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Airbnb vs. Cronyism in San Francisco
San Francisco housing activists last week submitted some 15,000 signatures to get an anti-Airbnb initiative on the November ballot. This group, according to TechCrunch, wants a 75-day limit on hosting or renting out properties vs. the current 90-day limit. Good for traditional hotels, not good for sharing companies. Activists contend home sharing worsens SF’s tight housing market when landlords of residential units rent to travelers rather than residents.
But there is more to the story, as Tyler Fisher of R Street explains:
But what Airbnb naysayers often fail to acknowledge is just how few homeowners are using these new platforms. Estimates range, but at most, short-term rentals make up less than 5 percent of the housing stock; Airbnb lists about 10,000 properties in a city with 379,579 residential units. When you consider that some properties are likely cross-listed on multiple sites and that many rentals are owner-occupied, the impact is further diminished.
In San Francisco, critics also fail to mention that costs were skyrocketing well before Airbnb was born. The growth of the Silicon Valley has increased salaries for almost everyone in the technology industry. This is not a bad thing! But what it means is that newcomers to the city are simply able to pay more for rent than current residents. It is the large increase in demand for housing caused by the booming tech industry—not a small decrease in the supply of housing caused by the rise of Airbnb—forcing the city’s rental rates up. In fact, allowing short-term rentals in the city makes building housing more profitable, and in the long-run, should lead to increased construction.
In addition, even if a small amount of short-term rentals pressure rental rates higher, rent controls likely play a much larger role. Only slightly more than 10 percent of the city’s housing stock is available to rent through anything like an open market. According to TechCrunch, about 50 percent of homes in San Francisco are rent-controlled and another third are owner-occupied. … So, the problem is not with existing housing. The problem is that new housing is not being built at the rate the city needs it. The reason is that San Francisco has incredibly strict zoning laws, lengthy application and wait times and tough rent-control legislation.
Indeed, highly regulated housing markets can make inequality worse and hurts middle incomers. From IHS Global Insight:
Published in EconomicsIn cities like San Francisco or Boston, strong price growth may be doing more harm than good. When a city’s housing supply is relatively elastic, it can respond to rising prices through an increase in construction. However, when a city’s construction options are constrained by geography or city ordinances, home values can rise much faster than the median income and hamper affordability. The indices for these cities are approaching their respective cyclical peaks, meaning that most homeowners are already above the water line. In this case, a large price increase does not suddenly free a great number of people to move who had previously been stuck in their homes; the incentive to list one’s home is not particularly strengthened as these assets appreciate. Since the price growth neither encourages new-home construction nor existing-home listing, it rather impedes circulation in the local housing market.
It seems incontrovertible that the problem is “incredibly strict zoning laws, lengthy application and wait times and tough rent-control legislation“. But who are the cronies of the headline?
Agree completely with this assessment. AirBnB is not causing any serious problems, rather, it is exposing the underlying root causes of real estate troubles in SF. Trying to restrict AirBnB is just treating the symptoms – it will only be a matter of time before the ugly consequences of rent control make themselves known in some other form.
The worst part is that rent control does not even protect those it is supposed to – namely, lower-income residents. There are enough exceptions to the rent control laws that landlords can often find creative (or not-so-creative) legal justifications for evicting tenants. Middle-class tenants in rent controlled apartments often have both the knowledge and the access to lawyers to prevent such actions, but lower-class tenants usually lack such resources and just leave.
End result: rent control does nothing to protect the poor, only those in the middle (and often upper-middle) classes with the good fortune of arriving before the boom.
It’s not so much cronies as an entrenched class of tenants/voters.
Because those tenants who benefit from rent control rarely move out, they form a large and permanent voting bloc. Meanwhile, because rent control allows so few “new” residents in – the types of residents who would be eager to vote down rent control – that voting bloc is constantly a minority. It’s a great self-perpetuating political system.
I think there’s some irony that San Franciscans are doing this to each other. It’s about time they felt the pinch of their own nonsense. While it’s chilling in one sense that San Franciscans are essentially voting themselves the right to other people’s houses… it evokes that scene from Dr. Zhivago where he returns to Moscow to see that the local Communists have divvied up his house “for the Soviet”… on the other hand, it is upper middle class and wealthy San Franciscans that built this atmosphere. They supported the politicians that help this kind of stuff flourish. They should suffer its stupidity before anyone else does.
I think this is a mischaracterization of the situation. San Franciscans are not essentially voting themselves the right to other people’s houses a la Dr. Zhivago. If the petition results in a ballot measure they would be voting to restrict owners of homes, condos and apartments from renting out rooms unless they paid the same taxes and fees that hotels pay. At least that’s what the anti-Airbnb contingent is pushing.
What Airbnb has been doing is employing the same business model as Uber where a solution emerges via social media that shakes up the current entrenched infrastructure.
Renting out rooms in private homes has been going on in Europe for decades. Years ago, when I attended a trade show in Dusseldorf, my company rented rooms from a Dusseldorf family for the duration of the show as did thousands of other show attendees because the city just didn’t have enough hotel rooms to accommodate everyone. It happened also in Los Angeles in 1984 when the Olympics came to town.
