REPORT TO PLANNING COMMISION
SUBJECT
Title
Forward a Recommendation to City Council to Introduce an Ordinance to Amend Sunnyvale Municipal Code Chapter 19.76 (Short-Term Rental of Residential Property), Adopt a Resolution to Amend the FY 2021/22 Citywide Fee Schedule Related to Fines for Violations of the Short-Term Rental Ordinance, and Find that these Actions are Exempt from the California Environmental Quality Act
Report
REPORT IN BRIEF
In response to a tragic incident at an Airbnb in August 2021, the City Council expressed a desire to review options for addressing safety concerns with short-term rentals (STRs). After holding two study sessions, the Council directed staff to draft amendments to the City’s STR ordinance and prepare options for enhancing compliance and enforcement. This report summarizes Sunnyvale’s STR regulatory program. Staff also makes recommendations to amend the City’s STR regulations and penalties, and provides options for enhancing compliance and enforcement to address health and safety concerns.
Staff recommends that the Planning Commission forward a recommendation to City Council to Introduce an Ordinance to Amend Sunnyvale Municipal Code Chapter 19.76 (Short-Term Rental of Residential Property), Adopt a Resolution to Amend the FY 2021/22 Citywide Fee Schedule Related to Fines for violations of the Short Term Rental Ordinance, and Find that these actions are exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15061(b)(3).
The City Council is scheduled to consider this item on April 26, 2022.
BACKGROUND
A short-term rental (STR) is a business activity in which a property operator or “host” rents out a room, an entire residence, or an accessory dwelling unit (ADU) to a visitor for a short period of time (less than 30 days). STRs are essentially home-based hotels. Web-based platforms, like Airbnb (where the majority of Sunnyvale listings can be found), market the availability of such rentals and in some cases act as fiscal agents for the property owner.
In 2015, the City studied the impact of rapidly growing STRs in Sunnyvale and explored regulatory options for effectively responding to this new business activity (RTC No. 15-0585). As a result, the City Council adopted Ordinance No. 3059-15 with the goal of (1) protecting Sunnyvale’s housing stock; (2) minimizing nuisances that threaten the public’s health, safety, or welfare; and (3) collecting transient occupancy taxes owed on stays of 30 or less consecutive days.
Sunnyvale’s current STR Ordinance requires STR hosts to register with the City. The host must obtain a City permit, and collect and remit transient occupancy taxes (TOT). Pursuant to the City’s Business License Tax Ordinance (Sunnyvale Municipal Code (SMC) Section 5.04.030(13), they must obtain a business license if renting three or more spaces or units. Hosts must also follow STR guidelines, including:
• Host must reside on-site during the lodgers stay.
• Host must limit occupancy to a maximum of four overnight lodgers (not including minor children).
• Host may not rent to unaccompanied minors.
• Host shall be responsible for ensuring the property does not become a nuisance.
• Host must comply with all permit conditions, laws, and codes.
• Host must provide basic lodging accommodations.
At the time of adoption, staff informed Council that compliance and enforcement of the ordinance would be complaint based. The City was aware that there were a large number of noncompliant listings, but had no available resources at that time to proactively investigate potential violations. The chart on the next page shows the number of registered STR units in Sunnyvale along with complaints and citations issued by the City’s Neighborhood Preservation Unit since 2016.
|
Sunnyvale Short-Term Rental Registrations and Investigations |
|
Calendar Year |
Registered Units |
Complaints |
Citations |
|
2016 |
19 |
11 |
2 |
|
2017 |
28 |
19 |
3 |
|
2018 |
46 |
21 |
1 |
|
2019 |
66 |
29 |
2 |
|
2020 |
77 |
11 |
2 |
|
2021 |
97 |
13 |
0 |
|
|
|
|
|
In 2018, the City shifted its focus to TOT compliance. First, the City entered into a voluntary TOT collection agreement with Airbnb. The Agreement authorizes Airbnb to automatically collect and remit TOT to the City on behalf of hosts using its platform. Airbnb, however, was not obligated to share host contact information or assist with compliance and enforcement of the City’s STR Ordinance.
Later that year, the City contracted with a third-party vendor, Host Compliance, to assist with voluntary TOT compliance efforts targeted at non-Airbnb listings. One hurdle to City compliance and enforcement is that STR ads do not typically include addresses or host contact information. STR hosting platforms do not share this information with municipalities without a search warrant or court order. Host Compliance has software that uses listing photos in combination with Google Maps and Street View to determine likely street addresses. Using Host Compliance, City staff can now identify a little over half of STR locations in Sunnyvale.
