Petaluma marks progress in regulation of short-term rentals

After a more than two-year battle to regulate short-term rental operators shirking Petaluma's rules and skipping out on taxes and fees, city officials say an outside agency is bringing bad actors into line.

Last year, the city retained San Francisco-based Host Compliance to identify and send notices to hosts operating unlawfully, a task that had previously proved difficult for the city's limited staff, with little compliance to show for their efforts.

While 130 active vacation rental listings were found in mid-November, only 25 permits were on file at the end of the year, according to Host Compliance CEO Ulrick Binzer and city records.

Since then, letters have been sent to 118 non-permitted property owners, Binzer said. And since Jan. 1 the number of authorized short term rentals has jumped 136 percent, to 59, including 17 operators who've sought renewed permits. Overall, the number of known operators now stands at 91, according to Binzer.

“At this point, (enforcement) has been very successful,” said Ingrid Alverde, Petaluma's economic development manager. The focus remains on creating an even playing field, she said, not so much on calling out bad actors. “I can't imagine any other way to enforce the vacation rental program.”

The results are coming to light as other cities and Sonoma County wrestle with how to govern short-term rentals that have increasingly been monetized by property owners through websites such as Airbnb and VRBO. As with Petaluma, their dilemma is identifying and enforcing rules, in some cases outright bans, on short-term rentals.

Petaluma's rules took effect on Jan. 1 2016. They require vacation rental operators to obtain business and short-term rental permits and remit 10 percent of their revenues to the city in the form of lodging taxes.

In their first two years, however, the requirements were largely ignored, depriving the city of much-needed funds and creating an uneven playing field between the few in compliance and most shirking the rules. Enforcement was handled on a complaint-driven basis, with few reports each year.

In October, the city inked a year-long $6,885 contract with Host Compliance to identify and send notices to renegade operators.

As part of that work, Host Compliance scans 50 vacation rental websites each week, identifying addresses using listings and property data. It compiles that information to provide in a weekly report to Petaluma, and sends out a pair of letters to each non-compliant property owner.

Those notified who ignore or chose not to follow the rules can be issued citations by the city, starting at $500.

Tracking down outlaw operators, however, has proved difficult for many local governments. Host Compliance has been hired by 125 other municipalities, including Napa County and Healdsburg, Binzer said.

Already, under the new enforcement regime, the level of permitted operations in Petaluma has increased more than four-fold over the previous peak year since the program's inception.

Those for new rentals cost $348.80, while renewals cost $124.26. A $49 business permit also is required.

The city has no estimate of how much money it has lost as a result of rental operators skipping out on their fees or lodging tax payments. Previous city calculations showed that 100 hosts renting for an average of 90 days at $150 a night would bring in $162,000 annually.

Since the program's inception, Petaluma has collected a total of $95,675 in lodging taxes and $26,547 in permit fees. The meager return reflects a city finding from December 2016 that showed that 80 percent of operators were not complying with the city's rules.

The city hired Host Compliance nine months later. For Joe Garcia, the lone employee in the city's code enforcement division, the company's work has been a welcome addition.

“Host Compliance has taken a huge load of work off our shoulders,” Garcia said. “They have all the tools to find these people.”

His notices to non-compliant property owners have resulted in four upheld citations. Some hosts, when contacted by the city, have told him they were unaware their listings were still active and acted immediately to remove them.

A balancing act

Binzer, a Marin County resident who founded Host Compliance in 2015, said the short-term rental market has continued to expand while the North Bay's housing stock constricts.

(Short-term rentals) are definitely on fire - overall the industry continues to grow leaps and bounds,” he said. “Two things happen – one is that people are starting to hear from their neighbors about how they made a bunch of money, and they get in on the action. In addition, investors are coming in and finding out they can buy out properties and turn them into short-term rentals.”

Petaluma's vacancy rate in major apartment complexes was 2.1 percent in April, and the median home price has risen to $749,000, among the highest in the county. So preserving housing stock is a concern for local officials. Rentals where hosts do not live on site are limited to no more than 90 days of paid-occupancy a year. That's enforced on a complaint-driven basis, though none have been received, Garcia said.

Of the all the listed short-term rentals, 71 percent use the entire home and the remainder use a portion of the dwelling.

The city's short-term rental rules expire Dec. 31 unless renewed, and Alverde said the City Council will discuss the issue by fall. Councilwoman Kathy Miller said she'll consider the success of enforcement when weighing next steps.

“I think some people do it because it's so expensive to live here. If you have the ability to generate extra income by renting out your granny unit for a portion of the year, I understand why people feel the need to do that,” she said. “Would I rather see that unit rented to a person who lives there fulltime? Yes. But I don't know how we can force people to do that in response to a housing crisis. People have property rights, and I'm cognizant of that.”

For Laurie Vogel, hosting short-term renters in a 450-square-foot granny unit on her west Petaluma property has been a positive experience. She attended the city meetings about the issue before securing a permit in October 2015, during a grace period before the rules kicked in. Her first renters booked the unit Valentine's Day in 2016 and her unit is now rented frequently, she said, averaging about $140 a night.

“We wanted to do it, and we wanted to do it right,” said Vogel, 65.

She welcomed recent enforcement efforts. “I think that a lot of people just thought ‘Oh great, here's a way to make some money,' but it's a little bit frustrating when the rest of us are paying.”

Ban floated for fire zone

Petaluma isn't alone in its plight with short-term rentals. As of last month in Sonoma County, 2,100 short-term rentals were known to exist in the county's jurisdiction, but only 1,422 had active vacation rental permits, said Maggie Fleming, a spokeswoman with Permit Sonoma, the county's planning and building department. Those numbers don't include listings in Bodega Bay and The Sea Ranch, where the county's limits on short-term rental don't apply.

The county's code enforcement division responds to complaints, and has received 50 reports this year of possibly unauthorized vacation rentals and 11 reports of permit violations, Fleming said. Staff members also periodically review listings to determine the number of unpermitted rentals. Those out of compliance are sent notices, Fleming said.

The Board of Supervisors directed county staff to prepare a proposal that would ban new short-term rentals in the area burned in October's fires, but a date hasn't been scheduled for a hearing.

In the city of Sonoma, following a 2016 moratorium on new vacation rental permits, the council last year decided that new permits will only be issued for rentals involving “adaptive re-use of a historic structure.” The city keeps a public list of authorized vacation rentals to help with enforcement efforts by its code enforcement officials.

The city is investigating about a dozen short-term rentals that may be out of compliance, said Patrick Galvin, a code enforcement officer. Before its code enforcement division was formed in 2016, the city used a third-party company to help identify and track hosts, City Prosecutor Bob Smith said.

Discussions have taken place at both the city of Sonoma and the county about potentially contracting with an outside company to help with enforcement, Fleming and Smith said.

In Healdsburg, vacation rentals are only allowed in the downtown commercial district. The city's code enforcement officer is charged with making sure the zoning code is followed. The code enforcement officer could not be reached for comment and information about complaints, active listings and permits was not available.

You can reach Staff Writer Hannah Beausang at 707-521-5214 or hannah.beausang@pressdemocrat.com. On Twitter @hannahbeausang.