Overview: Are Short-Term Rentals Allowed in Carmel-by-the-Sea?

Short-term rentals (STRs) are highly restricted in the City of Carmel-by-the-Sea (the City). In all single-family (R‑1) residential zoning districts, transient lodging for fewer than 30 consecutive days is prohibited. In the City’s commercial and R‑4 districts, STRs are not available as-of-right; instead, the City operates a permit system with two narrow pathways:

• Legal Nonconforming Permits (grandfathered for units permitted prior to Ordinance 2019‑03; these are enduring and may transfer with the property).
• Housing Incentive Permits, issued via a conditional use permit (CUP), tied to the creation of new affordable and moderate-income housing units with a 1:3 ratio (one STR for every three new units).

The City also requires one off‑street parking space per STR unit. Advertising unpermitted transient rentals is prohibited. All STRs are subject to local taxes (e.g., transient occupancy tax) and must comply with the municipal code and referenced state/local standards.

Important for investors: Carmel-by-the-Sea is a separate jurisdiction from Monterey County. County-level short-term rental rules apply only to unincorporated areas (outside the City limits). The City is surrounded by unincorporated Monterey County neighborhoods (e.g., Carmel Valley and Del Monte Forest/Pebble Beach), where county rules—different from City rules—govern STRs.

Sources:

• City of Carmel-by-the-Sea: Transient/Short-Term Rental Information (ci.carmel.ca.us/post/transientshort-term-rental-information)
• City of Carmel-by-the-Sea: Short-Term Rentals (ci.carmel.ca.us/post/short-term-rentals)
• Carmel Municipal Code (CMC) 17.14.040.W (Transient Rentals)
• CMC 17.08.060 (Prohibited Uses)
• CMC 17.28.040 (Advertising of Unpermitted Transient Rentals)

How to Start a Short-Term Rental Business in This Market

Carmel’s STR market is bifurcated by jurisdiction. Plan your strategy accordingly.

City of Carmel-by-the-Sea (within City limits)

• Step 1: Confirm zoning and tenure.
  • If your property is in R‑1: STRs under 30 days are prohibited. Consider converting to long‑term residential tenancy.
  • If your property is in CC, SC, RC, or R‑4: STRs may be permissible through permits (see Step 2).
• Step 2: Identify a viable permit pathway.
  • Legal Nonconforming Permit (LNP): If your STR was lawfully permitted prior to Ordinance 2019‑03 and runs with the land, it continues indefinitely (subject to compliance), and you can transfer it with sale.
  • Housing Incentive Permit (HIP): Only available as part of a development that creates three new rental units, with one low‑income, one moderate‑income, and the third at market rate. Two of the three units must be at least 650 square feet. The STR may be on the same site or elsewhere within CC/SC/RC/R‑4. Requires a CUP and is site‑specific (not portable).
• Step 3: Secure approvals.
  • LNP: File a property transfer/assignment consistent with City requirements to maintain the permit with the land.
  • HIP: Submit a CUP application with a housing plan demonstrating compliance with affordability and unit size requirements.
• Step 4: Comply with operating standards.
  • Minimum stay: 30+ consecutive days in R‑1; LNPs and HIPs follow City code and permit conditions.
  • Parking: Provide one off‑street parking space per STR unit (all districts).
  • Fire and safety: Comply with Group R‑1 occupancy classification where multiple transient units exist on the same site; adhere to City fire code.
  • Advertising: Include permit/licensing information where required; do not advertise unpermitted units.
• Step 5: Taxes and reporting.
  • Register and remit transient occupancy tax (TOT) per City procedures for lodging businesses; follow Finance/Tax Collector processes.
• Step 6: Neighborhood communications and compliance.
  • For County‑area properties (outside City limits), you must comply with Monterey County’s new STR regulations if located in unincorporated county areas; City‑internal LNPs/HIPs are governed by City code, not county rules.

Unincorporated Monterey County (outside City limits; e.g., Carmel Valley, Pebble Beach, Big Sur, Moss Landing)

• Step 1: Confirm eligibility and Coastal Commission overlay.
  • Location‑based rules: Commercial STRs are banned in Big Sur and Carmel Highlands. In coastal zones generally, commercial STRs are capped at 4% of the housing stock; hosted homestays and rentals three times per year or fewer remain permitted. Inland unincorporated areas also have a 4% cap on commercial STRs.
• Step 2: Obtain required Monterey County permits and business licenses.
  • Vacation Rental License (VRL): Required for all STRs; new applicants pay a $965 fee. Current operators without permits must apply by April 14, 2025. Licenses are seven‑year terms.
  • County Business License: Obtain prior to operating an STR in unincorporated Monterey County.
• Step 3: Fulfill operator obligations.
  • 24/7 property manager and 30‑minute response time to complaints.
  • Quiet hours; no outdoor amplified sound.
  • Neighbor notice within 300 feet detailing the STR type, contact, and license number.
  • Safety and property standards: fire safety compliance; outdoor fire pits/fireplaces banned at STR properties.
  • Listing compliance: Include the STR license number in all advertisements and contracts.
  • Parking and occupancy: Comply with local limits and posted regulations.
• Step 4: Taxes and reporting.
  • Transient Occupancy Tax: Register, collect, and remit TOT to Monterey County; neither Airbnb nor Vrbo collect TOT automatically in Monterey County—hosts are fully responsible.
• Step 5: Monitor cap status and enforcement.
  • Commercial STR permits are capped; availability is competitive. Violations can trigger fines up to $5,000/day and license revocation. Platforms must remove non‑compliant listings within 10 days or face penalties.

