On September 24th, 2019, the Santa Monica City council enacted an ordinance to ban sort-term rentals. Just six days later, they voted unanimously to impose $1000 fines on vacation rentals who violate the ordinance. To tie it all off, the federal appeals court has upheld the ordinance – also voted in unanimously.

That may be the end of any hope for vacation rental owners operating in Santa Monica, as the ordinance affects all short-term rentals under 30 days. But that’s not the end of the story.

Unreasonable Response

Headlines declaring vacation rentals are a nuisance to residential areas are becoming more common, that’s undeniable. But each case is, in spite of a common desired outcome, lodged on its own grounds (compare Santa Monica’s fiasco to Hawaii’s). So it would seem a single solution to please each city’s populous is out of reach. Or is it?

There are a few common threads in these cases:

1. Residential areas complain of disruptions
2. Vacation rental owners skirt taxation normal hotels are subject to
3. Designated vacation rental properties are creating sparsely populated neighborhoods and taking up valuable real estate

The third reason is most applicable to Hawaii’s vacation rental issues. But all three are, understandably, issues for local governments. The most logical solution would be to properly tax vacation rental businesses, and limit residential units in a manner that allows businesses to continue operating.

That last part is important – because all we’ve seen from the backlash against VR businesses is legislation that ruins a thriving industry. Some might argue that business is not lost due to traditional hotels picking up slack. It’s a dubious claim, and difficult to track since very few cities have imposed proper taxation.

Santa Monica residents may consider the banning a win – and it very well may be if the city isn’t in need of more tax income and a growing economy. Unfortunately, this legislative model may be mimicked by cities who are not in a position to exist as a retirement community. In other words, banning vacation rentals is bad for business, and thereby bad for residents.

Reasonable Suspicions

Another angle on the Santa Monica case: the city has banned short-term rental units to ensure their 14% transient occupancy taxes payout more. The theory being that since only hotels are subject to this tax, thwarting untaxed competition is a profitable course of action.

Of course, this theory rests on the assumption that hotels will magically absorb the bookings that vacation rentals generated. If that sounds like a foolish plan, you’re quite correct!

Santa Monica resident Arlene Rosenblatt, however, puts this exact argument forth in a convincing manner. She made a statement to the LA times that insinuated the real purpose behind the ordinance was “to boost demand for the hotels and reverse a decline in revenue from the city’s 14% transient occupancy tax, paid by hotels but not by short-term renters“.

It’s entirely plausible – it seems likely to have at least played a part. Whatever your thoughts on reasoning are, the end result of eliminating a growing local industry is a poor decision.