Brief History of Vacation Rental Regulations for Morro Bay

2006

The city of Morro Bay approved Municipal Code 5.47 which required anyone operating a vacation rental to apply for a business license and permit and to pay Transient Occupancy Tax on all rentals.  This ordinance established rules requiring VR owners/managers to ensure that guests do not create unreasonable noise or disturbances and it established monetary penalties for violations of all STR regulations. It also mandated that a sign be posted, viewable from the outside, with contact information for the responsible party in case someone had an issue with the occupants of the home.  Unfortunately, there were no provisions made or procedures created by the city to enforce these regulations. 

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2006 - 2016

Vacation Rentals became very popular with the traveling public and quickly grew to become the preferred lodging choice for families and groups of friends. Due to the increase in demand, the number of vacation rentals available grew exponentially around the world and in Morro Bay.  The community became concerned about the impact this was having on the residential neighborhoods and also about the growing number of VRs in the city so, based on public demand, in 2016 the city passed an Urgency Ordinance to limit VR licenses, capping the number at 250. 

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2016 - 2019

The city intended to modify the STR regulations soon after the moratorium was established but decided to address it as part of the overall General Plan update the city was working on.  STR regulations are established as part of the zoning laws which is a component of the General Plan.  Since this would extend the timeline for establishing new STR regulations, the city permanently established the cap of 250 by adding it to the Municipal Code.

 

The city hired Host Compliance to identify STRs operating without a license with the intention of shutting them down.  The city also held community forums to get input, established an ad hoc committee made up of STR owners and managers and community members to develop proposed regulations and surveyed the community for their input. 

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2020: Adoption of the Short Term Rental Ordinance
The City of Morro Bay adopted its first comprehensive STR ordinance in 2020, establishing the regulatory framework in effect today.

Key components include:

• Cap on Full Home STRs: A maximum of 175 full home STRs is allowed in residential zones.

• 175 Foot Buffer Rule: New full home STRs must be at least 175 feet from another STR (property line to property line).

• STR Permitting Requirements: All operators must obtain an STR permit, a business license, and a Transient Occupancy Tax (TOT) account before renting.

• Annual Renewal: Permits must be renewed every year.

• Inspections Every 4 Years: Properties undergo periodic inspections to ensure compliance.

• Home Share Exemption: Home share STRs (owner occupied) are not subject to the cap or buffer.

• Commercial Zones: STRs in commercial or mixed use zones are not subject to the residential cap. 

 

We actively participated in this process, offering feedback on practical, guest friendly standards that still respect the surrounding community.

2021–2023: Improving Compliance & Guest Experience
During these years, the city focused on making sure all STRs were properly licensed and identifying illegally operating STRs.  

2024: Stronger Enforcement & System Updates
In 2024, Morro Bay announced it would begin enforcing the ordinance more actively, especially for unlicensed rentals.

This included:

• Notices to non compliant operators

• Fines for illegal rentals

• Requirements to update expired permits
   

We support these efforts, as they help protect guests and ensure the city’s rules are applied fairly.

2025: Full Permit Renewals & Inspections
Starting in 2025, all STR operators must complete a full renewal process, including updated inspections. Inspections are conducted by the city and inspect for compliance with Safety, Parking, Guest Occupancy Limits, and Neighborhood compatibility.

Where we are Today
In addition to the new permit and inspection process, the city has removed inactive and incompatible licenses from the list, finally making room for the hundreds on the wait list to gain their vacation rental license. However, the city is now discussing only allowing 5 new vacation rentals per year off the wait list, regardless of how many STRs are currently operating.

Community members and local businesses have expressed concern that these new limits may go beyond the original intent of the ordinance and could reduce the availability of visitor lodging in the future.
If the city continues considering further restrictions, guests and residents may have opportunities to share feedback through public meetings or comment periods. Supportive voices can help ensure vacation rentals remain part of Morro Bay’s visitor‑friendly economy, while still respecting neighborhood balance.