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Santa Monica reins in Airbnb: 'Balanced approach' or boondoggle?

Santa Monica, Calif., tried to lay out a middle-path solution to an issue many cities are facing: How to regulate the short-term home rental industry led by Airbnb?

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Opponents of Airbnb rally at City Hall in New York before a hearing on short-term home rentals in January. This week, Santa Monica, Calif., passed new regulations on the industry.

Shannon Stapleton/Reuters/File

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With a unanimous 7-to-0 vote Tuesday, the Santa Monica City Council attempted to find middle ground in the nationwide effort by cities to rein in the short-term home rental industry.

To supporters of the $2 billion industry led by Airbnb, which helps people profit from renting out their home – or portions of it – Santa Monica’s move was “flawed” and “constitutionally questionable.”

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But to one key player, Santa Monica took “a really balanced approach” that offers an intriguing path forward. The question is whether the city has the resources to enforce its new laws.

The Tuesday decision establishes rules that prohibit the rental of an entire unit for fewer than 30 days. This is an attempt to stop landlords from renting only to short-term customers, which essentially takes the property off the market for regular renters and drives up prices citywide.

But the new rules do legalize “home sharing” for homeowners who want to rent a spare bedroom or backyard unit. They must obtain a business license and pay Santa Monica’s 14 percent hotel tax, however.

To Roy Samaan of the Los Angeles Alliance for a New Economy, which has released a comprehensive study on short-term rentals, the new rules hit the right notes.

“It is interesting that Santa Monica took the step of explicitly saying renting out a room or a guest house is OK, if you need that sort of thing, but on the other hand, when you have a whole unit and are doing so you are making the city less affordable,” he says.

Some 89 percent of short-term rental revenue is generated by whole units with two or more apartments, with only 11 percent coming from home sharing, he adds. So in targeting that larger share “what Santa Monica did is a really balanced approach – they protected home rentals by legalizing them but also took steps to make sure the supply of housing is maintained for long-term rental.”

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Still, some people who rent under Airbnb feel under attack.

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“This is going to make Airbnb more unaffordable, and I don’t like it one bit,” says Vanessa Johnson, who has been running her own Airbnb on the other side of Los Angeles near Silverlake for four years. She says she makes about $20,000 per year and needs it to take care of her husband. “If didn’t have that income, wouldn’t be able to survive and stay in my own home. This will jeopardize hundreds like me who are doing the same thing.”

The Los Angeles Short-Term Rental Alliance said Monday that the move could trigger lawsuits.

“We believe this legislation is flawed, constitutionally questionable and likely to lead to litigation,” said Robert St. Genis, LASTRA’s director of operations, in a statement.

Airbnb, founded in 2008, boasts more than 10 million nights booked worldwide. “It took Airbnb nearly four years to get its first million guests. Now one million guests stay on Airbnb every month,” cofounder Brian Chesky told The New York Times.

On one hand, Santa Monica’s regulations could hurt this sharing economy. “More regulation can stifle free market competition and the entrepreneurial spirit of individuals who are supplementing their incomes with short term rentals,” says David Fiorenza, an economist at the Villanova University School of Business in Philadelphia.

For the city, the big question is how to enforce the new rules.

“If homeowners want to rent short term, then buyer and seller beware,” says Professor Fiorenza. “City government needs to prioritize other issues that are larger and affect a larger portion of the population.”

Many activists go so far as to say that it almost doesn’t even matter what the laws are, since there is a lack of enforcement.

“I’ve seen these arguments in city after city, and what happens is that Airbnb does whatever it wants to do,” says Robert Cherno, a San Diego, land-use specialist who attends community meetings on the subject. “People say one thing and do another, and where are the officers who are going to regulate this?”