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PC Packet 7-24-2018CITY OF CUPERTINO AGENDA C U P E RT I N O PLANNING COMMISSION 10350 Torre Avenue, Council Chamber Tuesday, July 24, 2018 6:45 PM PLEDGE OF ALLEGIANCE ROLL CALL APPROVAL OF MINUTES 1. Subject: Draft Minutes of May 8, 2018 Recommended Action: approve or modify the Draft Minutes of May 8, 2018 Draft Minutes of May 8, 2018 POSTPONEMENTS ORAL COMMUNICATIONS This portion of the meeting is reserved for persons wishing to address the Commission on any matter not on the agenda. Speakers are limited to three (3) minutes. In most cases, State law will prohibit the Commission from making any decisions with respect to a matter not on the agenda. WRITTEN COMMUNICATIONS CONSENT CALENDAR Unless there are separate discussions and/or actions requested by council, staff or a member of the public, it is requested that items under the Consent Calendar be acted on simultaneously. PUBLIC HEARINGS OLD BUSINESS NEW BUSINESS 2. Subject: Short-term rental regulation options Page 1 Planning Commission AGENDA July 24, 2018 Recommended Action: That the Planning Commission receive this report and provide its comments for the development of a short-term rental regulation program Staff Report STAFF AND COMMISSION REPORTS ADJOURNMENT Page 2 Planning Commission AGENDA July 24, 2018 If you challenge the action of the Planning Commission in court, you may be limited to raising only those issues you or someone else raised at the public hearing described in this agenda, or in written correspondence delivered to the City of Cupertino at, or prior to, the public hearing. In the event an action taken by the Planning Commission is deemed objectionable, the matter may be officially appealed to the City Council in writing within fourteen (14) days of the date of the Commission's decision. Said appeal is filed with the City Clerk (Ordinance 632). In compliance with the Americans with Disabilities Act (ADA), anyone who is planning to attend the next Planning Commission meeting who is visually or hearing impaired or has any disability that needs special assistance should call the City Clerk's Office at 408-777-3223, 48 hours in advance of the meeting to arrange for assistance. Upon request, in advance, by a person with a disability, Planning Commission meeting agendas and writings distributed for the meeting that are public records will be made available in the appropriate alternative format. Also upon request, in advance, an assistive listening device can be made available for use during the meeting. Any writings or documents provided to a majority of the Planning Commission after publication of the packet will be made available for public inspection in the Community Development Department located at City Hall, 10300 Torre Avenue, during normal business hours and in Planning packet archives linked from the agenda/minutes page on the Cupertino web site. IMPORTANT NOTICE: Please be advised that pursuant to Cupertino Municipal Code 2.08. 100 written communications sent to the Cupertino City Council, Commissioners or City staff concerning a matter on the agenda are included as supplemental material to the agendized item. These written communications are accessible to the public through the City's website and kept in packet archives. You are hereby admonished not to include any personal or private information in written communications to the City that you do not wish to make public; doing so shall constitute a waiver of any privacy rights you may have on the information provided to the City. Members of the public are entitled to address the Planning Commission concerning any item that is described in the notice or agenda for this meeting, before or during consideration of that item. If you wish to address the Planning Commission on any issue that is on this agenda, please complete a speaker request card located in front of the Commission, and deliver it to the City Staff prior to discussion of the item. When you are called, proceed to the podium and the Chair will recognize you. If you wish to Page 3 Planning Commission AGENDA July 24, 2018 address the Planning Commission on any other item not on the agenda, you may do so by during the public comment portion of the meeting following the same procedure described above. Please limit your comments to three (3) minutes or less. For questions on any items in the agenda, or for documents related to any of the items on the agenda, contact the Planning Department at (408) 777 3308 or planning@cupertino.org. Page 4 CITY OF CUPERTINO 10300 Torre Avenue Cupertino, CA 95014 CITY OF CUPERTINO PLANNING COMMISSION MEETING ACTION MINUTES, May 8, 2018 PLEDGE OF ALLEGIANCE At 6:45 p.m Chairperson Paulsen called to order the regular Planning Commission meeting in the Cupertino Community Hall Council Chambers, 10350 Torre Avenue, Cupertino, CA. and led the Pledge of Allegiance. I rTSI ■ WMA's M I Present: Chairperson Geoff Paulsen, Vice Chairperson Takahashi and Commissioners David Fung, Don Sun, and Jerry Liu. Absent: None APPROVAL OF MINUTES 1. Subject: Draft Minutes of April 10, 2018. Recommended Action: Approve or modify the Draft Minutesof April 10, 2018 Moved by Fung and