Item 10 - Receive and File - Orange County Grand Jury’s Investigative Report, Findings, and Recommendations Regarding Long-Term Solutions to Short-Term Rentals

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Long-Term Solutions to Short-Term Rentals At least one city (Orange) requires that TOT reporting include the number of days the STR is available for rent and number of days rented each month. Capturing these statistics facilitates desk auditing. A "desk audit" is a remote review of the STR operators' reported information to ensure compliance with TOT reporting requirements. This is in contrast to a"business-level audit," which is performed by the city on site and involves verification of the reported information against third-party records, such as bank statements. The Grand Jury's review of a subset of Orange County cities did not identify any that did more than desk audits on short-term rental TOT receipts. Put simply, these cities currently rely on the "honor system." Conducting business-level audits would allow cities to discover and collect additional funds. However, a city should consider the cost of enforcement versus the financial benefit of STR business audits, especially in smaller cities with limited short-term rental TOT. Major Events Fuel Demand for STRs Reports from the 2024 Olympic games indicate that the average price per night of STRs in and around Paris more than doubled during the Olympics, and total inventory grew by nearly fifty percent. With the coming 2026 Los Angeles World Cup and the 2028 Los Angeles Olympics, these surges are likely to be seen in Orange County, especially with the Honda Center and Trestles Beach—both in Orange County—being used as Olympic venues. Orange County cities have not yet dedicated resources to plan around STRs for these major events. STR Impact on Affordable Housing Some housing advocates argue that STRs reduce the inventory of much needed and mandated affordable housing. The Grand Jury found that STRs have a negligible effect on affordable housing in cities that currently allow STRs. The Southern California Association of Governments, acting under the direction of the State Housing Element Law, sets a mandated volume of new units by city for Very Low Income (VLI) and Low Income (LI)units, and this analysis uses it as the estimate of needed affordable units. The Grand Jury's analysis of inland cites suggests that if their existing STR units were converted to affordable housing, they would contribute at most about eight percent (125/1,671 from Table 4) of the affordable units required (in the city of Orange), and a much smaller percentage in other inland cities. On the other hand, in coastal cities,the STR volumes appear to meet a sizable portion of affordable unit goals. However, coastal cities must comply with State law enforced through the California Coastal Commission (CCC). The CCC weighs in on all coastal development and changes, and any modification of a city's zoning rules or limits on STRs would be subject to the CCC's approval. The CCC's stated goal is to preserve access to public beaches and low-cost 2024-2025 Orange County Grand Jury Page 13