As a result of these efforts, TOT revenue collection increased significantly in FY 2018/19 as shown in the chart below. Airbnb remits 99% of TOT revenue from STR activity through the voluntary collection agreement. Revenues began trending downward in the last two years due to the pandemic, however have begun recovering.
|
Fiscal Year |
TOT Revenue |
TOT Collected by Airbnb |
|
2015-16 |
$8,234 |
0% |
|
2016-17 |
$26,582 |
0% |
|
2017-18 |
$47,688 |
0% |
|
2018-19 |
$695,457 |
98% |
|
2019-20 |
$585,820 |
99% |
|
2020-21 |
$310,263 |
99% |
|
2021-22 (Ytd) |
$332,850 |
99% |
According to data from Host Compliance, there are approximately 400 active STR listings in Sunnyvale. The vast majority of these listings (83%) are advertised on Airbnb. Some are advertised on multiple sites.
EXISTING POLICY
Sunnyvale Municipal Code Chapter 19.76 Short-term Rental of Residential Property
Sunnyvale General Plan
GOAL LT-4. In combination with the City’s Community Design Sub-Element, ensure that all areas of the City are attractive and that the City’s good image is enhanced by following policies and principles of good urban design while valued elements of the community fabric are preserved.
GOAL LT-6. Ensure that all residential areas of the City are maintained and that neighborhoods are protected and enhanced through urban design which strengthens and retains residential character.
POLICY LT-4.1a. Support a robust code enforcement program to maintain and enhance the appearance of neighborhoods and commercial districts and encourage property and area cleanup and beautification projects.
POLICY LT-7.2. Determine the appropriate residential density for a site by evaluating the site planning opportunities and proximity of services (such as transportation, open space, jobs and supporting commercial and public uses).
POLICY LT-12.5. Encourage land uses that generate revenue while preserving of balance with other community needs, such as housing.
POLICY CC-1.7. Encourage neighborhood patterns that encourage social interaction and avoid isolation.
POLICY HE-6.4. Continue to implement a citizen-oriented, proactive education program regarding neighborhood preservation. Encourage resident involvement in identifying and addressing neighborhood needs in partnership with the City.
GOAL SN-3. Safe and Secure City. Ensure a safe and secure environment for people and property in the community by providing effective public safety response and prevention and education services.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15061(b)(3) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.
The proposed amendments are technical and administrative in nature and do not change the uses or intensity of development allowed within the City. Allowing homes to be used for short-term rentals does not change the nature of the residential area in which they are located, it only changes the term of occupancy which is not considered an environmental impact pursuant to CEQA. The establishment of fees is exempt from CEQA pursuant to CEQA Guidelines section 15378(b)(4) because it is related to the creation of government funding mechanisms or other fiscal activities which does not involve any commitment to any specific project.
DISCUSSION
Council requested a study session after a tragic incident involving a fatal shooting at an un-hosted Airbnb rental on August 7, 2021. The property was not registered as a STR with the City in violation of the SMC. It was an un-hosted stay and used for a large social gathering with underage drinking, a further violation of the SMC.
At a study session on September 14, 2021, staff provided background information on the City’s current STR Ordinance and discussed options for proactively managing nuisances and safety concerns at STRs. The Council expressed a desire for preventing un-hosted stays, parties, and activities that threaten the public’s health and safety. The discussion focused on mechanisms to simplify compliance and enforcement efforts.
Council requested a second study session and directed staff to prepare an a-la-cart menu of regulatory options for (1) strengthening the City’s STR regulations, (2) enforcing STR regulations, and (3) increasing community outreach and education regarding STRs.
Council held the second study session on December 14, 2021. Staff presented a menu of regulatory options for Council to consider along with a proposal for increased enforcement and community education (see Attachment 1). At the December study session, Council directed staff to prepare a draft amendment to the City’s STR Ordinance based on Council feedback.
Recommendations for Strengthening STR Regulations
Staff is recommending the following amendments to the City’s STR Ordinance:
Regulate STR advertisements. Staff proposes adding language clarifying that it is a violation to advertise a unit that does not fully comply with all the provisions in the City’s STR regulations. Hosts will also be required to include their STR permit number in any STR advertisement. Based on data from Host Compliance, approximately 60% of listings in Sunnyvale advertise un-hosted stays in violation of the SMC. These provisions will make it easier for City staff to investigate and cite hosts simply advertising un-hosted stays.
