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City eyes vacation rental violations

By Christian Kallen SPECIAL TO THE INDEX-TRIBUNE

A new study commissioned by the City of Sonoma reveals that roughly half of local properties being used as vacation rentals have failed to comply with city regulations, according to City Manager Carol Giovanatto.

The preliminary report issued by the city – known as the Vacation Rentals Review Program, or VRRP – is brief and does not include specific addresses. But a final report will be presented to the City Council at its next scheduled meeting on Aug. 18. A list of all permitted vacation rentals will be included at that time.

The study identified 46 properties that either had not purchased the annual business license, failed to pay the Transient Occupancy Tax (TOT) or both. While a few of the 46 properties identified turned out to be exempt from the registration for one reason or another, a majority have since either ceased operating as a vacation rental or are on the road to becoming compliant, city officials said.

“Prior to the VRRP we had 26 registered vacation rental properties,” said the city manager. “Through the VRRP, we added 37 additional properties.”

Of key interest to the city is the tax revenue slipping through the cracks due to non-compliant vacation rentals. The newly identified properties were invoiced over $36,000 for their missing taxes, and much of that has been received, according to the report. TOT in the city is a 10 percent tax on the rental rate, compared to a 9 percent tax for the county TOT. An additional 2 percent tax is levied for the Tourism Improvement District (TID) that is shared with the Sonoma Valley Visitors Bureau for marketing and promotion.

The annual income from all the city’s TOT is more than $3.1 million, said Giovanatto, amounting to approximately 22 percent of the general fund, and received from a current total of 564 lodgings. These include 235 motel rooms, 121 hotel rooms, 105 inn rooms, 40 bed and breakfast rooms and, now, 63 vacation rentals. It is the failure of a significant number of overnight stays to pay the required taxes that puts the issue in stark economic terms.

The issue of revenue is why the study, performed by the nationwide revenue assessment firm Muni Services, was contracted. But another side of the controversy is the failure of some vacation rentals in areas zoned residential to obtain a use permit, running afoul of the Planning Department. “In a situation like this it’s just very clear what the rules are,” said City Planner David Goodison.

“You can only obtain a user permit for a vacation rental in a residential zoning district as an adaptive reuse of a historic building,” he elaborated. “If the building on the property (that is being rented) is not a historic building, then they won’t qualify to even make an application.” Hotels, motels, inns and breakfast properties have wider conditions for operation. And vacation rentals might be permitted in areas zoned for commercial use as long as they have a use permit, subject to review by the Sonoma Planning Commission.

A number of the properties turned up by the study appear to be in violation of the user permitting process, and for those cases an administrative abatement process can — and will, according to Goodison — be put into play. The process might begin with an initial phone call or a letter to ask the owner to cease the operation, then a second letter with a formal deadline for compliance.

“If that’s not met, or is not responded to, then it’s turned over to the administrative abatement process,” Goodison said. The court process ends with a hearing before a city officer, and can result in daily fines, potentially retroactive.

Operating a vacation rental is subject to several city regulations, including a conditional use permit, possession of a business license ($74 per year), annual inspection for fire and safety, no more than two residential units on the property, and stays of up to 29 days maximum. Longer stays of 30 days or more are not subject to the TOT and do not require a conditional use permit, being regarded as rental properties instead.

Yet some of the properties listed on websites for Vacation Rentals By Owner (VRBO) and AirBnB, two leading online listings services, fall outside those conditions. At least of two them continue to be listed despite being contacted about their failure to comply with city planning regulations, and agreeing to take down their listings.

One area of concern is whether the apparent rise in vacation rentals is cutting into the limited residential rental market. An earlier Index-Tribune article on rising rental rates prompted several comments about rental conversion to vacation homes, with most complaining about the loss of rental units.

Still, many local real estate professionals contest the argument that vacation rentals erode the long-term rental market. “Workforce housing has been an issue in the Bay Area for decades, well before the proliferation of vacation rentals,” said Liza Graves of Beautiful Places. “I just don’t know if the hypothesis holds that if there were fewer vacation rentals there would be more long-term rentals. Vacation rentals are typically second homes, they are more expensive homes, and the owners use their home quite a bit and rent it out when they are not using it.”

Jennifer Powell of Sonoma Properties, whose business is rental properties, concurs. “Anything that removes houses from the rental pool will obviously have an impact on housing availability and affordability, but I don’t think vacation rentals are the driving factor in a shortage of housing,” she said. “Most of the impact that vacation rentals have on the rental market would most likely be on the higher-end homes.”

In July, the median price for single-family resale homes in Sonoma County was up for the 25th month in a row, according to real estate market trends reports, and the average home price in Sonoma was $888,611 — the highest in Sonoma County, ahead of Penngrove, Healdsburg and Sebastopol.