Independence Day Reflections On Anaheim Wiping Out 400 Short-Term Vacation Rentals

Tomorrow we celebrate 240 years of America’s Declaration of Independence from, among other things, arbitrary governance; a declaration founded in belief we possess inalienable natural rights.

Acting in opposition to that spirit, a few days ago a majority of the Anaheim City Council engaged in a naked display of arbitrary governance and voted to extirpate an entire class of legal enterprises.

I’m speaking about short-term rentals (STRs). There are nearly 400 hundred of them in Anaheim. They are legal businesses, operating with the explicit permission of the city since the Anaheim City Council enacted an ordinance on May 13, 2014 governing their operations.

The rapid growth of STRs has led to legitimate nuisance complaints from impacted residents. These shrot-term vacation rentals have also provoked the ire of the militant UNITE-HERE hotel workers unions because STR-owners provide work for non-union housekeepers.

Rather than work to manage a manageable situation, Mayor Tom Tait and Councilmembers James Vanderbilt and Jordan Brandman instead decided to put out of business the very same short-term rentals the city council had approved two years earlier.  That’s like responding to barking dog complaints by banning dogs.

One of the secrets of American success is certainty. It is a major reason we have enjoyed so much prosperity and innovation and success compared to countries that our poorer than us despite abundant human and natural resources. There is every expectation that when one invests capital and energy and time into a legal business venture, one will be able to continue operating that business. Such certainty allows for planning, and long-term investment, and risk-taking and job-creation.

When the city council authorized short-term rentals in May 2014, does anyone think these STR owners – many of whom invested their savings and derive their livelihood and retirement income from these properties – expected that two years later the same city council would vote them out of business? Would they have risked their financial futures had they had an inkling a majority of the council would make an about face and shut them down?  Many of these citizens were stunned and in tears after Mayor Tait and Councilmembers Vanderbilt and Brandman voted them out of business – and it’s not hard to understand why. Tuesday’s vote is the kind of capricious and arbitrary governance one would expect in a banana republic – not in The City of Kindness, which advertises itself as a place where people with a business idea or dream can see it come true.

The Amortization Fig Lead
STR opponents claim it’s not as bad as all that, and point out the 18-month amortization process contains a hardship clause under which those who cannot recoup their costs in only 18 months may get an extension.

To better gauge how realistic the amortization period length is, consider these estimates from a study commissioned by the Anaheim Rental Alliance:

  • If the amortization period were 10 years, then 2/3 of property owners would likely recover unrecoupable investments.
  • A 12-year amortization period increases that number to 75% of STR properties, while a 15-year period would allow 85% of STRs owners to recover costs.

Mayor Tait and his two council colleagues are only giving them a year-and-a-half. How much of their investment can be recouped in such a brief period – – even with the hardship clause?

Furthermore, there’s the question of whether it is fair, just and legal to restrict amortization to only what owners have directly invested, and excluding what STRs expected to earn over the life of their businesses. After all, the latter is why they invested their capital into STRs in the first place.

Litigation or Referendum? Or Both?
Anaheim STR owners have three options:

  • Accept the council majority’s fiat, shutter their businesses and take their losses.
  • Take the city to court and litigate to recover the $60 million in unrecoupable losses they claim the ban will cost them. Tait asked the city’s attorneys if the ban is defensible, and was told it was. However, he was also told the city’s position vis-à-vis the Jose F. Moreno districting lawsuit was defensible, and he opposed defending it.
  • Put the ban to a referendum. A referendum petition must be filed within 30 days of the date on which the ban is attested by the City Clerk, and must be signed by at least 10% of Anaheim registered voters – which would be 12,300 valid voter signatures.

let’s keep in mind the political motivations behind the STR ban – not least among them the mayor’s desire to use this as a political issue to win a majority on the city council in the November elections – an ambition for which these small and medium business owners, trusting in the city’s good faith it enacted the STR ordinance two years ago, are now paying a fearful price.

OC Daily has reached out to the ARA’s attorney asking whether they plan to pursue litigation, referendum or both; we’ll report back with the response. Frankly, they ought to sue and hopefully would prevail over this unjust, capricious ban.

OC Register Editorial Page AWOL
Conspicuous by its absence regarding this issue has been the Orange County Register editorial page – not known to be shy about weighing in on Anaheim issues.  This ban on STRs is a direct assault on free enterprise, the sharing economy and other shibboleths of the OCR editorial page. You can be certain it will weigh in when the Anaheim City Council takes up the participation of three luxury hotels in the city’s Hotel Incentive Policy; why the silence when a council majority decides of snuff out 400 business enterprises?

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