There are decent arguments on both sides of the issue, though I tend to lean toward empowering homeowners to rent out all or portions of their property as they see fit without a lot of burdensome regulations. The property owner should assume all liability if a visitor gets hurt or some other misfortune occurs during a visitor’s stay. Entrenched institutions need to be shaken up from time to time whether it’s the cable TV providers, the taxi cab industry, city hall, hoteliers, or academia. It will be interesting to see how this all plays out and whether the relationship between government and older industries can snuff out or hamper the growth of these new entrepreneurial, Internet-spawned enterprises.
Not yet. But it establishes the principle that these owners can’t rent those rooms out as they like because the voters have an interest in those rooms. It’s the beast getting its nose inside the tent, essentially declaring that your property is conditional on our desires. It gives San Franciscans a legal starting point of a kind of collective ownership principle. “Your property is your property as long as the masses approve”.
I think you’re reading far too much into this. The measure isn’t being pushed by some grassroots counter-culture, Marxist-tainted voter effort but by local politicians, hoteliers and others in the hospitality industry who have a vested interest in stifling a market-disruptive and growing competitive enterprise by taxing it and imposing regulations. To suggest that more Marxist-tainted voters will use this effort to gain access to other people’s homes is quite the quantum leap and borders on the realm of conspiracy theory because it would also suggest that those same voters would also insist on occupying The Fairmont, The Hyatt Regency, The Palace and many of the other hotels in the city because it’s owed to them. Good luck with that.
Meh, it’s San Francisco. Expected behavior.
Brian, while hoteliers obviously have a lot to do with this I do believe there is also a grassroots tenant movement against Airbnb rentals.
First, rental units being placed on airbnb are rental units not available to potential tenants, thus making everyone else’s rent go up and making apartments harder to find for everyone.
But second, I believe (not completely sure though) that there is a legal route to evicting tenants when a home is converted back to use by the owner as a single-family residence. I think there have been reports of this happening, and then the home being placed on airbnb. While I’m sure this happens rarely, it’s a source of fear for people living in beautiful rent-controlled Edwardians.
Yes, but the suggestion by Douglas seems to suggest that property owners will be forced to house squatters…somehow…at some point. This is the point I’m arguing.
That’s precisely what I’m arguing it could come to, yes. Call it slippery slope if you like, but who even 10 years ago thought we’d be marrying men to men, banning flags, and putting transsexuals in the army? These things always seem to start out small.
If the taxation and regulations become so burdensome, property owners and homeowners won’t bother turning any part of their homes into vacation rentals. Airbnb and similar enterprises are thereby killed. End of story. People have been operating and offering short term rentals for their homes for at least over 200 years in America. Airbnb and similar sites just expand the reach of the available market for customers thanks to the Internet. But you’re suggesting that the Airbnb model is somehow some sort of epiphany for Marxist-leaning politicos to totally commandeer private residences and what private individuals will someday be forced to do – a la the Soviets after the Bolshevik Revolution. Sorry, I’m not buying it. Alex Jones might, of course.
I think Airbnb is a red herring here – except, perhaps, as an invitation to pervert the term “sharing economy”.
Clearly there is a shortage of affordable housing in San Francisco. Obviously, too, some people have too much, which, as we all know, is the cause of others having too little. What could be more fair than those that have should pay more taxes? Indeed, why not levy particularly high taxes on those who have unoccupied bedrooms, with a rebate if those bedrooms are let at an “affordable” price. (It’s not a mandate, it’s a tax.) Of course, since demand for these cheap rooms will vastly exceed supply, a commission will be needed to apportion them “fairly”, with preference given to the most vulnerable in our society.
And so we have “homes for hobos”. What could be more “sharing” than that?
Better elucidated. If this were to ever happen San Francisco becomes Detroit. Property owners eventually sell or abandon their property, pick up stakes and move, the tax base disappears and the hospitality industry caves because of rampant crime, squalor, lack of street maintenance, lack of funding for emergency services, and basic utilities that go unfunded causing the disintegration of the city’s infrastructure, and Ayn Rand’s Galt scenario plays out. It would also mean that Dianne Feinstein, Nancy Pelosi and Willy Brown would have to take in boarders or bribe city officials to grant them an exemption…hmmm…
Still don’t think it’s likely. San Francisco has always been a city built (several times over) on graft and crony capitalism. It’s difficult for me to imagine it as a vast Soviet-style collective where the well-to-do are forced to open their homes. Maybe after a few tumblers of Scotch I could be convinced. :-)
I tend to toy around with these scenarios for humorous and satirical effect rather than stating emphatically that they are likely to happen. But I admit I could be wrong and Bernie Sanders may indeed become the next President of the United States.
Thank goodness NYC has rent control so that Mia Farrow can pay $2900 a month for an 11-room apartment overlooking Central Park, and Cyndi Lauper can pay $989 for a suite in a building where some units rent for $10,000, and Rep. Charles Rangel can pay less than half the market rate for four apartments, and Gov. David Paterson can pay $1250 in the same building as Rangel, and the late Nora Ephron could pay $2000 for an 8-room apartment.
The reason this current ballot initiative doesn’t really portend much worse things to come is because San Francisco has been placing restrictions like this (and much more burdensome) on its property owners for decades.
Limiting the number of days per year an apartment can be rented on Airbnb isn’t so much “slippery slope” as it is “small potatoes” in the liberal paradise that is SF.