Numerous buyers sometimes band together to buy pricey vacation homes. Newport Beach wants to clamp down on the practice.
The affluent coastal city in Orange County will consider banning fractional ownership properties on grounds they cause congestion and noise, the Orange County Register reported.
The city’s Planning Commission has recommended a ban. If the City Council doesn’t prohibit such ownership spurred by companies like Pacaso, the commissioners recommend the city limit fractional properties, allowing them only where there are duplexes and apartments.
Fractional ownership isn’t new. But more owners around the country are partnering to purchase a property and splitting its use, usually based on their percentage of ownership. The council first heard of fractional ownership in late 2021, when there were four such homes in Newport Beach, officials said.
The number has since grown to a dozen.
Planning commissioners recommend that fractional ownership should be viewed like a timeshare. As a timeshare use, it would effectively be prohibited in all residential zoning districts.
They point to how other cities in California have zoned for multiple ownership, including Palm Desert, Truckee, St. Helena and Sonoma.
Barring a complete ban, they suggest the council consider a citywide cap on the number of such properties, requiring the noticing of neighbors that a home near them was up for a “fractional” permit, adding the ability to suspend permits if there were violations, and establishing rules for parking requirements, a management plan and a prohibition on subletting.
Residents on the city’s Balboa Island, the Peninsula and in Corona del Mar say they worry that homes under fractional ownership will bring extra congestion and noise to their neighborhoods. Such homes typically have eight owners.
Many see it as a workaround for the rules of short-term rentals, which the city caps at 1,550.
In comments submitted to the Planning Commission, residents complained of “loss of community character, noise and parking issues” from fractional ownership properties in neighborhoods.
“We are 100 percent against the proposed fractional ownerships in our community. These ‘short-term stays’ will lead to noise and parking issues and cause disturbance to our now perfect community,” a resident wrote. “Hotels and Airbnbs belong in areas zoned for such use and not in quiet residential neighborhoods.”
San Francisco-based Pacaso, founded in 2020 by former Zillow executives, said it took in $300 million in 2021 selling one-eighth shares of fractional vacation properties across the U.S. to aspiring second-home owners.
Then came pushback from neighbors from St. Helena … and now in Newport Beach.
Last fall, the proptech startup that rocketed to unicorn status on a platform based on co-ownership of vacation homes laid off 100 workers — a third of its workforce — over concerns about a global recession.
— Dana Bartholomew
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