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The New Gold Rush: How tourist rentals are affecting San Francisco’s housing market
The sharing economy in San Francisco is humming. Companies like Airbnb have figured out how to make a lot of money by using existing housing stock to meet consumer demand, which in Airbnb’s case is coming from tourists. Fast Company magazine declared AirBnB will soon become “the world’s largest hotel chain – without owning a single hotel.”
On the surface, it might look like a win win. But where somebody’s getting paid, somebody is usually losing out. In the case of tourist rentals, people looking for permanent, long-term housing may be the losers.
Cities around the world have recently become more militant in enforcing laws governing this industry, so how has San Francisco responded?
"Great spot along the cable car line!"
The corner of Mason and Columbus in San Francisco’s North Beach is a real center for tourism. There are double-decker buses going by, as well as the occasional cable car driving up toward the Fairmont Hotel or down toward Fisherman's Wharf. It’s a good spot if you’re an out-of-towner, and you want to see San Francisco as it’s shown in all of the tourist books.
For the most part, though, this is a regular residential community, with two and three story structures closely packed together. But something stands out on one apartment building: hanging off the gate are lock boxes showing that no permanent residents live here.
“So this is a three unit building,1937 Mason Street, and this building is completely rented for tourists, as tourist-use, on the the website VRBO.com,” says Ted Gullicksen, the Executive Director of the San Francisco Tenants Union. “It’s been tourist-use for several years now, and the tenants in this building, which included seniors, were Ellis evicted."
Gullicksen knows this because for the past five years the Tenants Union has been closely watching the tourist rental market grow. Between Airbnb and Vacation-Rentals-By-Owner, or VRBO, there are nearly 7,500 rooms and apartments available in San Francisco for short stays.
If San Franciscans weren’t dealing with a super tight rental market, Gullicksen might not care. But the city already has one of the lowest vacancy rates in the country, and Gullicksen says conversions like this are making it worse.
“The underlying problem in San Francisco is the conversion of rent controlled apartments to other uses – whether condos or tourist – which is taking sorely needed rent controlled apartments off the market,” he says.
In fact, people who do this are breaking at least three San Francisco laws.
One is the Apartment Conversion Law that says you cannot rent for less than 30 days, you cannot do short term rentals and convert rent controlled apartments into tourist use.
Another is part of the planning code, which defines hotel use as renting for less than 30 days in areas confined to specific, limited zones.
Gullicksen says, “It’s illegal, but they’re getting away with it because nobody’s enforcing the laws regulating the tourist conversions.”
The city’s planning department says it’s hard to enforce laws when the market is online; landlords or subletters can just take listings down temporarily or switch websites.
Other city departments are getting involved, too. The Tenants Union has shared its findings concerning Ellis Act evictions with the City Attorney.
Hotels have also cried foul, saying short-term renters should have to pay the Transient Occupancy Tax – also known as the “hotel” tax – which is 14% in San Francisco. Unless landlords take it upon themselves to pay that on behalf of their renters, the city may be missing out on as much as $2 million a year.
"Location, location, location!"
Carl Shepherd is the co-founder of HomeAway, which runs VRBO and other sites that represent more than 890,000 paid listings around the world. He says his company supports the ability for cities to regulate this burgeoning industry.
“We really do believe that this is a taxable transaction,” he says.
But like Airbnb, HomeAway puts the onus of those taxes on the individual landlords and renters, not on the broker.
“We believe local enforcement is the responsibility of the local government. How they want to enforce it is up to them,” Shepherd says.
In San Francisco, that’s not really happening. In 2012, the tax collectors office ruled Airbnb should be collecting and paying the city’s “hotel” tax. The company responded by mailing 1099 forms to its landlords.
Meanwhile, the market keeps growing. Airbnb has nearly five times as many rental listings as it did in 2012.
"Commanding views of the Bay!"
Sarah Jones is showing me around a flat she owns near Buena Vista Park, looking down on San Francisco’s skyline. The apartment features period details and a wraparound view showcasing the Bay Bridge and Oakland Hills.
Jones isn’t her real name – she wanted to keep a low profile. But she made this unit public on Airbnb last fall, “right before Hardly Strictly Bluegrass weekend. And within 45 minutes, I had my first tenant for that weekend, which was a pretty quick turnaround.”
Jones explains that before Airbnb, the place was “just sitting empty” for as long as two months at a time, in between infrequent visits from her father-in-law.
Jones and her husband moved to the city at the height of the first dot com boom in 1998, and they joined another family member in buying the Edwardian three-unit building we're standing in. The couple lives with their three children and two dogs in one unit. They have a long-term tenant in another. And the third they rent to tourists. While Jones and her husband both work full-time jobs, she says the extra $325 a night from that flat helps them afford to live in the city.
“It’s really expensive. Housing is expensive, food is expensive, everything is expensive,” Jones says.
Jones says Airbnb is practical. The flat is a place for family to stay when they’re in town. But she knows there is a lot more money to be made for people who want it. She knows one man who is renting six apartments in the city and subletting all of them to tourists.
“They are renting them on Airbnb for maximum income and turnover and that kind of thing,” Jones says. “I think this person has made a killing on it, honestly.
"Right in the heart of the city!"
We asked Airbnb for interviews several times, but they never granted one. They did direct us to studies they commissioned. One concluded there are not enough short-term rentals right now to have a meaningful impact on San Francisco’s housing market.
The other showed 90 percent of Airbnb hosts only rent out the home they live in and on an occasional basis. Of course, that suggests something else is happening with the other 10 percent.
“We know there are planning, zoning, and rent control rules that are being violated both by tenants, and landlords, and owners of buildings,” says David Chiu, president of the San Francisco Board of Supervisors. “And there is very little enforcement of these laws. But in fact it has been several decades since our laws were updated.”
Supervisor Chiu has been working on his own legislation for a year, now. It would allow people to lease their apartments or rooms on a short-term basis, occasionally, provided they pay appropriate taxes, and follow rental ordinances.
“When people are making more than rent controlled prices, then you’re starting to impact rent control laws and laws that were put in place to protect tenants and ensure people get to live here more permanently.”
Chiu says Airbnb has joined him when called for discussions, but, “I think it would have been helpful for them to more proactively engage with the city governments around the world in dealing with this, and I think they need to be more proactive in working with the city and addressing these issues.”
Airbnb is currently being valued around 10 billion dollars. One of its main investors is Ron Conway, who has also contributed hundreds of thousands to Mayor Ed Lee’s election campaigns. The company has splashy new digs in the SOMA district, and recently hosted a party celebrating its sponsorship of San Francisco’s StoryCorps, which partners with KALW.
StoryCorps founder Dave Isay addressed the crowd, that night, and talked about a conversation he’d had with one of Airbnb’s founders, Nathan Blecharczyk about how big the short term rental market can get. Blecharcyk told him he dreams of the day when he can bring his child into the StoryCorps’ booth, and hears the question, “Daddy … what was a hotel?”
To listen to this story, please click on the audio player above.
City Visions: July 29, 2013