what palm springs’ short-term rental restrictions mean in the long-term

From its early beginnings of selling cereal named after presidential candidates in order to raise money for their new, disruptive platform, to becoming a $90 billion company that has over 4 million hosts around the world, Airbnb—and more broadly the short-term rental market—has fundamentally changed the way in which people travel. In addition to revolutionizing the hospitality industry, short-term rental platforms have also shifted the way in which we consider, discuss, and transact real estate. The change that this previously unconventional industry (short-term rentals) imposed on a more conventional one (residential real estate) has been accompanied by many challenges, as proven by the amount of time local, state, and federal governments across the United States (and, indeed, internationally) have spent addressing the effects that short-term rental companies are having on their communities—for better or for worse.

The ripple effects of the short-term rental industry are not exclusive to any one market, with New York City enacting Local Law 18—which requires hosts to register with the city and prohibits platforms from processing any transactions for properties without a valid certificate—while, 5,000 miles away in Japan, the deployment of a rigid countrywide registration system that removed tens of thousands of listings from Airbnb. Back stateside, Palm Springs City Council revised their own approach to regulating short-term rentals in November 2022, adopting Ordinance 2075, which confirmed vacation rentals are only permitted as secondary uses of property, restricted to single-family dwellings, and reinforced a strong permitting process.

Perhaps most importantly, Ordinance 2075 introduced an Organized Neighborhood Cap (ONC) that only allows up to 20% of residential units in a given neighborhood to be awarded a Vacation Rental Certificate (VRC). This is notable given that some areas of the city have a high proportion of properties that are used for short-term rentals, such as Racquet Club Estates (currently at 41%) or El Rancho Vistas Estates (30%). If you find yourself in one of these areas that has reached or exceeded the cap, applications for VRCs are no longer accepted until the proportion falls below that 20% threshold. With this said, the ONC does not affect VRCs that have already been issued by the City of Palm Springs prior to its adoption by city council. Indeed, the City of Palm Springs clearly states that once a property is sold, the new owner will need to re-apply for a VRC (i.e. the existing VRC is null once a property is sold).

There are exceptions to the ONC for Junior Vacation Rental properties, which require a different certificate and therefore abide by a separate set of rules. These are available for a reduced fee ($642 annually versus the $1,072 for a VRC) on account of its flagship criteria being the property is limited to six short-term rental contracts per year, up to 28 days at a time.

Undoubtedly, Ordinance 2075 will have down-the-line impacts on the real estate market in Palm Springs—most specifically in neighborhoods that are popular amongst visitors. A recent Los Angeles Times article cites a current example of an investor who had purchased a home in the Gene Autry neighborhood prior to the adoption of the ordinance now having to make multiple price cuts in order to sell. It will be difficult to discern from the data how attributable a decrease in sold prices, more days on market, or a shift in sales amongst neighborhoods is to this ordinance, but what this one example reveals is a window into a new layer of conversation occurring between brokers and clients across Palm Springs. It’s always buyer beware, but this is now especially true when one is purchasing property with only a short-term rental use in mind. Conversely, will Ordinance 2075 create opportunity for those looking to put down roots in the Palm Springs community, particularly in those neighborhoods which are “oversubscribed”? Only time will tell on the long-term impact of short-term rental restrictions in the desert.