Laguna Beach, California, is a coastal gem known for its stunning beaches, vibrant arts scene, and charming small-town vibe. For property owners and investors, it’s also a prime location for short-term rentals (STRs), offering a chance to capitalize on the influx of tourists seeking an alternative to traditional hotels. However, operating a short-term rental in Laguna Beach isn’t as simple as listing your property on Airbnb or Vrbo. The city has strict regulations in place to balance the needs of residents, visitors, and the local housing market. In this blog post, we’ll dive into the rules governing short-term rentals in Laguna Beach, explore the potential financial returns, and offer insights for anyone considering jumping into this market as of March 2025.
The Appeal of Short-Term Rentals in Laguna Beach
Before we get into the nitty-gritty of regulations, let’s talk about why Laguna Beach is such a hotspot for short-term rentals. Nestled along the Pacific Coast Highway, this city boasts seven miles of pristine coastline, including popular spots like Victoria Beach and Aliso Beach. Add in year-round art festivals like the Sawdust Art Festival and a walkable downtown filled with boutique shops and eateries, and it’s no wonder visitors flock here. For travelers, renting a home or condo offers more space, privacy, and amenities—like kitchens—than a hotel, often at a competitive price point.
From a property owner’s perspective, the demand is undeniable. Platforms like Airbnb show over 300 listings in Laguna Beach, a small city by population but a giant in tourism appeal. Nightly rates can range from $300 to $1,500, depending on location, size, and season. But with great opportunity comes great responsibility—or, in this case, a complex web of rules to navigate.
The Rules: What You Need to Know
Laguna Beach has been wrestling with short-term rental regulations for decades, with significant updates in recent years. The city’s current framework, shaped by the Short-Term Lodging (STL) Ordinance (Chapter 25.23 of the Municipal Code) and certified by the California Coastal Commission, aims to protect residential neighborhoods while still allowing STRs in designated areas. Here’s a breakdown of the key rules as of March 2025:
Where Are Short-Term Rentals Allowed?
One of the biggest shifts in recent years is the ban on new short-term rentals in residential zones (R-1, R-2, and R-3). This change, approved by the Coastal Commission in October 2020, reflects local concerns about noise, parking, and the loss of long-term housing stock. If you own a property in a residential neighborhood and don’t already have a permit, you’re out of luck—new STRs are off the table.
However, existing STRs in residential zones with permits issued before the ban are grandfathered in. As of late 2020, there were 117 permitted units citywide, including 79 in residential areas. These “legally non-conforming” units can continue operating, but the permits are tied to the property owner, not the land, and can be revoked for violations.
For new STRs, the focus has shifted to commercial and mixed-use zones—think downtown Laguna Beach, along Coast Highway, or in visitor-serving areas like Laguna Canyon. The city caps the total number of STRs at 300 non-home-share units, with an additional 165 home-share units allowed (where the owner lives onsite). In multi-unit buildings in these zones, no more than 20% of units can be converted to STRs, and for buildings with five or fewer units, the limit is one STR. This cap helps prevent entire complexes from turning into de facto hotels, preserving some housing for locals.
Permits and Compliance
To operate an STR in an allowed zone, you’ll need two key documents: a Business License and either an Administrative Use Permit (AUP) or Conditional Use Permit (CUP), depending on the property’s specifics. These permit numbers must be displayed in all online listings—a transparency measure to crack down on illegal rentals. The application process involves submitting a site plan, floor plan, proof of a safety inspection by the Laguna Beach Fire Department, and evidence of liability insurance (minimum $500,000).
Hosts must also designate a local contact available 24/7 to address issues like noise complaints or parking disputes within an hour. Trash management is another biggie—containers can’t clutter public view except on pickup days, and operators must comply with the city’s waste collection rules. Oh, and forget about onsite advertising signs; those are prohibited.
Taxes and Fees
Short-term rental hosts in Laguna Beach are on the hook for the city’s Transient Occupancy Tax (TOT), currently set at 12% of the rental rate. Guests pay this tax, but it’s your job to collect it, file quarterly returns, and remit it to the city. Some platforms, like Vrbo, collect TOT on behalf of hosts, but Airbnb does not, leaving the responsibility squarely with you. Fail to comply, and you could face penalties.
