental or sell.

Of course, those who are able to get a license will enjoy less competition in the short-term rental market. But, owners renting their property out for less than 20 days a year, or renting out a room in their home while still living there themselves, simply need to apply for a license and aren’t subject to the lottery.

In a recent Fox5 story about the new regulations, Councilmember Jennifer Campbell says the cutbacks in short-term rentals will give back more housing to the people of San Diego. Some worry that due to high current mortgage costs and inflation pinching the finances of individuals, it will be institutions that scoop up the former short-term rentals that hit the marketplace. Tanya Hertz, a professor at San Diego State University, shares these fears. “We saw [during the last recession] all of these bigger companies snatching up all the available homes and now there’s not a lot of homes available. And even with this ordinance, I doubt it will have much of an impact on the market.”

Councilmember Campbell is more optimistic. In a CBS8 report, she says, “We feel that [the new regulations] will probably put at least 5,000 new living units on the market for the San Diegans who live and work here."

Yes! A lawsuit filed recently against the city claims this new ordinance, by limiting the available number of short-term rentals, would disproportionately impact Hispanic families by reducing their access to the beach and coastal rentals. The suit was filed by a group of property owners who have been renting out their homes for years.

The suit alleges that the ordinance violates the Fair Housing Act because it discriminates against Hispanics and limits their access to housing. The suit also claims that this ordinance is unconstitutional because it restricts private property rights without due process.

Not much information has been released about the lawsuit, its timeline, or when a judgment will be made in the case, but we’ll keep you updated as soon as a ruling is delivered.

Before beginning the application process, hosts must have an active Transient Occupancy Tax certificate and ensure all Rental Unit Business Taxes are paid. The checklist to apply and the application can be found on the Short-Term Residential Occupancy website.

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