The New Gold Rush: How thousands of property owners and renters are breaking the law
Activists gathered in San Francisco’s North Beach neighborhood, last month, to call attention to part of the city’s housing crisis. They got together around a three-unit apartment building where flats are rented out to vacationers through an online broker. The protesters plastered the building with green stickers that said the tourist rentals there are illegal.
This used to be the rent-controlled home of elderly tenants, until out-of-town investors bought the building, and ousted the residents. That makes Ted Gullicksen furious.
“They’re making a lot of money doing this, and it’s a purely illegal business model,” he says. “They’re taking away our rent-controlled housing stock and they’re causing evictions.”
Gullicksen leads the San Francisco Tenants Union. The city already has one of the lowest vacancy rates in the nation: about three percent. It’s also got some of the most expensive median rents: a one-bedroom goes for around $3100 a month. Local law limits rent increases for long-term residents; but if tenants are evicted, like they were here, they’ll probably have to pay market rate to stay in the city.
Understanding tourist rental laws
Peter Kwan heads a group called Homesharers of San Francisco. He appreciates the Tenants Union calling attention to situations like the one in North Beach.
“But they may be giving the impression that everybody who hosts are equally bad actors, which is simply not the case,” he says.
Kwan founded Homesharers two years ago in his living room. Now, it’s got over a thousand members, and a lot are like him. They don’t evict tenants; they live in the property they rent to tourists on sites like Airbnb and VRBO. Kwan gets about 130 bucks a night for a room in his house, and it’s booked pretty solid in the summer.
“When I started,” he says, “I had a lot of questions about legality, tax, insurance.”
When asked if it’s legal for him to rent out a room in his house on a short-term basis, he says he still doesn’t know.
“You know, it probably would be advisable to find out exactly the illegality that’s involved,” he says. “And then I guess, one would have to make a decision as to what the implications are.”
He adds that he may look into it.
In fact, there are at least two codes and ordinances that make private rentals of less than 30 days illegal in San Francisco. They’re not allowed for rented rooms, flats, or houses. They’re not allowed for owned properties or for sublets.Two lawsuits have been filed so far, and the city attorney is considering more.
New York City has similar rules outlawing rentals of less than 30 days, and officials there have been cracking down. But San Francisco Planning Director John Rahaim says his city is trying to walk a fine line. It wants to protect vulnerable tenants while not troubling people trying to make “a little bit of money” in their apartment or house.
Rahaim has as many as five people working on the issue. But he says it’s very difficult to make sure people follow zoning laws.
“Most of these units aren’t being changed physically,” he says. “So you can’t walk into a unit and say, ‘Oh, you’re in violation.’ It’s about how it’s used.”
Rahaim describes profiting off short-term property rentals as “technically” illegal.
The planning department did submit a complaint about that three-unit North Beach apartment where the protest took place. The owners don’t live in San Francisco; they reside on Coronado Island, near San Diego. They claim not to have known about the city’s requirements and say they’re now committed to complying. But their attorney, Ryan Patterson, contends that concession might not be necessary.
“Property owners have a right to privacy in their homes,” he says. “And it’s problematic for the city to come in and say which bedrooms can be occupied by which individuals under a private agreement by a property owner, maybe a tenant of a home, and somebody who’s going to stay there. Sometimes there may not be payment for the use of a room. Sometimes it’s uncertain how long a guest is going to stay. And in a lot of cases it seems problematic for the city to be asking those questions to begin with. ‘Who’s sleeping in this bed?’ It may not be the city’s business.”
The city’s business
San Francisco Board of Supervisors President David Chiu says, “We know that the current reality is that these laws are broken every day. The estimates are, in San Francisco, over the past year, we’ve seen over 100,000 incidents of this.”
After considering the complexities of the issue, Chiu has proposed compromise legislation. It would legalize rentals of less than 30 days, so long as the owner occupies the residence, registers with the city, carries insurance, pays hotel taxes, and only rents space out for 90 days a year.
“Let me be clear,” he says. “Under our legislation, we are not going to allow second homes or vacation homes to be rented short term by owners.”
That would force investors out of the market, while residents would be welcomed.
“During our affordability crisis,” says Chiu, “this has been a way for San Franciscans to pay the rent and put food on the table.”
But critics don’t think that’s actually who would benefit from Chiu’s rules.
Longtime housing activist Calvin Welch says, “The notion that Airbnb is helping struggling, working class, single heads of household stay in this town is absolutely laughable.”
He thinks the booming short-term rental market is an example of exploiting the city’s resources to reward the wealthy.
“If you map them, which we have done, they are overwhelmingly in upper middle class income neighborhoods,” he says. “In Pacific Heights, the Marina, west of Twin Peaks. That’s where it’s happening.”
Altogether, at least 7,500 units are available for rent on a short-term basis in San Francisco at any given time.
Carl Shepherd facilitates many of those transactions for tourists. And the co-founder of HomeAway, based in Austin, Texas, which runs many vacation rental websites including VRBO, says he’s pro-regulation. But, he adds, too many restrictions could just send the hot market underground.
“So it’s a little like prohibition in the ‘30s,” he says, “and what you don’t want to do is create a law that can’t be enforced because that does no one any good.”
Other cities around the world have made definitive choices. Laws recently passed allowing short-term residential rentals in Amsterdam and Paris; however, Berlin and Barcelona both have banned them.
The San Francisco Board of Supervisors has been taking public comment and is expected to discuss the issue in September. The short-term rental arm of the so-called “sharing economy” will adjust one way or the other as regulations slowly catch up to technology.