When stories appear about long lines and bidding wars for vacant San Francisco apartments, rarely mentioned is a leading cause: the loss of hundreds if not over 1000 units to illegal tourist rentals. Both landlord and tenant groups backed the city’s recent decision to impose hotel taxes on tourist rentals obtained through the website Airbnb
, as such illegal rentals hurt both constituencies. Airbnb executives claim
their site is designed for those “occasionally renting out their couch or bedroom to a visitor,” but the posting of positive feedback from numerous visitors to specific units show their ongoing illegal use. And while Airbnb includes many small-scale operators, renting residential apartments illegally to tourists is a big and longstanding business. Now city officials may be ready to stop this illegal practice.
The Central Towers Apartments is a Joseph Eichler-designed apartment building in the heart of San Francisco’s Tenderloin neighborhood. Most of the building houses working-class families, with a few exceptions: those units illegally rented through Airbnb by tenants who now live elsewhere but have kept their apartment for use by tourists.
In other words, the tenants have become landlords who illegally rent residential apartments to tourists. A unit that otherwise be going to a working-class family is instead being kept off the market and used by tourists.
Owners have a remedy for such action – they can file a petition with the Rent Board claiming the tenant is not occupying their unit as their principal residence. A hearing officer would then almost assuredly eliminate the tenant’s rent control protections, and the landlord would soon recover the unit. But most owners of apartment buildings are unable to closely monitor who is actually staying in an apartment, particularly because the tourists tell security staff or anyone who asks that they are “visitors” of the tenant named on the lease.
This is the Airbnb side of the illegal apartment rental industry. More powerful is the “corporate suite” industry, which takes apartments off the rental housing market with the landlord’s full knowledge and cooperation. These businesses steal money from legal tourist hotels by housing short-term business travelers in residential apartments, also depleting the city’s rental housing stock.
It is the corporate suite industry that joined with large landlords in defeating an effort to stop illegal apartment rentals in the late 1990’s. But Airbnb and other sites have dramatically expanded such rentals, potentially creating a sufficient political backlash for change to occur.
A New Political Dynamic
Board President David Chiu recently introduced legislation that makes two key changes to the city’s apartment conversion law.
First, it gives nonprofit groups that meet certain criteria standing to enforce the law. A similar provision dramatically increased enforcement of the city’s SRO anti-conversion law when added in 1990. Second, it makes it clear that renting residential apartments to people for less than thirty days violates the law regardless of whether the corporate employee contracts for the unit or pays the rental directly.
Will either provision become law? Or will the city’s charging of hotel tax on Airbnb rentals be the end of it?
The political climate may be ripe for strengthening the apartment conversion law because illegal apartment rentals are now hurting landlords. Landlords assume that a certain number of units will turnover each year, allowing rents for the new tenant to rise to current market. Now, longterm tenants paying below-market rents can maintain their tenancy after they have moved out and rent out their unit through Airbnb.
This could bring quite a windfall for tenants. After all, charging only $100.00 per night for a studio apartment in the Marina district would bring $2000- $3000 per month, depending on occupancy. This could be double what the long-term tenant is paying the landlord. And considering that $200 a night is a bargain for a quality one bedroom (and less than what top-quality hotel’s charge for a single room without kitchen), tenants could reap thousands of dollars each year from their landlord’s property with little effort.
Landlords do not like tenants making money off their properties. And tenant groups do not like watching the illegal removal of hundreds of residential apartments from the city’s housing stock.
But Chiu’s legislation will not impact Airbnb-type of illegal rentals. Non-profit groups are unlikely to spend resources suing tenants for tourist rentals, and corporations are not the primary user of this sector of illegally rented apartments.
If passed, Chiu’s measure could greatly reduce the longstanding illegal business of corporate tourist rentals, but getting this amendment through the Board will not be easy.
Currently, nearly all apartments rented to tourists violate neighborhood-zoning laws. People can file complaints to the city’s Zoning Administrator and demand enforcement.
But this strategy has been disfavored due to the costs of zoning law enforcement (cases against illegal corporate rentals are heavily litigated), even though it has the great advantage of not requiring a politically difficult change in the apartment conversion law.
The Future of Short-term Stays
If Airbnb solely involved tenants renting their apartments out for brief periods while they were on vacation once a year, there would be little controversy. And tenants renting out a room in their apartment once or twice a year is not what landlord and tenant groups are complaining about.
Rather, it is the systematic and ongoing renting of residential rental units for tourist use.
San Francisco enforces many laws covering property and business ownership, yet has long failed to stop illegal tourist rentals in residential apartments, and in residentially zoned neighborhoods. We will soon learn if this longstanding problem is finally addressed.