Overview: Are Short-Term Rentals Allowed?

Short-term rentals are largely prohibited in Carmel-by-the-Sea proper. The city maintains one of the most restrictive short-term rental policies on the California coast. Specifically, no home or subordinate unit may be rented for less than 30 consecutive days in the residential district. This 30-day minimum applies to all residential areas within city limits.

However, there are limited exceptions in commercial districts (CC, SC, RC) and R-4 zoning through two permit types: Legal Non-conforming permits (grandfathered properties) and Housing Incentive permits (requiring creation of affordable housing units). Additionally, properties located outside Carmel-by-the-Sea city limits but within Monterey County may offer more flexible rental opportunities, subject to county regulations.

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

Step 1: Property Location Assessment

• Inside Carmel-by-the-Sea city limits: STRs are prohibited in R-1 residential zoning. Only commercial districts offer limited pathways.
• Outside city limits: Properties in Carmel Valley, River Beach, Carmel Point, and unincorporated Monterey County may offer weekly or shorter rental opportunities, subject to county regulations.

Step 2: Zoning and Permit Verification

• Legal Non-conforming Properties: If your property had a valid STR permit prior to Ordinance 2019-03, you may qualify for continued operation under the legal nonconforming use provisions.
• Housing Incentive Permits: New permits in commercial districts require creating three new rental units—one low-income, one moderate-income, and one market-rate unit—to obtain permission for one STR unit.

Step 3: Permit Application Process

• Contact the Planning and Building Department to discuss your specific property situation and eligibility.
• For new permits, prepare documentation for conditional use permit applications in commercial districts.
• Ensure compliance with parking requirements (one off-street space per STR unit).

Step 4: Business License and Tax Registration

• Obtain appropriate business licenses through the City of Carmel-by-the-Sea.
• Register for Transient Occupancy Tax (TOT) collection and remittance if operating a legal STR.

Required Documents, Permits, Licenses, and Guidelines

City of Carmel-by-the-Sea Requirements

Permits:

• Legal Non-conforming STR Permit (for properties with valid pre-2019 permits)
• Housing Incentive Permit (requiring creation of three new rental units)
• Conditional Use Permit (required for new STR operations)

Licenses:

• Business License from City of Carmel-by-the-Sea
• TOT registration and compliance

Documentation:

• Property deed or lease documentation
• Proof of insurance
• Site plans showing parking compliance
• Income verification for affordable housing components (for Housing Incentive permits)

Key Guidelines

• Minimum Stay: 30 days minimum in city residential districts
• Parking: One off-street space required per STR unit
• Zoning Compliance: Must be in CC, SC, RC, or R-4 districts for new permits
• Advertising: No advertising of unpermitted STRs (CMC 17.28.040)

Specific Regulations

City of Carmel-by-the-Sea (Municipal Code)

Prohibited Uses (CMC 17.08.060):

• STRs prohibited in single-family R-1 residential districts
• STRs prohibited in residential districts without permits

Transient Rental Regulations (CMC 17.14.040.W):

• Legal Non-conforming permits: Issued before Ordinance 2019-03, run with the land, do not expire
• Housing Incentive Permits: Require creating three rental units (1 low-income, 1 moderate-income, 1 market-rate)
• Minimum unit sizes: Two of the three rental units must be minimum 650 square feet
• Location flexibility: Transient rentals may be on same site as new units or elsewhere in commercial districts
• Parking requirement: One off-street space per unit in all districts

Monterey County (Unincorporated Areas)

2025 County Ordinances:

• Cap Limit: STRs limited to 4% of single-family homes in unincorporated coastal zones
• Hosted Stay Exception: Rentals allowed when owner resides on property
• Limited Use Exception: Rentals permitted ≤3 times per year regardless of owner presence
• Ban Areas: Commercial STRs prohibited in Big Sur and Carmel Highlands
• Current Status: Approximately 400 vacation rentals exist; new cap would limit to 334 commercial units

Coastal Zone Regulations (California Coastal Commission approved):

• Commercial STRs banned entirely in Big Sur and Carmel Highlands
• 4% cap on STR concentration in other coastal areas
• Focus on preserving neighborhood character and housing availability

State of California

• Subject to all California laws regarding STR operations
• TOT collection and remittance requirements
• Consumer protection and safety regulations
• ADA compliance where applicable

Contact Information

City of Carmel-by-the-Sea

Planning and Building Department

• Phone: (831) 620-2010
• Website: ci.carmel.ca.us/
• Address: Monte Verde Street between Ocean and Seventh Avenues, Carmel-by-the-Sea, CA 93921
• Mailing: P.O. Box CC, Carmel-by-the-Sea, CA 93921
• Fax: (831) 620-2004

General City Contact:

• Phone: (831) 620-2000
• Website: ci.carmel.ca.us/

Monterey County

Housing and Community Development

• Website: www.countyofmonterey.gov/
• Permit Center: www.countyofmonterey.gov/government/departments-a-h/housing-community-development/permit-center/short-term-rentals

California Coastal Commission

• Website: www.coastal.ca.gov/
• Contact through Monterey County offices for local inquiries

Links to Source Pages

1. City of Carmel-by-the-Sea Short-Term Rentals
2. Carmel Transient/Short-Term Rental Information
3. Carmel Municipal Code
4. Carmel Realty Company Vacation Rental Guidelines
5. Monterey County STR Information
6. KSBW News: Monterey County STR Ordinances
7. Local News Matters: Coastal Commission STR Regulations

Investment Recommendation: Given the highly restrictive nature of Carmel-by-the-Sea's STR regulations, investors should carefully evaluate whether the limited permit pathways justify the investment. The requirement to create three rental units (including affordable housing) to obtain one STR permit creates substantial barriers to entry. Properties outside city limits in unincorporated Monterey County offer more opportunities, though new county regulations will significantly limit future growth. Existing legal non-conforming properties may represent the most viable investment opportunities in this market.