vacation rentals

This article is provided courtesy of Robert Singleton, the Government Affairs Director for the Santa Cruz County Association of Realtors.  It is being provided to readers of AptosCommunityNews as many Aptos residents and home owners will be affected by the proposed changes.

During their June meeting the Santa Cruz County Board of Supervisors voted to place significantly harsher restrictions on local vacation rental units and property owners. If you have been following this issue for the past couple of years then you were likely already aware of the two existing designated tourism districts in both Live Oak and Seacliff.

Essentially, these districts limit the total number of houses that can be used as short terms rentals, as well as the number of short term rentals per neighborhood block.

Last Tuesday, the Board not only created a new district (encompassing Davenport and the surrounding areas), but also adopted a half measure process that governs how these permits are to be awarded and renewed, both of which will hurt property owners.

Now the original stated purpose for the creation of these districts was twofold:

1. limit the neighborhood impacts that are associated with vacation rentals, and
2. protect units that would (could) be used as long term rentals.

The Santa Cruz County Association of Realtors opposed these new regulations from the beginning because we saw them as a violation of private property rights, but also because it’s a classic case of the government picking winners and losers. By creating an artificial scarcity in the marketplace for permits (whose potential value may exceed $100,000), the Board was effectively able to distort the value of all the affected properties in these areas. Starting day 1, the homes that had permits instantly became more valuable than those that didn’t, and thus it was (and still is) within every household’s self-interest to seek out a permit, even if they don’t intend to use it.

Now the unintended consequences of enacting such a policy are pretty clear, but rather than address the fundamental problem in approach (placing arbitrary limits on a high demand market), the Board doubled down with measures meant to diminish the potential negative repercussions of the policy.

First, they decided to not deed restrict the permits (which is unlike almost every other use permit on the books), electing instead to adopt a 5 year period of use, thus making the market distortion in home values a temporary phenomenon; while hopefully allowing for more households to take advantage of this price inflation once the first permits began to expire. They also decided to award the first permits to those homeowners who had already been paying Transient Occupancy Tax (TOT), which were few and far between. The rest of the permits: first come first served.

Now here is probably the most significant problem with this policy: If you limit the total number of properties that can be short term rentals, but choose not to pair the permit with the property, who gets to decide which properties get permits and when? Well they took the easy way out and basically created a process where no one decides, it’s as simple as whoever shows up first.

Buying a house is likely the most important investment a person will make in their lifetime, and now the County has the power to either add or takeaway a significant portion of that home’s value based upon what criteria? A permit that could easily be worth over $100,000 (in just revenue) over the 5 year period, and they have absolutely no process for determining who does or does not reap that benefit. First come, first served.

The Planning Commission, based upon a recommendation from staff, voted unanimously to build in a “grace period” whereby existing and legal short term rental units could reapply for the permit that they had already been enjoying. They were to be given up to 60 days to decide if they wanted to opt back into operation, so to speak, which they undoubtedly would because who wants to lose $100,000 of appraised value from their house?!? On Tuesday the Board (minus absent Zach Friend) voted to end that grace period entirely, and when paired with the first come first serve policy, basically means once those permits are up, no one knows what’s going to happen.

Staff and the Planning Commission both outlined multiple ways in which this problem could be avoided. They gave multiple options, including a lottery system and a criteria system. But the Board justified their stance in favor of the first come first served policy by stating “well we don’t know what’s going to happen when these permits come up for renewal, so let’s just wait until then.”

So there is now a massive economic interest in getting a vacation rental permit and no criteria for awarding that permit other than being one of the first people to grab it. They are no incentives for good financial standing, or good management, just incidental penalties for bad behavior. On top of this you don’t even have to use the permit. You only have to prove “significant rental use” when reapplying for your permit, 5 years later.

The County then also mandated that all new vacation rental units with 4 or more bedrooms (admittedly arbitrary) have to have a public hearing before the Zoning Administrator (ZA). Now beyond the practical problems associated with a public hearing (time of day, opportunity cost, etc.), there is no reason to even have one in the first place. Why? Because all new permits can already be appealed to that same ZA, through an already established process. Furthermore, the ZA has no grounds to deny an individual a permit anyway. If you meet all the requirements upon application then there are no other legal reasons why the ZA would be allowed to deny you.

So why do it?

The purpose is to intimidate would-be vacation landlords from going through the process to begin with. A mandatory public hearing creates the space for public shame. Again, even if the ZA can’t deny your permit you are still required to attend a hearing in which your neighbors (and frankly anyone who doesn’t like the idea of your vacation rental) are encouraged to show up and list all of the reasons why they don’t like your idea, despite the inherent economic benefit of getting one.

So this brings us to the most important part of this article: What can we do about this?

Good news! The ordinance has not yet been finalized and must go through both the Planning Commission and the Board of Supervisors again before becoming law. This means we need still have time to fight this! Here’s what you can do:

1. Attend any and all hearings of the County Planning Commission, Housing Advisory Commission, and Board of Supervisors as possible. Even if they aren’t hearing this particular item on the day you attend, you should still stand up to speak during oral communications to let them know how you feel. The schedules for each of these bodies can be found here:
   a. Board of Supervisors
   b. Planning Commission
   c. Housing Advisory Commission
2. If you cannot attend these meetings then please send a letter via email to all of the Supervisors and their staff: john.leopold@co.santa-cruz.ca.us, zach.friend@co.santa-cruz.ca.us, ryan.coonerty@santacruzcounty.us, greg.caput@co.santa-cruz.ca.us, bruce.mcpherson@co.santa-cruz.ca.us
3. Write a letter to the editor to the Sentinel expressing your dissatisfaction with the new rules. Need material? Email me and I can provide you with some samples, or we can even write a letter together: gad@mysccar.org
4. SHARE THIS ARTICLE! Seriously, share this article with all of your friends, post it on Facebook NextDoor, email it to your coworkers, send it to anybody who will listen!
5. If you are interested in any of the above options but have questions or comments about anything in this article do not hesitate to email me: gad@mysccar.org. I can help you with what you want to say and how to say it. I am also going to start holding regular organizing meetings with people who are interested so that we can stay ahead of this issue.