Add requirements for hosting platforms. Staff proposes adding a new section with requirements for hosting platforms. Almost all STRs are advertised on hosting platforms. The new regulations would require platforms to:
• inform hosts about our STR regulations;
• take immediate action to notify hosts of a potential violation after being contacted by the City;
• take immediate action to deactivate a listing if notified by the City that an STR permit has been revoked; and
• keep and maintain records for no less than five years and make them available to the City pursuant to a lawful request.
At the time Sunnyvale enacted its STR Ordinance in 2015, hosting platforms resisted working with local governments on compliance and enforcement of STRs. Today, some are more willing to cooperate. Many platforms already advise hosts to review local regulations and provide links. Some now have portals that allow cities to easily report potential violations. These platforms can also require hosts to include a permit number, if required, before advertising on their platform. This could significantly increase voluntary compliance of the City’s STR Ordinance. It would also make enforcement efforts easier if platforms notified hosts of potential violations. Some platforms will de-list a STR until the City completes the investigation. The goal is to encourage hosts to communicate with the City to facilitate investigations and resolve any potential compliance issues.
Prohibit use of DUO units. Staff proposes amending the STR section of the Zoning Code to expressly prohibit Dual Urban Opportunity (DUO) Housing units developed under the City’s new SB 9 provisions from being rented as STRs which will align the STR regulations with SMC Chapter 19.78. SB 9, known as the California Housing Opportunity and More Efficiency (HOME) Act, went into effect on January 1, 2022. It requires cities to allow one additional residential unit (among other provisions associated with Accessory Dwelling Units - ADUs) on parcels zoned for single-dwelling units. These DUO units are intended to increase the permanent housing stock and not to be used as short-term rental business activity. The City Council considered and adopted this amendment to prohibit DUO units as STR’s on January 4, 2022 (RTC 22-0020).
Penalties. Currently, violations of the City’s short-term rental ordinance are subject to administrative citations established in the Citywide fee schedule. Penalties consist of $100 for the first violation, $200 for the second violation, and $500 for the third violation. City Council directed staff to amend the Citywide fee schedule pursuant to SB 60, which provides heightened penalties for violation of short-term rental ordinances that pose a threat to public health or safety. Staff proposes to amend the Fee Schedule to add a fine of $1,500 for the first public health or safety violation, $3,000 for the second violation within one year, and $5,000 for each additional violation of the same ordinance within one year.
Enforcement
Staff is not currently resourced to do proactive enforcement of STRs. With no dedicated resources, staff focuses on complaints and minimal voluntary compliance efforts. If Host Compliance identifies an address as an unregistered STR, the City issues two letters to the property owner notifying them of our Municipal Code requirements and requesting them to register their STR with the City. However, staff does not have resources to follow up with unresponsive hosts. If the City receives a complaint involving a STR, Neighborhood Preservation conducts an investigation to determine if a violation has occurred.
Proactively enforcing our STR regulations will have both a fiscal impact on TOT revenue and require additional resources. Based on data from Host Compliance, approximately 60% of listings in Sunnyvale advertise un-hosted stays in violation of our STR Ordinance. It is critical for staff to work proactively with hosting platforms to require permit numbers on listings and address any potential violations. Airbnb has committed to working with the City to establish a Sunnyvale-specific portal. The portal will allow the City and Airbnb to collaborate on establishing parameters for hosts that are consistent with our ordinance, including requiring a permit number.
Staffing resources are needed to establish protocols with hosting platforms, inform hosts about new requirements for listing on platforms and field questions, and conduct initial compliance and enforcement. Initial enforcement efforts will consist of verifying permit numbers on platforms and reviewing ads to ensure that the listing complies with the City’s ordinance. Staff anticipates the initial work effort will be significant. Over time, the workload should diminish.
Staff prepared three options to enhance enforcement for Council to consider. These options are being presented to the Planning Commission for information only. Recommendations regarding service levels are outside of this Commission’s purview and will be decided solely by the City Council. Staffing lies within the authority of the City Manager to meet the service levels set by the City Council.
1. Maximum Enforcement Pilot. Establish a two-year pilot to work with hosting platforms, conduct an awareness campaign, monitor compliance of STR ads, field questions, and prepare background documentation for Neighborhood Preservation Specialists to investigate violations. Staff would return to Council with a summary of the pilot and a recommendation for ongoing enforcement. Staff anticipates this would require the addition of one term-limited Administrative Analyst to the Department of Public Safety, at a total cost of approximately $290,000 ($138,000 for salaries and benefits, $7,000 for goods and services per year).
