SR-400-011
PCD:SF:JT:AS:JL:f:\plan\share\council\strpt\rental housing.doc
Council Mtg: April 10, 2001 Santa Monica, California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Analysis of Short-Term Rental Housing and Recommendations on
Regulatory Options
INTRODUCTION
This report provides a discussion and analysis of short-term rental housing in Santa
Monica and recommends that the City Council provide staff with direction to regulate
this use in Santa Monica to ensure and maintain the continued development and
availability of long-term housing for all economic segments.
BACKGROUND
On April 11, 2000, the City Council directed staff to analyze and propose appropriate
measures to regulate and/or prohibit the use of rental of housing units for use as short-
term visitor accommodations. Concern over the loss of available long-term housing,
impacts to regional and local housing stock, and the lack of neighborhood stability due
to the transitory nature of short-term housing were identified as key issues to address.
DISCUSSION
Background
Short-term housing, also known as corporate housing, is an activity that provides short-
term accommodations in an apartment-like environment complete with home
furnishings, appliances and other home-like conveniences. Nationally, the majority of
short-term housing consists of one and two-bedroom (60% and 36%, respectively)
units. The floor plan is similar to an apartment or condominium providing separate
bedrooms, living rooms and kitchen areas. Short-term housing projects may include
weekly maid service; on-site conference rooms or business centers; fitness rooms; and,
Internet access. Typically there is a 30-day minimum stay requirement, which is
formalized with a lease agreement between the renter and the housing provider. The
average length of stay in the Los Angeles region is 80 days and 71 days nationally.
Jack Westergom, Managing Director of Manhattan Hospitality Advisors, Inc., a south
bay consulting firm assisting developers, investors and managers involved with the
lodging/resort industry, informed staff that a majority of those who use short-term
housing are corporations that lease units for their employees and business partners.
Typically, corporations use short-term housing for new or relocated employees moving
into an area who do not have permanent housing, for temporary project assignments or
to provide housing during employee training. Short-term housing is also used as
incentives to employees or business partners for use as a vacation home. Although
primarily used by corporations and professional travelers, short-term housing is also
used by vacationers, people remodeling their homes, new residents to a given
community and individuals who are in a transition between jobs or other personal
circumstances that require temporary housing.
Short-term Rental Housing/Extended Stay Facilities/Hotels
Short-term housing differs from extended stay facilities and hotels in the length of stay,
amenities provided, and average occupancy and rates. Hotels tend to cater to a
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clientele that is more transitory, or visitor serving, and which stay less than 30 days.
Extended stay facilities represent a hybrid between hotels and short-term housing
allowing guests to stay longer than 30 days and operates similar to a hotel with front
desk operations, billing guests per day, but with fewer staff per guest and in room
kitchen facilities, separate rooms and other features that resemble a home-like
environment. An Atlanta based firm, The Highland Group, known for its consulting and
research in the hospitality industry, prepared a report concluding that the average
national occupancy of hotels, extended stay facilities and corporate housing, units are
63% (71% for upscale hotels), 77% and 91%, respectively. The corresponding average
daily rates are $81.27 ($117.82 for upscale hotels), $61.99 and $84.70, respectively.
The Highland Group report also concludes that the national inventory of short-term
(corporate) housing increased 13% in 1999 and projected another 15% growth in each
succeeding year for 2000 and 2001.
Given the recent and pending completion of new housing developments that are used
and marketed for short-term housing in Santa Monica, it appears this industry is growing
locally. The demand for this type of housing alternative in Santa Monica is in part
attributed to the national economy, the geographic location of Santa Monica, the
proximity to transportation routes, the natural and cultural amenities, and the re-location
of prominent entertainment and Internet based corporations to Santa Monica. The
offered amenities, flexible leases and competitive prices associated with short-term
housing have increasingly encouraged business and corporate travelers to use short-
term housing as opposed to hotel, or extended stay facilities.