seconded by Liu to approve the minutes as written. The motion carried 5-0-0. POSTPONEMENTS/REMOVAL FROM CALENDAR: None ORAL COMMUNICATIONS: None WRITTEN COMMUNICATIONS: None CONSENT CALENDAR: None PUBLIC HEARINGS: 2. Subject: Review of the five year Capital Improvements program (FY 2018-2019 to 2022-2023) for conformity to the City's General Plan Recommended Action: 1. Find that the projects are exempt from CEQA; and 2. Find that the proposed five year Capital Improvements Program (FY -2018-2019 to 2022-2013) conforms to the City's General Plan per the draft resolution Director of Public Works, Timm Borden reviewed the Staff Report and answered questions from the Commissioners Chair Paulsen opened the public comment period and thefollowing individual(s) spoke: N one Chair Paulsen closed the public comment period M oved by Com. Liu, second by Com. Sun, to recommend to the City Council that the five year Capital Improvements Program (FY 2018-2019 to 2022-2023) conforms to the City's General Plan. The motion passed 5-0-0. OLD BUSINESS: None NEW BUSINESS: None REPORT OF THE DIRECTOR OF COMMUNITY DEVELOPMENT: None REPORT OF THE PLANNING COMMISSION: Commissioner Fung would like to add an agenda topic for the next meeting to discuss managing thetimeof speakers during Public Comments. ADJOURNMENT: The meeting wasadjourned at 7:30pm to the next Planning Commission meeting on May 24, 2018 at 6:45 p.m. Respectfully Submitted: /s/Beth Ebben Beth Ebben, Deputy Board Clerk CITY OF CUPERTINO CITY MANAGER'S OFFICE CITY HALL 10300 TORRE AVENUE • CUPERTINO, CA 95014-3255 TELEPHONE: (408) 777-3223 • FAX: (408) 777-3366 CUPERTINO.ORG PLANNING COMMISSION STAFF REPORT Meeting: Ju I y 24, 2018 Su b ect Short-term rental regulation options. Recommended Action That the Planning Commission receive this report and provide comments for the development of a short-term rental regulation program. ni<z,,ccinn Background: Short-term rentals (STRs), madepopular by websites like Airbnb and Homeaway, allow operators to rent out a room or an entire residence to a visitor (" transients") for a period of less than 30 days. These website based businesses market the availability of such rentals and in some cases act as collection agents. Many visitors prefer renting local homes because they are less expensive than hotels. These rentals also provide opportunities for homeowners to generate income. At the February 5, 2018 study session, Council requested that staff explore Transient Occupancy Tax (TOT) collection from STRs and the development of a regulatory framework for STR compliance, which were included as part of the FY 2018-19 Work Program. Based on reports on the STR platforms, there are roughly 300 STRs available withi n City limits. Currently, the City does not have a program to regulate STRs. Enforcement of STRs has been complaint -based and focused on zoning requirements described further bel ow. The City's municipal code allows for limited home occupations (Chapter 19.120—Home Occupations) that are considered to be an incidental and secondary to the use of a residence for dwelling purposes and do not change the character of the neighborhood. Specifically, Section 19.120.050 of the Municipal Code lists boarding and/or rooming homes for more than two guests as an excluded home occupation since it is neither incidental nor secondary to the use of a residence as a home. Therefore, those who are interested in running an STIR business in Cupertino must comply with thefollowing: 1. The property owner or property leaseholder must be the primary resident at the property and beon-siteduringthelease period. 2. The number of transient guests must be limited to two (2) or fewer. 3. All transient rentals must bean incidental use. 4. All building alterations must comply with R1 regulations and building code requirements including occupancy regulations. 5. The property owner, main property leaseholder, or person otherwise conducting any short-term rentals, must comply with the requirement of Chapter 3.12 of the Municipal Code prior to the commencement of any short-term rental leases. Chapter 3.12 of the Cupertino Municipal Code identifies requirements for the payment and collection of TOT. STRs meet the definition of "hotel" in Section 3.12.020 under Cupertino'sTOT regulations. People or "transients" occupying these STRs are subject to a 12% TOT on the rent charged during the first 30 days of occupancy. Proprietors or "operators" of these STRs are required to register and obtain a Business License and a Transient Occupancy Registration Certificate from the City within 30 days of commencing business as well as collect TOT from renters. To date, the City has not received any TOT remittances from short-term rental operators in the City. If the City moves forward with a regulatory program for STRs, a processfor TOT collectionsfrom STRswould need to beestablished. At the June 19, 2018 Council meeting, Council approved changes to the City's TOT ordinance to allow for a voluntary collection agreement (VCA) with the STIR platform Airbnb, which will generate roughly $350,000 in TOT revenue annually from STIR operators in Cupertino using the Airbnb platform. Airbnb will begin