Sources:

• City of Carmel-by-the-Sea STR pages and CMC citations (above)
• Monterey County STR rules (permit center) (www.countyofmonterey.gov/government/departments-a-h/housing-community-development/permit-center/short-term-rentals)
• Avalara MyLodgeTax summary of Monterey County STR ordinance (www.avalara.com/mylodgetax/en/blog/2024/09/short-term-rentals-banned-in-some-areas-of-monterey-county-california.html)
• KSBW: county adoption timeline and scope (www.ksbw.com/article/monterey-county-passes-ordinances-vacation-rental/68025035)
• SFGATE: coastal commission approval and caps (www.sfgate.com/centralcoast/article/monterey-county-short-term-rentals-20827910.php)
• Carmel Realty Company zoning practices (context) (www.carmelrealtycompany.com/vacation-rental-guidelines.htm)

Required Documents, Permits, Licenses, and Guidelines

City of Carmel-by-the-Sea

• Legal Nonconforming Permit (LNP)
  • Use: Continuity of pre‑2019 STRs; transferable with property.
  • Requirements: Proof of prior lawful permit; compliance with City code; no expiration; not subject to six‑month abandonment provisions.
• Housing Incentive Permit (HIP)
  • Use: New STR tied to creation of three new rental units (1 low‑income, 1 moderate‑income, 1 market).
  • Requirements: CUP approval; two of the three rental units must be ≥650 sq ft; density limits per CMC 17.14.030; STR may be co‑located or elsewhere in CC/SC/RC/R‑4; not a legal nonconforming use; STR is site‑specific and cannot be relocated.
• Off‑Street Parking
  • Requirement: One off‑street parking space per STR unit (all districts).
• Advertising Compliance
  • Requirement: Do not advertise unpermitted transient rentals (CMC 17.28.040).
• Fire/Life Safety
  • Requirement: Group R‑1 occupancy classification applies where multiple STR units exist on a site; conform to fire code and inspections.
• Taxes
  • Requirement: Register and remit TOT for lodging stays; follow City Finance processes.

Monterey County (Unincorporated Areas)

• Vacation Rental License (VRL)
  • Fee: $965; seven‑year term.
  • Deadline: New applicants must register (effective Oct 14, 2024). Existing operators without permits must apply by April 14, 2025; permitted properties must come into full compliance by permit expiration or within seven years, whichever comes first.
• County Business License
  • Requirement: Obtain prior to operating an STR in unincorporated county areas.
• Neighbor Notification
  • Requirement: Send an informational letter to neighbors within 300 feet, including STR type, contact person, and license number.
• Property Manager and Response
  • Requirement: Designate a 24/7 property manager able to respond on‑site within 30 minutes to complaints.
• Quiet Hours and Sound
  • Requirement: Observe local quiet hours; outdoor amplified sound is prohibited.
• Fire Safety and Outdoor Burning
  • Requirement: Comply with fire safety; no outdoor fire pits or fireplaces at STR properties.
• Listing Compliance
  • Requirement: Include the STR license number in all advertisements and contracts.
• Caps and Bans
  • Requirement: Commercial STRs capped at 4% of single‑family housing stock in unincorporated county areas; banned in Big Sur and Carmel Highlands.
• Marketplace Obligations
  • Requirement: Listings must display valid license numbers; platforms must remove non‑compliant listings within 10 days or face penalties.
• TOT Certificate and Remittance
  • Requirement: Register for a Monterey County TOT certificate, collect and remit TOT on all transient stays (Airbnb/Vrbo do not collect TOT for Monterey County—hosts are responsible).

Sources:

• City STR information and CMC citations (above)
• Monterey County STR permit center (www.countyofmonterey.gov/government/departments-a-h/housing-community-development/permit-center/short-term-rentals)
• Avalara MyLodgeTax overview (www.avalara.com/mylodgetax/en/blog/2024/09/short-term-rentals-banned-in-some-areas-of-monterey-county-california.html)

Specific Regulations for Short-Term Rentals (City, County, State)

City of Carmel-by-the-Sea (municipal code-level)

• Allowed:
  • In CC, SC, RC, R‑4 districts via Legal Nonconforming Permits (for pre‑2019 units) or Housing Incentive Permits (for new units tied to affordable housing creation). LNPs are perpetual; HIPs are tied to a CUP, the development site, and affordability requirements.
• Prohibited:
  • STRs for fewer than 30 consecutive days in the R‑1 single‑family zoning district.
  • Any transient lodging that is not lawfully permitted under the two pathways in commercial/R‑4 districts.
  • Advertising of unpermitted STRs.
• Operational standards:
  • One off‑street parking space per STR unit in all districts.
  • STRs must comply with applicable occupancy classifications and fire code requirements.

Monterey County (un