In November 2018, South Lake Tahoe voters passed Measure T, a proposed ban on vacation home rentals (VHRs) in residential areas outside of the city’s commercial areas and primary tourist zones. The vote on the measure was extremely close, which passed by a razor thin margin of 58 votes.
1,400 short term vacation rental homes throughout South Lake Tahoe were immediately impacted by the ordinance, which places limits the occupancy of a vacation home to 12 people, regardless of the size of the home.
In 2022, the ban takes full effect. VHRs will be banned from residential zones, except for those operated by permanent residents. These remaining VHRs will only be allowed to be used as such 30 days out of the year, and no new VHRs will be permitted. Existing VHRs will also continue to face the city’s parking requirements, which have already been the subject of controversy.
The ordinance was hotly contested by VHR operators, and some homeowners filed lawsuits to overturn it, with the Property Owners Group claiming that the ordinance was unconstitutional. After a proposal for mediation fell through, the city has elected to defend the ban in court, citing the narrow but real majority of voters who supported the measure.
South Lake Tahoe’s ban is hardly the first of its kind in the United States. Rather, it is part of an ongoing rise in opposition to short-term rental properties of this nature, a trend that investors need to watch closely.
Opposition to Measure T centers around real concerns for the local economy
For many years, tourists from both California and beyond have found South Lake Tahoe to be an appealing destination. But the VHR ban has owners worried about wider reaching economic effects for the whole city. Rental companies are considering options outside of South Lake Tahoe in the event the ban cannot be overturned.
VHR owners argue that these properties allow visitors to enjoy South Lake Tahoe at their own leisure, while avoiding more cramped accommodations. The ban would not only limit the number of available properties for vacationers, it could have unintended side-effects for local businesses. The occupancy restrictions, as well as the limited number of days a VHR is available for use, translates to potentially fewer visitors and shorter stays, reducing tourist dollars flowing into the city’s economy.
Businesses that rely on tourist traffic may be forced to make difficult decisions, and employees dedicated to maintenance and hospitality services could find themselves out of work.
Vacation home rentals are growing in popularity, attracting negative attention from housing advocacy groups.
In recent years, Airbnb and other vacation home rental services have exploded in popularity, prompting many real estate investors and developers to enter popular tourist markets and convert existing housing into vacation rentals. But some housing advocates have claimed that the rise of VHRs has contributed to a lack of affordable housing throughout the country. The result is that cities across the US are considering various restrictions or outright bans on short-term vacation rentals. Major metropolitan cities in California including Santa Monica, San Francisco, and Los Angeles have placed considerable restrictions on VHRs.
South Lake Tahoe is only one example of this trend taking root in more rural destinations known for their natural beauty. In January 2019, Douglas County, Nevada assembled a citizen task force to tackle the question of expanding VHRs outside of the Tahoe Township region. At the time, 996 VHRs were known to be operated within the county, with 546 permitted for the Tahoe Township. An additional 450 unpermitted VHRs were being operated in the Carson Valley and Lake regions of the county.
As with South Lake Tahoe, opinion appears to be evenly split. A survey of 1,010 county residents showed that 46% supported the expansion of VHRs countywide, but a quarter opposed all VHRs, And another 24% said that rentals should be limited to Tahoe Township.
To the north, Washoe County, NV is beginning to craft short-term rental regulations, and hopes to present these rules in the fall of 2019. Currently, no regulations for vacation home rentals exist in the county, but this has not stopped local homeowners associations at Incline Village, on Lake Tahoe’s north shore, from trying to enact their own bans of short-term rentals. According to senior planner Kelly Mullin, a total ban on short-term rentals is not under consideration, but officials held workshops in Reno and Incline Village earlier in the year, focusing on issues such as permitting, occupancy limits, and parking restrictions.
Investors into properties surrounding Lake Tahoe need to be paying attention to local politics.
Efforts to ban vacation home rentals have not always succeeded. Voters in Palm Springs, CA defeated a rental ban by nearly 2 to 1 in 2018. The threat of a referendum convinced San Diego’s own city council to repeal restrictions it approved earlier in the same year.
But housing advocates continue to paint vacation rentals as part of a larger problem with the lack of affordable housing. And it was complaints from South Lake Tahoe residents about VHRs that ultimately lead to the ban’s proposal to begin with. Scenic tourist locations around the state, such as the city of Mount Shasta, have enacted similar measures to bar VHRs from residential zones.
This does not mean that vacation rental homes will stop being popular or profitable for the foreseeable future.
Real estate investors looking to convert properties into VHRs will have to pay attention to ballot measures being proposed at the local and state level. Being active in the community by participating in council meetings and mounting responses to attempts at expanding VHR restrictions may also be necessary. By listening to what local, long-term residents are saying about VHRs in their area, it may be possible to reduce the types of complaints that contribute to grassroots support of VHR bans and restrictions.
It isn’t time to exit VHR markets, or even slow efforts to expand investment in such markets. With how contentious these laws have been, it may be years or decades before they pose a significant concern in most regions. Legal challenges can slow down implementation, or reverse regulations entirely. But, as with recent rent control measures, lucrative markets for VHRs will likely see pushes for increased regulation as time goes on, so it will pay to keep an ear to the ground.