Will SF Put An End to Illegal Tourist Rentals?

By Randy Shaw.

Last week, Supervisor David Chiu introduced legislation to stop the illegal renting of apartments to tourists. Chiu sponsored and enacted a similarly highly touted bill in 2012 that failed to solve the problem, and city laws passed in the 1980’s and 1990’s also proved inadequate. Will this new legislation be different?

Despite San Francisco’s housing crisis, at least 1200 residential apartments are being illegally rented to tourists. And I’m not talking about tenants renting units out while they are away, the Airbnb model. I’m speaking of units that are leased year-round to tourists, some of which are in buildings where tenants were evicted under the Ellis Act.

The brilliant Jen Fieber of the anti-eviction mapping project brought these huge numbers of illegal tourist rentals to my attention last fall. We brought it to the attention of the City Attorney’s office last December, and assumed lawsuits would be forthcoming.

But the suits have not been filed, even though Fieber provided the smoking gun evidence proving the violations. So the SF Tenants Union took the logical next step of going back to Supervisor Chiu and asking that he revisit the tourist conversion issue that his earlier legislation failed to impact.

Will this new effort to rein in illegal rentals finally succeed?

The New Approach

Current law (Chapter 41A of the San Francisco Administrative Code) already prohibits renting a residential unit for less than a 30-day term. The Planning Code includes similar prohibitions, and in many residential districts bans new tourist uses altogether. But even in these neighborhoods these restrictions have been widely ignored as housing is openly advertised and rented for tourist use.

The problem is a lack of enforcement. Chiu’s legislation addresses this problem by formalizing the short-term rental process so that all the rules are clear. This involves requiring the permanent resident to register their short-term rental unit with the city and agreeing to pay hotel taxes and abide by city rent control laws.

Only residents that live in their apartment at least three-quarters of the year would be allowed to rent short-term.

The most significant new provision is the limitation on the amount a tenant can charge a tourist. Today, they can charge whatever the market will bear.

Most of the ads I’ve seen have tourists paying over $100.00 per night, a bargain for an apartment in a quality neighborhood when compared to a tourist hotel. But under this legislation, a tenant whose rent is $1500 a month cannot charge the tourist more than $50 per night, the daily cost of the monthly rent.

This restriction is likely to reduce the economic incentive for longterm tenants paying below market rents to lease to tourists. So will the new requirement that tenants have $150,000 in property or casualty insurance.

The legislation’s bureaucratization of the entire short-term rental industry—-necessary in light of the planning and administrative code issues—will itself reduce tourist rentals. It’s one thing to make some easy bucks posting your apartment on Airbnb, Craig’s list or another site and quite more to have to file with the city, pay insurance, and have your tourist income limited to your daily rental value.

These bureaucratic burdens are likely to increase Airbnb’s market share. It is best positioned to become the one-stop-shop for those seeking a housing platform that understands the new rules.

Rent Control Issues

Chiu’s measure also deals with two contentious rent control issues.

First, landlords understandably complained that it made no sense for rent control to limit their rents while their tenant could sublease their unit to tourists for whatever the market will bear. So if this rent control restriction can be enforced—not easy given the role cash can play in these transactions—it will likely reduce the overall number of apartments available for tourist rentals.

Second, Chiu’s measure prevents landlords from seeking to evict tenants for their first leasing of their units to tourists in violation of their rental agreement. Instead, a tenant only faces eviction if they fail to cure their lease violation (typically for an illegal sublet) for thirty days after receiving a written notice. This provision makes sure that no tenant is evicted because they were unaware that their subleasing was a violation of their tenancy.

Enforcement

The fatal flaw with Chiu’s prior effort to stop illegal conversions is that it was written in a way to prevent enforcement. He has wisely changed course with the new version and followed the enforcement provisions of the city’s residential hotel anti-conversion and demolition ordinance, which gives standing to private non-profit groups to enforce the law.

This will make a huge difference. In fact, if this standing provision was alone added to current law, it would greatly reduce illegal tourist rentals.

Chiu’s legislation’s gives responsibility to the Department of Building Inspection to be the city enforcement agency. But the $50 fee imposed on those registering their units for short-term rentals comes nowhere close to the DBI’s administrative costs.

The DBI is not set up to do the intensive investigative, administrative, and hearing duties imposed by this new law. The body that is best set up to do such tasks is the city’s Rent Board, which does not want to take on significant new responsibilities.

San Francisco has a long history of imposing new duties on the DBI without the necessary funding. Just think: 2000 people must pay the $50 filing fee to come close to covering the cost of a single housing inspector. When you add the clerical and administrative functions, there is no way the $50 filing fees will meet the DBI’s actual costs.

If the Supervisors really want the administrative complaint sections of this law to work, they must discuss how the DBI’s enforcement costs will be met. A new appropriation may be necessary. Housing inspectors cannot be diverted from code enforcement work to short-term rental enforcement, as that would undermine the DBI’s historic commitment to low-income tenants.

Delete SRO’s

For some reason, Chiu’s legislation brings SRO units under the new law. We already have an effective law restricting tourist use in SRO’s and its been upheld by the California Supreme Court. The city should not be opening the door to new hijinks by revisiting this issue. SRO’s should be promptly excised from the legislation.

The Legislation’s Future

I was centrally involved in a 1997 effort to stop corporate/tourist rentals of apartments. We seemed to have clear sailing until the owners of Golden Gateway and other large properties created choppy seas that resulted in extremely weakened legislation. Chiu’s last effort on this issue also started strong before confronting political headwinds.

But the current housing crisis has created a moment for new possibilities. San Francisco may finally get the legislation it deserves to protect the city’s rental housing stock from tourist conversions.

Originally posted at Beyond Chron.

Randy Shaw is Editor of Beyond Chron and Director of the Tenderloin Housing Clinic.

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