The Palm Springs City Council voted to approve the first-in-the-nation ordinance regarding co-owned housing units, specifically targeting properties managed by companies like Pacaso.
In a closely contested vote at its July 25th meeting, the City Council approved a new ordinance, with a 3-2 margin, to address the complexities and controversies surrounding co-owned housing in residential neighborhoods.
The ordinance introduces a new chapter to the Palm Springs Municipal Code, establishing stringent co-owned housing unit regulations. This decision marks a response to the increasing prevalence of companies like Pacaso, which purchase residential properties and sell them to LLCs owned by multiple investors. These co-owners use their properties for short-term stays, a practice that has raised numerous concerns within the community. Those concerns have been addressed by the new ordinance.
“We are grateful to the Palm Springs City Council for being such great partners and recognizing the value of co-ownership,” said Pacaso CEO and Co-Founder Austin Allison. “This milestone sets a precedent for other cities in California. Co-ownership has been a pathway to homeownership for families for generations and is an ever-growing practice that plays an important role in addressing housing supply and affordability issues.”
Co-ownership, up more than 20% year-over-year, is being embraced as the future of second home ownership. By consolidating home buyers into fewer luxury homes, Pacaso is relieving the pressure of second home demand and unlocking benefits for buyers, owners, and communities. In addition to lowering ownership costs and hassles, Pacaso homes have an almost 90% occupancy rate compared to 11% for traditional second homes.
“The families who decide to purchase a home together through the Pacaso marketplace have an owner’s mindset. They are committed to taking care of their home, their property, and their community,” continued Allison.
Key Provisions of the New Ordinance
The new regulations mirror other city restrictions and apply them to co-owned housing units, ensuring a more controlled environment. Some of the critical provisions of the ordinance include as follows:
- Permit Requirements: Co-owned property managers must obtain a permit from the city, which needs to be renewed annually.
- Occupancy Limits: A cap on the number of co-owned housing units is set at 30 citywide, with a limit of two per neighborhood. Additionally, the units cannot be located within 500 feet of each other.
- Property Value Threshold: To protect affordable housing, co-owned units must be in homes priced at $2.5 million and higher.
- Noise and Maintenance Regulations: The ordinance enforces strict compliance with the city’s noise ordinance and restricts home repairs and maintenance to specific hours on weekdays.
- Event Restrictions: Co-owned properties may not be used for events like weddings or events.
Council Debate and Community Concerns
The decision came after extensive debates and public comments over a two-year process. Concerns about noise, parking, and the quasi-commercial nature of co-owned homes have been central to the discussions. The ordinance aims to balance the interests of property owners with those of the broader community, ensuring that residential neighborhoods maintain their character and livability. Proponents of the ordinance argue that these regulations are necessary to mitigate the adverse effects of semi-transient use of residential properties.
In support of the new ordinance, Councilmember Lisa Middleton noted that the most challenging potential negative issues envisioned by some would be mitigated with proper enforcement of the rules. “If one were to compare what we have before us today with what was originally proposed two years ago, the differences are absolutely night and day,” she said. “It seems that what we have here is an opportunity to move to something that is a responsible compromise of interests and is not something that is going to result in the kinds of problems that were discussed two years ago.”
Impact on Pacaso and Similar Companies
Pacaso® is a technology-enabled marketplace that modernizes real estate co-ownership to make buying, owning, and selling a vacation home possible and enjoyable for more people. Pacaso has been operating in Palm Springs since late 2021. The company’s business model involves purchasing residential properties and selling ownership shares to multiple investors. These co-owners use the properties for short-term stays, a practice that the city initially interpreted as falling under its timeshare regulations.
The new ordinance allows the continuation of such business models but imposes strict controls to ensure that these properties do not disrupt the community.
By consolidating home buyers into fewer luxury homes, Pacaso claims that it is relieving the pressure of second home demand and unlocking benefits for buyers, owners, and communities. According to a statement from the company, Pacaso homes have an almost 90% occupancy rate compared to 11% for traditional second homes.