collection in August 2018. At that meeting, Council reiterated its interest in creating a regulatory program for STRswith review by the Planning Commission. Analysis: In order to better understand the regulatory issues in the development of a regulatory program, research was conducted on how other cities have responded to STRs. Cities in the Bay Area have taken varied stances on the regulation of STRs. Some cities allow STRs with limitations, such as requiring STRs to be located at the operator's primary residence and limiting the number of rental days per year. Other cities prohibit STRs entirely and some have not adopted any STIR regulationsto date. Thefollowing table provides an overview of how other cities have responded to STRs. STR Regulations in Other Cities Survey Regulates STRs STRs not allowed No regulations Considering regulations Berkeley Campbell Gilroy Mountain View (Oct. 2018) Los Altos HilIs LosAltos (M ay 2018) Morgan Hill Cupertino (Fall 2018) Pacific Grove Los Gatos Santa Clara Pasad en a M i I p i tas San Francisco Newark San Jose Palo Alto Sunnyvale Saratoga Since STRs are a relatively new concept, the City of Cupertino has minimal regulations on boarding and/or rooming houses, which were not designed with STRs in mind. Without explicit regulations designed for STRs, the City has limited ability to address potential impactsof STRs in the City. Potential impacts include effects on neighborhood character, housing availability, revenue generation, and more. An overview of a potential regulatory framework and the key policy issuesareset forth in this report. The main policy issues surrounding the regulation of STRs include identification of STRs, impacts on housing availability for long-term renters, impacts to neighborhood character, and enforcement mechanisms. The following sections outline these issues along with best practicesfor addressing them based on regulationsfrom cities currently regulating STRs. Identifying and Managing STRs Currently, STR listings do not typically include the address of the rental, making it difficultto IocateSTRsbased on publiclisting information. It ispossibletouseavailable photos in combination with Google Maps and Street View to determine an address, but this is not always successful or efficient. As a result, even if a noncompliant listing is identified, it is very difficult to follow up and enforce. In order to effectively manage STRs, most cities with STR regulations require some form of STR registration. Currently, STR operators must obtain a Business License Certification, which also serves as the Transient Occupancy Registration Certificate, prior to operation. Therefore, in Cupertino, STR registration can be accomplished through the business license application process. Impacts on Housing Availability It is a common concern that the potential income from STRs may incentivize property owners to use units for STRs instead of long-term rentals. Within Cupertino, there are over 13,000 single-family parcels and about 300 STR listings. Under the current zoning requirements, renting an entire home as an STR is not allowed as the operator must be on-site. Despite this, as of July 7, 2018, there were 203 Airbnb listings in Cupertino and 76 of those listings (37%) were for entire homes as opposed to a portion of a home. Based on this data, the number of entire homes being used for STRs is relatively small compared to the total number of single-family homes in Cupertino. Furthermore, a typical listing in Cupertino is rented for 131 nights (about four months) a year. Given the relatively small number of STRs and the fact that a typical STR is rented for less than five months in a year, STRs likely have a minimal impact on housing availability currently. In addition, according to Airbnb, thetypical STR in Cupertino earns $12,OOOa year, making it less profitable than if the unit were offered as a long-term rental. However, if more homeowners start using their entire homes for STRs for longer durations, this could become a more prominent issue. Operators listing multiple STRs may have a greater impact on housing availability. Multiple listings suggest that the operator is not solely renting their primary home as a means of supplemental income, but may be using other units in the City's housing inventory asSTRsthat may have otherwise provided long-term housing. To discourage the conversion of units from long-term housing to STRs, cities have taken several approaches as follows. ■ Primary Residence: Most cities require that the STRs may only be located at the operator's primary residence. ■ Limit number of STRs: Some cities only allow one unit per parcel to be used as an STR. For example, if a home has an accessory dwelling unit, only the primary dwelling or theaccessory could beallowed for short-term rental but not both. ■ Limit number of rental days: Cities also limit the number of days per year that a property may be used as an STR. However, day limits can be difficult to verify and enforce. ■ Un -hosted stays: Another option is to prohibit or limit "un -hosted" stays where the primary resident or operator is not present during the rental period. While operators being present during rentals