BACKGROUND:
In May 1989, the City Council adopted Ordinance 89-17 prohibiting transient (less than 30 days) rentals in the Single-Family Residential (R–1) District. While Ordinance 89-17 and the City’s Municipal Code prohibit transient rentals in the R-1 District, there is no prohibition on this use in the Multi-Family (R-4) and Commercial (CC, SC, RC) Districts. Since January 2018, the City has approved 37 transient rental units, for which $48,670 in transient occupancy tax (TOT) has been collected. A total of 9 units have been denied, 4 of which because the property contains a use permit prohibiting such use, 5 of which because the units have not been constructed yet.
One potential issue with permitting transient rentals in the Multi-Family and Commercial Districts is that it eliminates available long-term housing supply. The City contains approximately 3,000 single-family residences and 650 multi-family units. The multi-family units in the downtown provide the best opportunity for affordable/workforce housing. Permitting transient rentals and the subsequent loss of housing potentially conflicts with the following General Plan – Housing Element goals, programs and policies:
Goal G3-1: Preserve the existing housing stock.
Goal G3-2: Preserve existing residential units and encourage the development of new multi-family housing in the Commercial and R-4 Districts.
Program 3-2.1.b: Preserve and Increase Second Floor Residential Uses. To prevent the loss of existing residential units in mixed-use buildings, the City will continue to prohibit the conversion of existing second-floor residential floor space to commercial use.
Policy P3-3.1: Ensure adequate sites are available to meet the City’s projected housing growth needs.
Policy P3-5.3: Preserve and expand affordable and rental housing opportunities to enable local employees such as teachers, police, fire fighters and other City personnel to live in the community where they work.
Permitting transient rentals may also conflict with a state mandate that cities and counties increase their housing supply. For these reasons, staff is recommending that the City Council consider the issue of regulating and restricting transient rental activity in the downtown.
During the last City Council meeting on June 4, 2019, the Council was required to reconstitute itself due to the existence of financial conflicts of interest with three of the five Council members. Since that meeting, Councilman Richards ceased working in his previous professional capacity which was the trigger for his conflict of interest. As such, only two of the five members of the Council currently have a conflict of interest, so the need to reconstitute the Council no longer exists. Because Government Code section 87100 says that a public official cannot “make” or “participate in making” a government decision when he/she knows or has reason to know of a financial interest, the Council must begin again its review of the City’s regulations on transient rentals in the Multi-Family and Commercial Districts and give new direction to staff after a fresh review of the transient rental agenda item. The manner in which this agenda item is drafted addresses the need for a new and fresh review by the City Council.
POLICY OPTIONS:
Staff is seeking feedback from the City Council on how to address transient rentals in the Multi-Family and Commercial Districts. Three policy options are provided below for discussion. Regardless of which option is selected, the City will need to amend the Municipal Code to recognize and define transient rentals in the Multi-Family and Commercial Districts. The following are some policy option alternatives for the City Council to consider:
Option #1 - Prohibit Transient Rentals in the Multi-Family and Commercial Districts
If transient rentals are prohibited, those rentals that have already been permitted would be classified as legal nonconforming. The Council could either allow these units to operate in perpetuity as a legal nonconforming use or could establish a specific time period requiring discontinuation of the use over a set amount of time.
Under Municipal Code Chapter 17.36 (Nonconforming Uses and Buildings), a nonconforming use is considered abandoned if replaced by a conforming use, discontinued for 6 consecutive months, or if the building housing for such use is demolished. Once the nonconforming use has been abandoned it cannot be reestablished at the subject property or elsewhere. Under the provisions of this Code section, if a permitted transient rental is converted to a non-transient residential use for 6 consecutive months, it can never go back to being used as a transient rental. These abandonment regulations could have the unintended consequence of discouraging property owners who have transient rentals permits from renting on a long-term basis in an effort to maintain the legal nonconforming transient rental use. As a consequence, one option the Council could consider is exempting transient rentals from the standard abandonment rules.
With regard to Option #1, the City Council should consider the following questions:
- Should the City prohibit transient rentals in the Multi-Family and Commercial Districts?
- If prohibited, should the permitted units be allowed to operate in perpetuity or should they be amortized out over a set period of time, and if so, for how long?
- If prohibited, should transient rentals be exempted from the standard abandonment rules?
Option #2 – Categorize Transient Rentals as a ‘Restricted Use’
The City’s Municipal Code (CMC 17.56) establishes ‘restricted uses’ as being subject to regulations “intended to preserve Carmel’s character as a residential village and perpetuate a balance of land uses that are compatible with local resources and the environment.” The City’s restricted uses are limited by a numerical cap. Examples include jewelry stores (32 allowed), bars (3 allowed) and hotel units (948 allowed). Rather than outright prohibiting transient rentals, they could be categorized as a restricted use with a numerical cap. A restricted use is similar to a nonconforming use, in that it is considered abandoned if not used for a period of 6 consecutive months. However, unlike a nonconforming use, a restricted use can be re-established if abandoned, potentially at a different location (note: nonconforming uses are confined to the property where they are permitted).
With regard to Option #2, the City Council should consider the following questions:
- Should transient rentals be categorized as a restricted use?
- If so, how many units should be allowed?
- If so, should transient rentals be exempted from the standard abandonment rules that apply to a restricted use?
Option #3 – Permit Transient Rentals with Restrictions
The Council should consider whether to permit transient rentals, but with restrictions. Under this scenario, the City could require that only a certain number or percentage of units in a multi-family building or project be devoted to transient rental units. For example, the City could potentially allow 25% of the units to be used as transient rentals. While transient rentals do reduce available housing supply, permitting a limited number could potentially help subsidize and incentivize new housing projects. One factor to consider is whether transient rentals are compatible with long-term rentals. The primary complaint from long-term tenants and home owners in the R-1 District, is that there are impacts associated with living adjacent to a transient rental.
With regard to Option #3, the City Council should consider the following questions:
- Should transient rentals be permitted?
- If so, should there be restrictions on the number allowed per multi-family building?
SUMMARY:
Staff has provided several policy options for the City Council to consider. The Council may recommend alternative options not identified in this staff report that are generated as part of the discussion. Once the Council has selected a policy direction, it should direct staff to prepare an ordinance to codify the transient rental regulations.