The Los Angeles City Council on May 2 unanimously approved the first set of proposed rules to govern Airbnb Inc. and other companies in the short-term rental industry.

The ordinance caps at 120 days the amount of time each year that a residential unit can be rented out on Airbnb, HomeAway.com Inc. and other short-term rental platform companies, with the right to appeal for an extension. Only primary residences can be used for short-term rentals and any units subject to the city’s rent control ordinance (primarily those built before 1978) would be barred altogether from short-term rentals.

The rules must still go back to the city Planning Commission to formalize some of the details and then will come back to the full Council later this year for a final vote. Also, some tweaks could still come as various councilmembers asked city staff to look into proposals such as allowing short-term rental hosts to rent out their units for an entire year if they show proof they intend to remain on site the whole time.

Nonetheless, the May 2 vote is a major milestone in the four-year effort to regulate the burgeoning short-term rental industry.

Neighborhood groups and the hotel industry had long called for controls on the industry, contending that the practice disrupted neighborhoods as de-facto hotels were allowed to operate unchecked. Housing advocates also argued that commercial short-term rental operators were taking units off the long-term rental market at a time when there is a shortage of apartment units for low and middle-income households.

“We applaud the Los Angeles City Council for taking a critical step that provides common-sense protections, holds short-term rental platforms accountable in an effort to reduce their negative impacts on neighborhoods across Los Angeles,” Katherine Lugar, chief executive of the American Hotel & Lodging Association said in a statement. “This ordinance will protect affordable housing for Los Angeles residents including hotel employees, as well as preserving the fabric of neighborhoods.”

But Airbnb, HomeAway and their backers had argued that any broad attempt to limit short-term rentals would deprive Los Angeles residents of the ability to earn extra income at a time when living costs have been skyrocketing. Many short-term rental hosts have testified at city hearings that without this extra income, they would be forced to abandon their units because they could not afford the cost.

“We are pleased with the City Council’s decision to move forward with this proposal, which will allow thousands of Angelenos to earn valuable supplemental income by sharing their homes year-round," John Choi, Southern California Policy Manager for Airbnb, said. "This is an important step in the right direction and we look forward to continuing our work with City leaders as they finalize a clear and balanced home sharing policy for Los Angeles.”

Philip Minardi, director of policy communications for HomeAway, said

vacation rentals in Los Angeles are "a critical source of local economic growth."

"In 2016 alone, rentals helped generate $1.5 billion in economic activity and supported nearly 14,000 jobs," he said. “We are encouraged by council’s recognition of this long-standing tradition and believe any final law governing short-term rentals should allow all types of rentals, including whole-homes. Los Angeles has long been home to a responsible vacation rental community and regulations should ensure traditional vacation rentals remain an option. We look forward to continued collaboration with council, the mayor’s office and the community at large.”

An earlier version of the ordinance set a hard cap of 180 days a year on the use of a housing unit for short-term rentals, but by the time it came to the Council, it had been amended to a “by-right” cap of 120 days with a two-tiered process to appeal for an extension. The first tier is an administrative process where if the short-term rental host agree to certain conditions (registration requirements, no objections from neighbors, all nuisance citations cleared, etc…), they can be cleared to rent out rooms in the unit for up to one full year. The proposed filing fee for this process would start at $1,149, though the exact fees have yet to be finalized.

If a short-term rental host is unable to meet all these conditions, they can still go through a more rigorous discretionary approval process that requires sign-off from the city’s planning director. The fee for this process would be higher than for the administrative appeal, but the exact amount has yet to be determined.

All short-term rental agreements will be subject to a 10 percent “bed tax;” most of the tax proceeds are to be divided equally among the 15 council districts.

Economy, education, energy and transportation reporter Howard Fine can be reached at hfine@labusinessjournal.com. Follow him on Twitter @howardafine.

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