may mitigate impacts to housing availability and the neighborhoods, it can be difficult to verify and enforce. ■ Affordable Housing or Special Housing: It is also a best practice to prohibit STR operations in affordable housing or BM R units. Along those lines, it may also be relevant to consider whether STRs in senior housing should be allowed. Neighborhood Character and Impacts Transient tenants rotating through an STR may impact parking, noise, and neighborhood character. Regulating all or some of the following may mitigate the impactsto neighborhood character. ■ Number of guests: To mitigate these impacts, some cities limit the number of occupants allowed per STR based on the Housing Code while others list specific occupancy rules. For example, the City of Pacific Grove specifically limits overnight occupancy in STRs to two people per room plus one additional person per STR unit. ■ Parking: To address parking concerns, some cities require that parking related to STR use be contained on-site or limit the number of vehicles. However, other cities either do not specifically reference parking or refer to the Residential Building Codeand Housing Code. ■ Insurance: It may also be of interest to require operators to obtain liability insuranceto cover damages caused by tenants. ■ Non -habitable spaces: To further protect tenants and neighborhood character, some cities prohibit the short-term rental of vehicles, garages, and outdoor areas, aswell asprohibit eventsor commercial uses, such asweddings. ■ Guest Notification: Since STR guests may come from outside of the area, they may be unfamiliar with the rules of the City. Requiring STR operators to provide a letter notifying guests about the City's rules around noise, trash collection, and nuisance abatement may reduce issues. ■ Local Contact Information: Some cities require that STRs have a local contact that can respond to any reported issues or complaints with 30-60 minutes. In some cases, this local contact's information is provided to adjacent properties informing them of the STR certification. Violation Penalties and Enforcement In order to assist in effective enforcement, violation penalties should be made clear and significant enough to encourage compliance. Many cities defer to their general penalty as the fine schedule for violations. In Cupertino, thegeneral penaltiesfor infractionsare up to $100 for the first violation, up to $200 for the second, and up to $500 for the third violation within one year. Since the typical STR earns about $12,000 annually, the existing general penalty may not be enough to discourage violations. In San Francisco, STR violations are subject to penalties of $484 per day and penalties in Pacific Grove can reach up to $2,500 per day after 90 days of outstanding fines. Staff recommends a high penalty for failing to register an STR within 90 days of notification. This would encourage STRs to register, making enforcement of any other violations much easier. In addition, many cities also include the ability to revoke the operators STR related Transient Occupancy Registration Certificate or permit after 2 or 3 violations. To assist with enforcement, staff recommends contracting with a third -party to monitor STR listings in the City, operate a hotline for residents to call for complaints, and provide initial compliance communications with the STR operators. This would result in the City's code enforcement officers to be involved only once an issue has been flagged by the third -party and requires in-person follow up. Even with this support, it is likely that the City will need additional code enforcement staff for the new regulatory program as the follow up and compliance can be a long and protracted process. Currently, San Francisco has a dedicated Office of Short -Term Rentals with six staff to run the program. Without proper support, cities often enforce on a complaint basis and can beinundated with thevolumeof casesopened. Sustainabilitv Impact STRs may increase the number visitors from out of the area that are unfamiliar with Cupertino's policies regarding waste collection and the containment of litter. To mitigate improper waste sorting and overflowing receptacles, it may be beneficial to require that information on proper waste collection be included in the notification to all STR guests discussed above. Fiscal Impact To adequately enforce a new regulatory program, an annual contract with a third -party to monitor the program and additional code enforcement staff may be required. The additional TOT revenue generated from STRs may cover some of these costs. This will be presented to the City Council for its decision. Next Steps Staff will proceed to develop a regulatory program for STRs and identify required municipal code amendments. It is expected that the recommended program and associated amendments will be presented to the Planning Commission for its review and recommendation to Council in Fall 2018. Prepared by: Katy Nomura, Senior Management Analyst Reviewed by: Jaqui Guzman, Deputy City Manager Piu Ghosh, Principal Planner Benjamin Fu, Assistant Director of Community Development Approved by: Aarti Shrivastava, Assistant City Manager