Nearly two years after launching San Diego’s first licensing program for short-term vacation rentals, the City Council agreed Tuesday to hike licensing fees to cover unexpected cost overruns.
The biggest impact of the fee increase will be felt by the more than 6,100 hosts who rent out their entire homes for at least 90 days out of the year. The new two-year fee, effective March 1, will climb from the current $1,000 to $1,129.
Also going up are licensing fees for two other groups of short-term rental hosts — those who rent out their homes for 20 days or less per year and individuals who rent out a bedroom or two for more than 20 days a year. Those fees will go up, respectively, from $100 to $193, and from $225 to $284.
The original fee structure was set up to ensure that all costs associated with the regulation and enforcement of San Diego’s short-term rental program would be covered by licensing and application fee revenue for all types of vacation rentals d on such home sharing platforms as Airbnb and VRBO.
“The city cannot make a profit on fees, fees are strictly cost recoverable under law,” explained City Council Member Jennifer Campbell, whose office was originally responsible for brokering a compromise plan for regulating short-term stays. “In other words, they may not exceed the actual cost of istering and enforcing the program.”
With current two-year licensing fees set to expire in April, the City Treasurer’s office is now forecasting that total revenue of $8,514,640 will fall short of expected costs amounting to $9,181,488. That translates to a shortfall of $666,848.
Under the newly approved fee structure, the estimated money coming in from the higher fees is now expected to total $8,929,016 over a two-year period — just a few dollars short of estimated costs of $8,942,344, “making the program 99.9% cost recoverable,” the treasurer’s office said in its report to the council.
In all, the city has issued 10,091 licenses since the inception of the program, but the overwhelming share of revenue comes from the $1,000 licensing fee that applies to the more than 6,150 whole-home rentals that are active for much of the year.
The City Treasurer expects the overall number of vacation rentals to climb by more than 400 for the two-year period beginning May 1.
City staff offered little explanation as to why costs have grown more than expected, blaming the increase on “one-time costs resulting from delayed implementation” of the licensing program.
Unmentioned in the treasurer’s staff report or in Tuesday’s hearing was how the city had overestimated, early on, the demand for vacation rental licenses.
Under the city’s current regulations, there is a citywide cap of 6,592 licenses for the rental of entire homes for at least 90 days out of the year. However, the number of applications fell far short of that, and there are currently 436 licenses available, except in the Mission Beach community, which is subject to a separate limit given its longstanding history as a magnet for vacation rentals during the summer. There, the demand for licenses outstripped the supply.
While the city now has fewer rentals to monitor, the lower volume of license applications has translated into less money coming in than originally anticipated.
Program expenditures cover the cost of roughly 13 full-time employees, in addition to licensing software and the maintenance of three city vehicles used for enforcement.
Since the new licensing regulations went into effect almost two years ago, the city has processed more than 2,200 complaints and pulled over 8,000 listings from rental platforms that had been operating without a license, according to Norma Medina, part of the city’s short-term rental enforcement team.
Complaints processed by the city cover a wide gamut, from concerns over excessive noise and unlicensed rentals to failure by hosts to clearly post information.
There also has been considerable criticism about what some perceive as a gaping loophole in the regulations that allows property owners to effectively secure multiple licenses via willing proxy hosts.
In one instance, as reported by the Union-Tribune, an Ocean Beach property owner was able to persuade family , friends and acquaintances to put their names on more than 100 license applications for his portfolio of vacation rentals. He later lost more than three dozen of those licenses following an investigation by the city’s enforcement team.
Current law allows just one license per person.
Councilman Sea Elo-Rivera, who had raised concerns at a council committee meeting last month about the potential for San Diegans subsidizing the cost of regulating short-term rentals, said he was now more satisfied than he was a month ago that most costs will be covered by the new fees.
“The real revenue comes from the TOT (transient occupancy tax),” Elo-Rivera said, “but we want to make sure we don’t end up with a wash or net loss because we’re not covering the cost of istering the program.”
Elo-Rivera had previously asked city staff to see if they could quantify whether short-term rentals placed greater demands on police and fire personnel than other residential properties. The police department reported back on Tuesday that it would take considerable effort to collect that kind of data and that even if it did have that information, it’s unlikely it would find that calls related to short-term rentals are more time-consuming than other properties.