There’s also the Business Improvement District (BID) assessment, which supports tourism promotion—another cost to factor in. Home-share units, where the owner lives onsite, get a break: they’re exempt from use permit fees as an incentive to encourage this model, which is seen as less disruptive to neighborhoods.
Coastal Commission Oversight
Because Laguna Beach lies within California’s coastal zone, the California Coastal Commission has a say in STR rules. The Commission views short-term rentals as vital for public coastal access, especially for families who can’t afford pricey hotels. This stance has led to tension with cities trying to impose stricter limits. In Laguna’s case, the Commission approved the residential ban but required the city to allow more home-share options and report back in three years (by late 2023) on impacts to affordable housing and hotels. As of March 2025, no major updates have emerged from this review, but it’s a space to watch.
The Returns: Is It Worth It?
Now, let’s talk money. Operating a short-term rental in Laguna Beach can be lucrative, but the returns depend on several factors: location, property type, occupancy rates, and operational costs. Here’s a look at the potential payoff—and the pitfalls.
Revenue Potential
Nightly rates in Laguna Beach vary widely. A modest one-bedroom condo near downtown might fetch $300–$500 per night in peak summer months (June–August), while a luxury oceanfront home could command $1,000–$1,500 or more. According to Apartments.com, the average price range for short-term rentals in Laguna Beach is $2,688–$4,504 per month, though this reflects furnished units for longer stays (up to six months). For true STRs (30 days or less), nightly rates are the norm, and annual revenue could easily hit $50,000–$150,000 for a well-located, well-managed property.
Occupancy rates are key. Laguna Beach enjoys year-round tourism, but summer and holiday weekends see the highest demand. A property averaging 60–70% occupancy at $400 per night could gross $87,600–$102,200 annually (219–255 nights). Subtract platform fees (3–15%), TOT remittance, and cleaning costs, and net revenue might land closer to $60,000–$80,000.
Costs to Consider
The upfront costs include permit fees (hundreds of dollars annually), insurance, and any renovations to meet safety standards. Ongoing expenses like utilities, maintenance, and property management (if you hire help) add up. In commercial zones, property prices are higher, and competition is stiffer—your listing needs to stand out with stellar photos, amenities, and reviews.
The regulatory burden also cuts into profits. Fines for violations (e.g., unpermitted rentals) can reach $1,000 per day, and the city has cracked down hard since 2014, identifying and fining hundreds of illegal units. Compliance isn’t optional—it’s a must.
Risk vs. Reward
For grandfathered residential units, the payoff is sweeter: lower competition and a captive market. But for new STRs in commercial zones, the cap at 300 units means permits are limited—act fast or miss out. The Coastal Commission’s ongoing scrutiny adds uncertainty; future tweaks could tighten rules further if affordable housing takes a hit.
Tips for Success
If you’re ready to dive in, here are some pointers:
- Location is everything: Proximity to the beach or downtown boosts bookings.
- Know the rules: Consult the Community Development Department (949-497-0713) or the city’s website for the latest ordinance details.
- Leverage home-sharing: If you live onsite, you dodge permit fees and tap into the 165-unit home-share allowance.
- Price smartly: Research comparable listings to stay competitive without undervaluing your property.
- Stay compliant: File TOT returns on time and keep your permits current to avoid headaches.
Final Thoughts
Short-term rentals in Laguna Beach offer a tantalizing mix of reward and regulation. The city’s strict rules—banning new STRs in residential zones, capping totals, and enforcing permits—reflect a community intent on preserving its character and housing stock. Yet, for those who can navigate the system, the financial returns can be substantial, fueled by Laguna’s enduring appeal to visitors. Whether you’re a homeowner looking to offset costs or an investor eyeing a coastal cash cow, understanding the rules is step one. The returns? They’re there for the taking—if you play by the book.
What’s your take? Have you considered renting out a property in Laguna Beach? Drop your thoughts below—I’d love to hear your story!