2. Ramp Up Support for One-Year. Provide resources to focus on initial ramp up of a voluntary compliance program. This would include establishing protocols with hosting platforms, an initial awareness campaign, and setting up a customized Sunnyvale portal with Airbnb. Standard operating procedures for Neighborhood Preservation to notify platforms of potential violations and investigate STR complaints will also be created. Initial compliance monitoring and enforcement could occur for a short period of three to six months. Moving forward, enforcement would largely remain complaint-based with compliance monitoring occurring based on staff capacity. This would require the addition of one term-limited Administrative Analyst to the Department of Public Safety with a term of one year and a cost of approximately $145,000.
3. Re-prioritization of STRs for Six Months. Existing resources would be reprioritized to focus on a short awareness campaign with minimal use of platform portals, but no customized portal with Airbnb. Staff could initially work with platforms to require registration numbers and validate registration data. However, staff would not have the capacity to monitor ads for compliance with other requirements, such as hosted stays. Enforcement would largely remain complaint based with better tools for communicating potential violations with platforms. Staff estimates that approximately $15,000 in goods and services would be required for this option.
Option one and option two will allow Sunnyvale to effectively address safety concerns with un-hosted STRs. All three options focus primarily on compliance monitoring and seeking voluntary compliance. To the extent that voluntary compliance is unsuccessful, Neighborhood Preservation may need to step in to enforce the STR ordinance with fines. This would need to be evaluated for resourcing in the context of other priorities handled by Neighborhood Preservation (e.g., addressing blight).
FISCAL IMPACT
Increased enforcement of STR’s will have an impact on TOT collection and may also impact business license revenue if it results in fewer STR’s, with a potential minor increase in fines collected. Based on estimates, staff anticipates losing 60% of ongoing TOT revenue from STRs or $240,000 per year. Costs range from $15,000 to $145,000 per year, depending on the level of enforcement desired by the City Council. The cost can be included as a modification to the current year budget or included in the FY 2022/23 Recommended Budget.
PUBLIC CONTACT
As of the date of staff report preparation, staff has received no comments on the item.
Notice of Public Hearing:
• Published in the Sun newspaper
• 103 notices mailed to: property owners of STRs and all registered STRs within the City, and all Neighborhood Associations.
Staff Report:
• Posted on the City website
Agenda:
• Posted on the City’s official notice bulletin board
• Posted on the City website
ALTERNATIVES
Recommend that the City Council:
1. Forward a Recommendation to City Council to Introduce an Ordinance to Amend Sunnyvale Municipal Code Chapter 19.76 (Short-Term Rental of Residential Property), Adopt a Resolution to Amend the 2021/22 Citywide Fee Schedule Related to Fines for Violations of the Short Term Rental Ordinance, and Find that these Actions are Exempt from CEQA pursuant to CEQA Guidelines Section 15061(b)(3).
2. Forward a Recommendation to City Council to Introduce an Ordinance to Amend Sunnyvale Municipal Code Chapter 19.76 (Short-Term Rental of Residential Property) Adopt a Resolution to Amend the 2021/22 Citywide Fee Schedule Related to Fines for Violations of the Short Term Rental Ordinance, and Find that these Actions are Exempt from CEQA pursuant to CEQA Guidelines Section 15061(b)(3), with modifications.
3. Do not Forward a Recommendation to City Council to Introduce an Ordinance to Amend Sunnyvale Municipal Code Chapter 19.76 (Short-Term Rental of Residential Property or to Adopt a Resolution to Amend the 2021/22 Citywide Fee Schedule Related to Fines for Violations of the Short Term Rental Ordinance.
STAFF RECOMMENDATION
Recommendation
Alternative 1: Forward a Recommendation to City Council to Introduce an Ordinance to Amend Sunnyvale Municipal Code Chapter 19.76 (Short-Term Rental of Residential Property), Adopt a Resolution to Amend the 2021/22 Citywide Fee Schedule Related to Fines for Violations of the Short Term Rental Ordinance, and Find that these Actions are Exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15061(b)(3).
Staff
Prepared by: Jaqui Guzmán, Deputy City Manager
Reviewed by: Shaunn Mendrin, Planning Officer
Reviewed by: Trudi Ryan, Community Development Director
Reviewed by: Tim Kirby, Finance Director
Reviewed by: Teri Silva, Assistant City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. Reserved for Report to Council
2. STR Ordinance Components
3. Draft Ordinance
4. Draft Fee Resolution