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Short-Term Rental Housing In Santa Monica
Although corporate housing has been available generally to the public since the late
1960’s when it was first introduced by Oakwood Worldwide, the more recent increase in
availability within Santa Monica has raised local concerns regarding the
appropriateness of this type of land use in residential districts and the Beach Overlay
District, and the potential impact to local and regional long term housing. Short-term
rental housing is similar to hotel and extended stay facilities placing the use in a
commercial category instead of a residential use. Because of the current ambiguity in
the City’s hotel definition, short-term rental housing has been operating in projects
approved as multi-family housing. Under the Zoning Ordinance, hotels are defined as:
A building, group of buildings or a portion of a building which is designed
for or occupied as the temporary lodging place of individuals for generally
less than thirty consecutive days including, but not limited to, an
establishment held out to the public as an apartment hotel, hostel, inn,
time-share project, tourist court or other similar use.
Recent developments in the City that offer short-term housing require a minimum 30-
day stay requirement so as not to be considered a hotel and have been approved as
multi-family units defined as:
A building containing two or more dwelling units. A dwelling unit is defined
as one or more rooms designed, occupied or intended for occupancy as
separate living quarters, with full cooking, sleeping and bathroom facilities
for the exclusive use of a single household.
Because the projects have been approved as multi-family residential, they have been
subject to the City’s affordable housing program; benefited from development incentives
such as increased height, number of stories, and floor area; exempt from environmental
review and discretionary approvals; and comply with residential standards that require
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limited guest parking, kitchens, provisions for private open space and, in mixed use
projects, separate and secure access. Such developments, although designed,
processed and approved as a residential or mixed-use project, introduce a transitory
nature into established residential neighborhoods. As a result, this use is more
appropriately commercial, which should be restricted to certain districts and not
considered a housing development.
In an effort to understand the extent to which short-term rental housing is being offered
in Santa Monica, staff reviewed City records, advertisements in various media and
researched the Internet for existing and anticipated short-term housing opportunities.
There are several existing facilities that offer short-term housing currently and others
that are anticipated to offer such accommodations in the near future. Staff was able to
identify the major contributors to the new short-term housing stock and further
understand the extent of the issue. Some of the more notable developments offering
short-term rental housing include the Arboretum project with 350 units (excluding the 97
deed restricted to affordable housing); the Champagne Towers (119 potential units); the
Sea Castle (133 potential units – currently being remodeled); and, Citrus Suites with a
combined 171 units available at two separate locations. Short-term housing, however, is
not limited to larger apartment buildings near the beach or in the downtown, but also
includes smaller developments located throughout the City. Many are established in
residential neighborhoods near Main Street, Santa Monica College, and north of
Wilshire Boulevard, for example. Some of the advertised smaller establishments include
the Deco Palm, Casa Serena, and the Beach Suites offering potentially 12, 20 and 4
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units, respectively. It also appears that there are some family run establishments with
the occasional renting of a single-family dwelling or condominium; however, this does
not appear to be on a continual basis or long-term practice.
In the absence of municipal regulations restricting the use of an apartment building to
long term or affordable housing (i.e.; deed restrictions, rent control), any number of
unrestricted units could be made available as a short-term rentals. The continued
conversion of multi-family housing to short-term rental housing begins to impact long-
term housing opportunities in the City.
Short-Term Housing In Other Jurisdictions
To understand how other municipalities regulate short-term rentals, staff contacted
numerous cities, including: Avalon, Berkeley, Burbank, Carmel, Glendale, Monterey,
Portland, Santa Cruz and San Jose. Avalon had a problem with housing units being
used as transient rentals (less than 30 days) primarily for vacation accommodations.
Although similar to the concerns expressed in Santa Monica, Avalon’s short-term rental
problem occurs on a small scale and is similar to hotel-like establishments where
visitors stay less than 30-days. However, both communities share the loss of long-term
housing opportunities when housing units are used in this manner. Avalon permits
‘transient rentals’ in all districts subject to a conditional use permit.
