New Short-Term Rental Regulations: Will Comic-Con Stay?

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October 22 Update: Since writing this article, the City council today has decided to rescind the short-term rental regulations with a vote 8-1. 

Last year, HomeAway, the vacation rentals brand owned by Expedia Group, retained Xpera Group to determine the economic benefits of Short-Term Rentals (STRs) to the City of San Diego.

The results we learned from conducting the study were fascinating. Here are some of the most notable takeaways:

  • The City collected $20 million in Transient Occupancy Tax (TOT) from STRs this past year.
  • Despite the fact that as many as 700,000 renter nights took place in these STR properties, San Diego’s hotel business had the best year in its history and its highest room rates ever. In fact, this hotel occupancy rate was the second highest in the United States.
  • What’s more, on a typical summer night, there were virtually no hotel vacancies in popular areas such as downtown, Mission Valley or the beaches.
  • Supply-wise, there have been no hotels built in our beach communities since we passed the 30-foot height limit in 1972.
  • Tourism spending in San Diego has expanded 38% in the past decade, yet the City’s hotel stock has barely expanded.

Instinctively, we know that the tourists who are not staying in hotels or with friends and family are taking advantage of short-term lodging.

The City provided us with a list of TOT revenues collected from homeowners who rented their homes without the services of a third party. The total was $9.4 million, about half of the total collected from all sources. In other words, about half of the TOT payers rented directly without going through a service like Airbnb or HomeAway.

The revenue collected by zip code is very intriguing. According to a recent San Diego Union-Tribune survey, most people say they don’t know of any short-term renters in their neighborhood. Yet, of the 79 zip codes in the City of San Diego, three accounted for 85% of all TOT revenue. For the other 76, only 27 accounted for the bulk of the remaining 15% of the taxes collected.

As one might suspect, the three short-term rental hot spots are Pacific Beach (92109), La Jolla (92037) and Ocean Beach (92107).

We asked Chicago Title Company how many homes and condominiums in Pacific Beach and Ocean Beach were non-owner-occupied. Not surprisingly, almost 4,000, or 26% of the units, were non-owner-occupied.

Of those non-owner-occupied units, 40% have been so for 10 years or longer.

The Economic benefits of hosting the world’s pop-culture mecca

Comic-Con is by far the largest convention in San Diego, and has been sold out for 10 consecutive years. Their member ID system (which lets visitors get inside the convention center) is capped at 130,000. It is well-known that many people not lucky enough to get a pass through their lottery sales still come to downtown San Diego to take part of the scores of festivities surrounding it. Some estimates have put total visitors to the area over 160,000.

To put this in perspective, when San Diego hosted the Super Bowl back in 2003, it was considered the biggest tourist event in the city’s history. The game and surrounding events brought 250,000 people to downtown.

The San Diego Tourism Authority has estimated that the economic impact of Comic-Con 2018 to be over $140 million. Compared to our other annual tourist attractions, this is San Diego’s Golden Goose.

Impact of Short Term Rental Regulations

However, weeks before this last convention, the San Diego City Council voted to approve regulations that will go into effect next July, just in time for Comic-Con 2019.

Part of the argument for limiting the number of short-term rentals is that they take away from the supply of moderate-priced housing.

However, in the beach zip codes, most of the non-owner-occupied units have values in excess of $500,000 and are therefore not part of the moderate-rate rental stock.

As for Comic-Con, the biggest impact goes to the visitors. A lodging survey conducted by CIC Research in 2008, when the event first started selling out, found that only half of the respondents reported staying in hotels. If a sizable portion of short-term rental units are removed from the inventory, and acknowledging that the hotels are already 100% occupied, there will be thousands of attendees who will have nowhere to stay when they come to San Diego. We can also see this becoming a headache for Comic-Con vendors and event organizers, as it is likely that short-term rentals have served as a cost-effective base of operations for them leading up to the event.

In conclusion, a prohibition on short-term rentals could signal to Comic-Con International that it is no longer welcome in San Diego. That could mean trouble for our Golden Goose.

On the flip side, there are signs that this regulation won’t last. In the months following the city council vote, local citizens have gathered enough signatures to qualify a referendum. UPDATE: As a response to the referendum, the city council has decided to rescind the regulations in an 8-1 vote on October 22nd.

Stay tuned.

Topics: Economics, Real Estate Development, Alan Nevin, Rental Property, Residential, real estate advisory


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