Home sharing sites Airbnb and HomeAway will have to verify hosts are properly registered with the City of Santa Monica before booking guests, after a U.S. District Court judge dismissed a legal challenge to local rules. The judge said the city has a right to keep the international websites from facilitating illegal business transactions here.

Santa Monica’s strict home sharing ordinance prohibits the use of apartments, condominiums and houses for short-term rentals unless the host is present during the stay. Hosts must register with the City and obtain a business license. City leaders say the rules maintain the character of local neighborhoods and preserve housing in the midst of a statewide crisis.

“The City of Santa Monica has consistently dedicated policies to producing, protecting and preserving housing in our community,” said City Attorney Lane Dilg. “Today’s decision affirms that cities can take reasonable steps to preserve precious housing supply in the face of an ever-expanding vacation rental industry that threatens to convert homes, and particularly affordable rental units, into de facto hotels.”

In the case, Airbnb and HomeAway complained the rules violate the Communications Decency Act, the First Amendment, the Fourteenth Amendment and the California Coastal Act. However, the judge ruled the ordinance does not penalize publishing activities, but seeks to prevent illegal business transactions. The Court followed a similar decision in Northern California over San Francisco’s rules.

In that city, thousands of listings vanished after Airbnb promised to delete illegal properties. In Santa Monica, a city report estimated there were 950 apartments and homes listed on Airbnb here during peak tourism season, while only 187 were actually registered. Despite the threat of fines, the city estimated Airbnb and its hosts had collected $31 million from illegal and legal rentals since the ordinance began.

“For more than two years, Airbnb sought to work with the City of Santa Monica on a solution that ensures middle and lower class families who want to visit the coast can find an affordable place to stay,” said Airbnb spokesman Charlie Urbancic. “Despite our efforts, the city insisted on an approach that violates federal law. We were left with no option but to file suit and appeal the lower court’s prior erroneous ruling, which the court has now extended in this order. We will continue to pursue our pending appeal.”

Code enforcement officials complain Santa Monica’s rules have been difficult to enforce without cooperation from the platforms. Hosts use an array of tactics to outwit investigators, including deleting illegal listings during City Hall business hours and manipulating addresses to appear to be in Los Angeles.

“We agree with the Court that the Ordinance is a constitutional exercise of the City’s legislative authority to protect the health, safety, and welfare of residential neighborhoods,” said Chief Deputy City Attorney Yibin Shen.

The home sharing sites also brought a claim the ordinance violates the California Coastal Act, which the Court declined to evaluate when it dismissed the federal claims. The websites could still pursue those claims in a different court. The City’s current Land Use Plan does not address vacation rentals.

In 2017, the Council banned any new guesthouse from being used exclusively for short-term rentals.