Craig Batley has managed vacation rentals for over 20 years. As a real estate broker for Burr White Realty, Batley explains the backlash building in Newport Beach over illegal short-term rentals.
Q: Are illegal short term rentals a problem for Newport Beach?
A: Illegal short-term rentals are a problem for all cities. Internet platforms such as AirBnB and FlipKey do not play by municipal rules that other local rental companies must abide. Local ordinances and hotel tax is ignored by these internet sites and many of the (owners of) short-term rentals dodge permits and do not report revenues to the city for taxes.
Q: Does Newport have an edge over other cities on this issue?
A: They’ve been handling short-term rentals far longer and have ordinances already in place for years. Of all the cities in our area, Newport Beach has a 100 year history of managing short term rentals. By 1992, the city began to regulate with permits and to collect TOT (temporary occupancy tax), which wasn’t done before. In 2004 the city then refined the ordinances to prohibit short-term lodging in R1 (single-family residential) zones, grand-fathering in the existing ones. Most importantly, they have in place a system of enforcing the regulations.
Q: How are they enforced?
A: The city agrees it’s a difficult situation to ferret out illegal short-term rentals. But they are consistently combing through listings for illegal rentals. Many are located through disturbance reports where DAC (Disturbance Advisement Card) and LUGO (Loud and Unruly Ordinance) are enforced by the police department. Fines are given through a tiered system to both occupants and property owner and are very effective.
Q: Has that been an effective deterrent?
A: We really don’t have any situation where the owners have continually disobeyed the ordinances and refused to pay the fines. If that were the case, the city has in place where fines are sent off to collections. Again the DAC and LUGO systems through code enforcement and cooperative police action have been very effective at deterring loud party crowds. Past data shows that the amount of DACs issued for the entire city for dwellings with a short-term rental permit was only 3%; for the peninsula where most of all the permits are located, it was only 5%. These stats contradict the claim that short-term rental guests are disruptive and a nuisance.
Q: How many illegal rentals do you estimate there are in NB?
A: City data shows the general number is about 2,000 short-term properties posted on AirBnb for Newport Beach. Yet the city has to this date 1,237 properties legally licensed to operate on a short term basis. This creates an unfair playing field for ones that do have permits since the guests are required to pay a 10% (bed) tax; illegal rentals do not.
Q: Do owners of rentals without permits use the internet platform to avoid paying taxes?
A: Most homeowners with rental properties list on sites like AirBnB because they get lots of leads from it. They usually are not listing with a non-compliant internet platform to avoid the tax. The guest pays the hotel tax. In some cases, the homeowners are unaware they need to get a permit. But most do know. And unfortunately they are on borrowed time. Sooner or later they will be discovered by the city. Or by neighbors and citizens that are educated on the facts. Then back taxes and penalties will be assessed on the rental property.
Q: As a property manager, what has been your responsibility for short-term rentals?
A: We play by the rules, unlike many on the internet sites. We do put our listings on the internet, but comply with the requirements of the city. The guests pay hotel tax and the homeowners must keep their rental permits up to date. Our experience as the largest vacation rentals in Newport Beach, specializing in Balboa Island and the peninsula, has given us good and useful experience that has shaped our policies.
Q: What are your policies?
A: As a vacation property management firm we have company policies that we follow, namely a guest-propriety relationship like a hotel as opposed to a tenant-landlord relationship. Basically as a guest in a hotel, they have limited rights and an unruly guest can be kicked out with minimum notice. This is spelled out in the guest contract. Also, we are encouraged by the city to post a sign on the home as a vacation rental and with a 24-hour phone number to call for any complaints. Guests have to come into the office to pick up keys in person and contractually be at least 25 years of age. And we rent for a minimum of three nights, which usually eliminates the weekend party goers. In general, our vacation rentals attract families that have been coming down to the peninsula for years.
Q: Do you think the rise of illegal short-term rentals has affected property value?
A: No, not really. The city hasn’t banned all short-term rentals. Any property that has a dwelling in the R2 zone can still get a short-term permit and generate more revenue, making the property more valuable. R1 zoning has a few grandfathered-in short-term rentals. But the city will not be issuing any more new permits to homes zoned R-1.
Real Estate Broker
Burr White Realty
2901 Newport Blvd.
Newport Beach, CA 92663
By Gina Dostler