Short-term Vacation Units and Other Real Estate Trends

As I discussed in my column recently, it all started last year when the California legislature mandated that California cities increase the density of housing units through relaxation of local regulations. A few weeks ago, the San Diego City Council voted to allow R1 (one residential unit) zoned properties to possibly add a second “companion unit”. While another vote is still needed this September and a few other minor hurdles need to be cleared, it is highly likely this process will be commencing soon. The rush will be on to construct granny flats on R1 zoned properties especially in the College Area and near the coast. What is interesting is that hours before the vote, City Councilwoman Georgette Gomez added language that requires a 30-day minimum stay in the second unit. While this does not seem to be an issue in the College Area (where new granny flats are expected to be rented to long term college students), the coastal communities are in meltdown mode over this late change to the language.

The vacation rental business has exploded over the last 10 years as tourists are increasingly switching from hotel-stays to short-term residential rental options through websites such as HomeAway and AirBNB. It is expected that many coastal property owners will be quickly taking advantage of the new rules by constructing a second unit. These owners are obviously opposed to the mandated 30-day minimum stay rule as are those that are proponents of individual property rights in general. However, many families living near the vacation units are demanding a 30-day minimum stay requirement at the very least, if not eliminating short-term rentals entirely. So we have a war brewing among our coastal countrymen. Last year, City Councilwoman Sherri Lightner attempted to make illegal nearly all short term rentals in the City of San Diego but that effort failed to go through. In March, City Attorney Mara Elliot released a (surprising if not shocking) opinion memo declaring short-term rentals illegal throughout the city. Another interesting issue is what to do about the existing second unit properties. Whether these property owners will suddenly be forced to conform to the new 30-day rules or be grandfathered in on the current granny flat rules is uncertain.

OTHER TRENDS: First off, mortgage rates have dipped again causing a moderate uptick in refinances. Next is that the continued surge of home prices is causing appraisals to not keep up with sales contract prices as appraisers are now more conservative (since the 2009 independent appraisal rules went in effect) and look at historical prices instead of current price trends. When the appraisal comes in too low, a deal can then fall out of escrow and be put back on the market, which is happening with a little more frequency as prices move upward. Finally, residential home improvement expenditures are at record levels. As homeowners are staying in their existing homes longer than ever before, kitchen and bathroom remodels, new windows and doors, as well as other popular improvements such as outdoor refurbishments, have greatly increased. Companies such as Home Depot and Lowe’s are seeing all-time peaks in revenue and in-store traffic and local contractors are as busy as they were back in 2002 to 2007.

For questions on buying or selling real estate in San Diego, give me a call at (619) 589-9500 for a no obligation, no pressure chat.

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