Monterey reported having some initial concerns with short-term residential units and in
the early 1990s, began prohibiting such uses except in their hotel district. Although,
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short-term rentals appear to be on the increase, the sampled cities generally were not
significantly concerned with this type of land use at this time.
Impacts of Short-term Housing
Short-Term rentals impact the affordability of housing throughout the City, creates unfair
competition with hotels, has financial impacts to the City, and causes potential
deleterious impacts to the community. In addition, the use undermines the purpose of
the Beach Overlay District as established by Proposition S, which prohibits hotels and
motels west of Ocean Avenue. These issues are discussed below.
Local Housing Stock and Affordable Housing
As of 1995, there were 48,280 housing units in the City consisting of 10,948 single-
family dwelling units and 37,332 multi-family dwelling units. That housing stock includes
2,144 deed restricted affordable housing units. Each new residential development of
two or more dwelling units is required to satisfy the City’s affordable obligation by
providing affordable housing units on-site, off-site or through payment of an affordable
housing fee. While the use of a dwelling unit for short-term rental housing impacts the
unit’s availability for long-term housing opportunities, those housing units produced as a
result of the City’s affordable housing programs are protected; other affordable and
market rate housing, however, are not. Short-term rental housing impacts the
affordability of units by encouraging high turn-over. Based on the Highland Group study,
the average length of stay for corporate apartments is 80 days in the Los Angeles
region, and 71 days nationally. High turn-over increases rental rates and may
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encourage owners to convert existing long-term units to higher priced short-term
rentals.
Impacts to the Community and Consistency with the Zoning Ordinance
Due to the transitory nature of short-term housing, and its essentially commercial
operational characteristics, the use can adversely impact residential neighborhoods.
Impacts include increased traffic, noise, trash, and intensity of operation based on the
services provided in such facilities. These impacts could lead to a deterioration of the
neighborhood character and disrupt the quality of life within residential areas. Residents
in a more cohesive environment who interact with their neighbors are more inclined to
maintain the quality and character of the neighborhood and share a sense of
neighborhood pride. The average stay of guests in corporate apartments is 71 days in
contrast to the average length of stay of tenants in long-term housing. Based on the
adopted Housing Element, the average length of stay of tenants in uncontrolled units is
1.5 years and 5 years in controlled units.
Introducing a transitory, commercial operation into a residential neighborhood may
breakdown neighborhood stability and residential character. Such a use would be
inconsistent with the Zoning Ordinance, which serves to maintain and protect the
existing character and quality of life in residential neighborhoods.
Further, as a transitory and commercial lodging operation, short-term housing also
appears to undermine the provisions of the Beach Overlay District, which prohibits new
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hotels west of Ocean Avenue. Established in 1990 pursuant to the Proposition S voter
initiative, the Beach Overlay District was adopted to “preserve the unique and diverse
character of the Santa Monica Oceanfront.” One of the essential elements of the
overlay district was prohibiting hotel development along Santa Monica’s oceanfront area
in order to protect the City’s greatest asset: its ocean access, views, and setting. Short-
term housing’s similarities with hotel uses, specifically the transient and temporary
length of stay, threaten the Beach Overlay District’s intent and purpose.
Transient Occupancy Tax
Short-term rental housing has an unfair financial and regulatory advantage over hotel
development. The operation of short-term rentals is similar in nature to hotels and in
fact, some rentals target their marketing to hotel customers. However, short-term rentals
do not contribute to the transient occupancy tax and many have taken advantage of
development incentives for multi-family housing. Short-term rentals do not abide by the
same regulations as hotels and therefore can offer lower rates than a hotel for a similar
length of stay.
Santa Monica Municipal Code Chapter 6.68 establishes definitions for hotel, room
rental, and transient. These terms are defined as follows:
Hotel: Any public or private hotel, inn, hostelry, tourist home or house
motel, rooming house or other lodging place within the City of
Santa Monica offering lodging wherein the owner and operator
therof, for compensation, furnishes lodging to any transient as
herein above defined.
