By Shivu Srinivasan
September 26, 2019
With the growth of the gig economy, companies have gone from startups to publicly traded, billion-dollar companies overnight. Companies like Uber and Lyft offer average workers the chance to earn income on the side. And with that, they invite the prying eye of federal regulators around the world. However, in the zero-sum game of housing, short-term rental companies, like Airbnb, have largely avoided federal scrutiny.
Short-term rentals have stoked plenty of outrage in expensive coastal cities. The matter of housing has been deferred from the national level down to the cities. San Francisco and New York, for example, have enacted strict policies to combat short-term rentals, while state and federal regulators have stood by quietly.
There are multiple sides to the thorny issue. In a city like San Francisco, where a large portion of the housing stock is rent-controlled, the topic has been red hot. On one side, some tenants sought to monetize their below-market-rate apartments. With no laws in place to govern short-term rentals, tenants could rent out their apartment for the weekend, or longer, and unlock huge profits. Imagine a big sporting event, concert or other attraction that would draw fans and attendees from across the country. If a resident isn’t planning to attend, it may be worth it to leave town and rent out their residence at a high market rate.
This operation caused an uproar among landlords, who were suffering massive losses to lease while their tenants realized the uncollected rent. Additionally, it presents other concerns to fellow residents and neighbors. Because short-term renters don’t sign the apartment lease, they aren’t held to the same standards as official residents. If they break the lease rules, there isn’t much the property management staff can do in the ways of repercussions. Short-term renters can also pose a safety risk to building occupants for the same reasons. If communities have entry locks or gate codes, short-term renters would be given those access codes for their stay. Real estate owners and property managers go to great lengths to ensure the safety and comfort of their tenants, and short-term renters can greatly disrupt those efforts.
San Francisco quickly enacted legislation to combat short-term rentals. The city passed new laws requiring “hosts” to register as businesses, obtain permits, and pay taxes. Landlords suffered collateral damages of their own, as the new regulations also severely hindered the ability of San Francisco apartment owners to rent out vacant units on a short-term basis. They, too, could collect more income through short-term rentals and viewed the statute as a violation of their property rights.
All in all, both tenants and landlords had skin in the short-term rental battle. Compromises had to be made on both sides, but ultimately, city regulation rendered apps like Airbnb virtually obsolete in San Francisco and New York.
While the short-term rental market continues to thrive in many cities across the country, changes might be on the horizon. With the population influx into coastal markets, along with fewer families purchasing homes, other cities may soon follow San Francisco’s lead and enact reforms. However, there may be better solutions that allow multifamily communities and short-term rentals to mutually benefit tenants and commercial real estate owners. The ultimate goal should be to protect the rights and safety of all parties involved.
Shivu Srinivasan is Senior Director of Multifamily Investment Sales in Transwestern’s San Francisco office. He specializes in the acquisition and disposition of investment properties throughout Northern California.
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