A federal judge has rejected a challenge to a San Diego ordinance restricting and regulating Airbnb and other short-term rental properties.
The Short Term Rental Alliance of San Diego wanted a court to invalidate and prevent enforcement of April 2021 ordinances creating a four-tier license system. The first two tiers, with unlimited licenses, apply to rental properties that also are a host’s primary residence. The third and fourth tiers apply to whole-home rentals when no host is present: tier four for the Mission Beach Community Planning Area and tier three for the rest of the city’s Coastal Overlay Zone.
In an opinion filed June 12, U.S. District Judge James Lorenz ruled on the city’s motion to dismiss.
The city first argued the Alliance lacks the standing to sue on behalf of its members because the interests it wanted to protect aren’t germane to its corporate purpose. Lorenz disagreed, with one exception: Allegations of “racial discrimination on behalf of guests and tenants, as their interests are not ‘germane’ to the corporate purpose of educating and advocating for short-term owners and operators.”
The Alliance said before it filed the lawsuit in September 2022 it amended its bylaws to include references to tenants, but Lorenz said the complaint doesn’t incorporate facts showing tenants are similarly situated to owners. He added the bylaw amendments aren’t consistent with the Alliance’s incorporation articles, which isn’t allowed under the California Nonprofit Corporation Law.
Lorenz said the Alliance had standing for other claims, such as those about the alleged deleterious impact of a lottery for tier three and four licenses on property owners or a limit on one license per property owner. Yet he took the city’s position on the merits of its rules.
“Contrary to Alliance’s contention, the ordinance does not target owners, whether they occupy the rental property or not,” Lorenz wrote. “Instead, it distinguishes between short-term rentals based on whether they are occupied by a host.”
He said a property owner could authorize a long-term tenant to fulfill the host role and noted the one license limit applies to hosts, not owners. He further rejected arguments the ordinance discriminates against out-of-state property owners, noting there is no carve out for Californians seeking multiple licenses, meaning the Alliance failed to allege the ordinance itself violates the dormant Commerce Clause.
While the Alliance said the city couldn’t show a practical purpose for the ordinance, Lorenz noted San Diego showed “extensive legislative findings and a detailed statement of purpose,” including concerns about residential neighborhood quality of life and claims 16,000 housing units were available as short-term rentals with evidence host-occupied homes used as short-term rentals don’t “cause as significant a removal of existing housing stock from the market and negatively impact the vacancy rate.”
He likewise said the Alliance failed to prove its contention the ordinance violates Fifth Amendment protections against taking of property in that it interfered with rights to “secure a reasonable rate of return” on their home ownership. Governments are allowed to limit property use, Lorenz explained, and although some people said they lost out on rental income, “Alliance does not allege that any of the affected properties have diminished in value.”
The Alliance argued some people bought in the coastal overlay area specifically expecting short-term rental income, but the city said the permissive zoning ordinance that predated the challenged policy never expressly addressed short-term rentals, meaning such rentals were prohibited. Further, Lorenz said, “Alliance ignores the fact that other California municipalities have even more restrictive short-term rental regulations including prohibition of short-term rentals. A reasonable investor would have adjusted his or her expectations considering the possibility of same regulation in San Diego.”
Lorenz dismissed as abandoned the Alliance’s claims on equal protection and substantive due process because it didn’t respond to the city’s arguments. He also said the challenge of the ordinance as applied, based on how the lottery operates, failed for the same reasons as the challenges to the rules as written and wrote “leave to amend is denied as futile.”
With all federal claims dismissed, Lorenz declined to exercise supplemental jurisdiction over state law claims and remanded the remainder of the complaint to state court.