Pacific Grove Raffles Off Property Rights

In coastal California, already severe restrictions on property use are coming into conflict with increased tourist demand. Pacific Grove, a small coastal city in Monterey County where home-sharing—renting a room or a private home from a homeowner—is especially popular, decided to literally raffle off the property rights of its residents via a lottery. Winners—only 15 percent of Pacific Grove properties per zone—get to keep conducting short-term rentals. But dozens of other homeowners suddenly and unfairly lost the right to rent their homes to generate income that helps them and their families. And because the lottery was completely random, owners who had racked up numerous complaints were allowed to keep their permits, while responsible homeowners were stripped of theirs.

For instance, William and Susan Hobbs own “Sea Dance,” a beautiful oceanfront property that has been licensed to conduct short-term rentals since 2013. Susan’s parents retired to Sea Dance years ago. Susan has many sentimental memories of being in that home and in Pacific Grove. When Susan’s mother had to move into an assisted living facility, Susan obtained a short-term rental license from the city and began to offer Sea Dance for rent to help the family afford the considerable costs of that care. Based on the assurance that they would be able to recover the costs of repairs through short-term rentals, Susan and William worked daily for two months and overall spent an estimated $50,000, dipping into savings, to turn the aged home from an unmaintained eyesore to a beautiful oceanfront vacation home. Susan inherited the home when her mother passed away six months later. Because she had put considerable resources into fixing the home and because she wanted to keep the home for their own future use as a primary residence, Susan continued to offer the home for rent on a short-term basis. Sea Dance is a popular rental home and has received no formal complaints. Yet thanks to the city’s recent lottery, William and Susan will lose their short-term rental license next year. They fear they will have to sell the home because they will no longer be able to afford to keep it.

Donald and Irma Shirkey face a similar fate. They purchased a second home in 1999 for their children and grandchildren to use when they visit Pacific Grove. In order to cover the costs of their second home, and to help them maintain their primary residence, they decided to rent the home out when their family was not occupying it. Short-term rentals are more lucrative, but also more practical for Donald and Irma since they like to be able to offer the home to their children and grandchildren when they visit. So when the city began licensing short-term rentals in April 2010, Donald and Irma were one of the first to apply for and receive a license. To offer the home as a short-term rental, Donald and Irma made repairs and improvements, including installing new decks and replacing and upgrading appliances. Although they often rent their two-story, single-family home as a single unit, this year the city required them to obtain a second short-term rental license for the small guest quarters over the garage. While the upstairs guest quarters offer extra privacy for guests traveling in groups, it is very small and is not viable as a stand-alone rental for many guests. Yet because of the lottery, next year Donald and Irma will be limited to just renting out the small guest unit upstairs. If they can’t rent the main home as well, they may no longer be able to afford to keep their home.

The city’s lottery system is not just devastating to home-sharers and detrimental to local tourism—it also violates California law. The state’s Coastal Act authorizes the Coastal Commission to regulate development in the state’s coastal zone for the purposes of protecting the coastline, maximizing public access, and balancing utilization and conservation of resources. While the Commission often imposes heavy restrictions on property owners, even it recognizes that home-sharing plays an important role in providing affordable access to the coast, while reducing the need for new kinds of public facilities. Thus, the Commission has declared that bans on home-sharing are inconsistent with the Coastal Act. The Coastal Commission has supported limiting the number of vacation rentals when necessary, but it has also implored cities to adopt only “reasonable and balanced regulations that can be tailored to address the specific issues” of the community, rather than banning the practice outright. Indeed, many of the home-sharing regulations the Commission has approved in the past focus on abating disturbances through nuisance restrictions, parking requirements, occupancy limitations, and mandatory emergency contacts, or mechanisms for tax collection, instead of one-size-fits-all prohibitions.

The Coastal Act requires local governments to submit a “local coastal plan,” including any changes to government-imposed land use restrictions and zoning ordinances, to the Commission for certification before those changes can become effective. Pacific Grove officials did not submit their new anti-home-sharing system or lottery to the Commission for approval before stripping homeowners of their home-sharing permits. And the city’s regulations aren’t tailored to address specific problems; rather, they abruptly and arbitrarily deprive responsible property owners of their right to let people stay in their homes.

Pacific Grove’s unfair attack on responsible homeowners is part of a misguided war on home-sharing across the state. Voters in other popular California tourist destinations like San Francisco and Palm Springs have rejected excessive efforts to restrict home-sharing in part because they pit neighbor against neighbor, turning people into spies watching over each other’s back fences to ensure that the guests are just friends rather than home-sharing customers.

That’s why the Goldwater Institute is taking the city to court—to defend the rights of the Hobbses, Shirkeys, and other Pacific Grove home-sharers. Rather than treating responsible homeowners like criminals, cities should embrace the opportunities the sharing economy provides property owners, visitors, and local businesses, and give homeowners a shot at living the American Dream.

Click here to learn more about the Goldwater Institute’s fight to defend home-sharing coast-to-coast.

Christina Sandefur is the Executive Vice President of the Goldwater Institute.