Room Rental: The total charge made by any such hotel for lodging and/or
lodging space furnished any such transient. If the charge made
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by such hotel to such transient includes any charge for services
or accommodations in addition to that of lodging and/or the use
of lodging space, then such portion of the total charge as
represents only room and/or lodging space rental shall be
distinctly set out and billed to such transient by such hotel as a
separate item.
Transient: Any person who, for any period of not more than one month
either at his own expense or at the expense of another, obtains
lodging or the use of any lodging space in any hotel as
hereinafter defined, for which lodging or use of lodging space a
charge is made.
Any transient renting a hotel room consistent with these definitions, is required to pay a
transient occupancy tax to the City of 12% of the room rental. Based on these
definitions, users of short-term rental housing would not currently be subject to transient
occupancy tax. However, given the operational characteristics of short-term housing
and its similarities to hotel and extended stay facilities, contribution to the transient
occupancy tax may be appropriate if it is determined the tax can be applied to the use.
Regulatory Options
The regulations governing short-term rental housing are ambiguous. Although not
defined in the Zoning Ordinance, corporate housing, or short-term housing as used in
this report, typically refers to the rental of a fully furnished apartment-style dwelling unit
for a period of at least 30 days. Hotels and motels, which are defined in the Zoning
Ordinance, are the temporary lodging of individuals for a period generally less than 30
consecutive days. Hotels and motels are commercial uses, whereas apartments,
although having a business component, is a residential activity.
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Staff believes regulation of short-term housing is necessary, and there are a variety of
regulatory options. Revisions to the hotel definition, multi-family housing definition, or
establishment of a new, short-term housing definition could provide clarification as to
what constitutes a hotel versus a short-term housing use. Establishing a maximum unit
cap on short-term housing based on a percentage of the total housing units in the City is
also an option. This would prevent the City from being overly impacted by such
developments and help ensure the continued availability of long-term housing
opportunities.
Staff believes short-term rental housing negatively impacts residential districts. This is
due to the transitory nature of short-term housing and the impact it has on the character
and quality of residential neighborhoods. Additionally, as previously discussed, short-
term housing does not appear consistent with the intent of the Beach Overlay District.
Therefore, regulations should be developed identifying the appropriate district in which
to locate the use either by right or by discretionary review.
As discussed, short-term housing contains components of both commercial and
residential uses, but is more closely assigned with a commercial enterprise. Hotels are
subject to the development standards of a given district, including height restrictions,
floor area and parking requirements, and are not required to provide open space or
kitchen facilities for each unit. Multi-family development must comply with the standards
of the district but are further encouraged in commercial zones through development
incentives. These incentives include a 50% floor area discount when calculating
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permitted floor area (FAR) or calculating discretionary review thresholds, and height or
number of stores incentives. Often these projects are exempt from any environmental
review and qualify for administrative approval, by-passing Planning Commission review.
Staff believes that short-term housing is essentially a commercial operation and,
therefore, should not qualify for multi-family development incentives. However, since
the stays are typically longer than 30 days, amenities such as open space, kitchens and
parking should be provided.
BUDGET/FINANCIAL IMPACT
The recommendation presented in this report does not have any budget or fiscal impact.
RECOMMENDATION
Staff recommends that the Council conduct a public hearing and discussion on short-
term rental housing, and provide staff with direction regarding regulation of this use.
Prepared by: Suzanne Frick, Director
Jay Trevino, AICP, Planning Manager
Amanda Schachter, Principal Planner
Jonathan Lait, AICP, Associate Planner
Planning and Community Development Department
Attachment:
A. Corporate Apartment Overview, Prepared by Manhattan Hospitality Advisors
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ATTACHMENT A
IS NOT AVAILABLE ELECTRONICALLY.
ITEM AVAILABLE IN THE
CITY CLERK’S OFFICE.
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