How Short-Term Rental Rules Vary Across the Monterey Peninsula

by The Ruiz Group

Some buyers have made the mistake of purchasing a Monterey Peninsula property partly on the assumption that short-term rental income will offset the carrying costs, only to discover after closing that the property's jurisdiction prohibits STRs entirely, or that the permits the need are capped.

It's not always easy to tell based on the property address alone which jurisdiction a home inhabits. But since each jurisdiction carries completely different short-term rental rules, it's important to verify before closing.

Why Jurisdiction Matters More Than Location

The Monterey Peninsula is governed by multiple overlapping jurisdictions: the incorporated cities of Carmel-by-the-Sea, Pacific Grove, and Monterey, plus the unincorporated areas of Monterey County that include Pebble Beach, Carmel Valley, Carmel Highlands, and Big Sur. Each operates under its own STR ordinance. A property's physical proximity to a permissive area is irrelevant if the parcel itself sits within a restrictive one.

Below is a summary of the rules governing STRs in each jurisdiction as they exist currently. Keep in mind that these regulations have been changing and will continue to evolve.

The Four Jurisdictions

Carmel-by-the-Sea: STRs Effectively Prohibited in Residential Areas

Carmel-by-the-Sea has prohibited short-term rentals in its residential (R-1) district since 1989. The city's ordinance is direct: no home or subordinate unit may be rented for fewer than 30 consecutive days. The city actively monitors listing platforms and levies fines for each day of violation.

For buyers, this is a hard constraint. A Carmel residential property cannot legally be listed on Airbnb, VRBO, or any similar platform. There are no permits to apply for and no exceptions for occasional use.

The exception worth knowing: a small number of legal nonconforming STR permits exist in Carmel's commercial and R-4 zoning districts, issued before the 1989 ordinance took effect. These permits do not expire and transfer with the property on sale, which means they run with the land rather than with the owner. A commercial-zone Carmel property that carries one of these permits has a materially different value profile for a buyer with rental income in mind. They are rare and worth identifying. When evaluating any Carmel listing in a commercial zone, ask whether a legal nonconforming STR permit is attached.

Pacific Grove: STRs Permitted in Coastal and Commercial Zones, but New Permits Are Scarce

Pacific Grove technically allows short-term rentals, but the practical reality for a new buyer is considerably more constrained than the theoretical framework suggests.

STR licenses are permitted in the city's coastal and commercial zoning areas only, not in residential zones. The city caps total licenses at 250, and currently has approximately 84 active licenses citywide. Density restrictions prohibit any STR within 55 feet of another licensed unit. The combination of the cap, the density rule, and years of active enforcement has created a significant waitlist situation. New permits exist in theory. Obtaining one in practice requires patience and no certainty of outcome.

Home sharing, defined as renting a room while the owner lives in the property, is treated differently. Home sharing licenses are available throughout the city, including residential zones, and are considerably more accessible. Transient occupancy tax of 12 percent applies to all STR activity. Buyers planning to run a full-property STR in Pacific Grove should not assume permit availability. Verify directly with the city's short-term rental program before purchasing for this purpose.

City of Monterey: STRs Prohibited Except in Visitor Accommodation Zones

The City of Monterey prohibits short-term rentals in all areas except those specifically zoned for Visitor Accommodation Facilities. In practical terms, residential properties within Monterey city limits are not eligible for short-term rental use.

This has been the city's position for more than 25 years. Any operator found to be running an STR in a non-VAF zone is required to remit transient occupancy tax and faces enforcement action. Buyers should not expect this to change.

Unincorporated Monterey County: Significantly Restricted Since Late 2024

This is the most recently changed and most complex jurisdiction on the Monterey Peninsula. It covers Pebble Beach, Carmel Valley, Carmel Highlands, Big Sur, and other unincorporated areas. Buyers evaluating properties in these communities need to understand that the rules changed materially in 2024.

In August 2024, the Monterey County Board of Supervisors passed a new STR ordinance that took effect in October 2024 and was subsequently approved by the California Coastal Commission. The key provisions buyers need to know:

Commercial vacation rentals are capped at 4% of housing stock: This applies to both coastal and inland planning areas in the unincorporated county. The cap creates a permit bottleneck in many communities, and operators in the coastal zone faced a compliance deadline of April 2025.

Some areas are banned from new commercial STRs entirely: Big Sur, Carmel Highlands, and the residential areas of Carmel Valley and Moss Landing are prohibited from new commercial (unhosted) STR permits under the 2024 ordinance. This represents a significant restriction compared to the previous rules.

Non-commercial homeowners face frequency limits: In areas where STRs are permitted, homeowners operating outside the commercial category may rent their property a maximum of three times per year for up to 30 days per stay.

All operators require a county vacation rental license: The application fee is $965. A county business license is also required. All listings on Airbnb, VRBO, and similar platforms must include a valid license number. Fines for non-compliance can reach $5,000 per day.

Pebble Beach, as unincorporated Monterey County land within the Del Monte Forest, falls under county jurisdiction. Buyers considering STR use in Pebble Beach should confirm whether a permit is available for the specific parcel before making an offer based on rental income projections.

What Buyers Need to Do Before Making an Offer

If short-term rental income is part of the financial thesis for a Monterey Peninsula purchase, three steps belong in the due diligence process:

1) Identify the governing jurisdiction for the specific parcel: Not the general area. A property marketed as "Carmel" might be in Carmel city limits or sitting on unincorporated county land. The assessor's parcel number can confirm the jurisdiction. The Ruiz Group can help with this.

2) Confirm current permit availability directly with the relevant planning department: Planning departments maintain current permit status and can confirm whether a specific address is eligible for a new permit or falls within a banned zone.

3) Understand what you are actually buying before you model the income: A property in a banned jurisdiction is a long-term rental candidate or a personal-use property. A property in a capped jurisdiction may require years of waiting for a permit that may never come. A property with a legal nonconforming permit in Carmel's commercial zone has a specific and transferable value. These are different assets with different income profiles. Price them accordingly.

Regulations Change (So, Stay Current)

STR rules on the Monterey Peninsula have been in active flux for several years and will continue to evolve. The 2024 county ordinance was a major shift, but additional changes at the city level, new California Coastal Commission decisions, and ongoing enforcement actions mean that what is true today may not be true at purchase.

The Ruiz Group tracks regulatory changes as part of staying current on everything that affects property use rights on the Monterey Peninsula. If you have questions about a specific property or jurisdiction, we are happy to research the current status and help you understand what the rules actually mean for your purchase.

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