Why We Need Regulations like Proposition F

I began writing this post as a response to an article on a Medium blog entitled “I Have Read Prop F, and It is Worse Than You Think.” Click here to see my response to that article, the gist of which, as you might gather from the title, is that Proposition F is a perfectly normal, reasonable, and fine piece of legislation. I want to separately address, however, why it’s important that we regulate companies like Airbnb.

When new industries arise, it’s important that governments take action to bring them into the existing regulatory framework. I don’t say this out of a blithe desire to regulate for no reason. On the contrary, regulations exist for a good reason: to protect workers, businesses, customers, the environment, and much more from unfair practices. I’m once again very proud to see California and San Francisco leading the way on this issue.  There are at least three justifications I see for regulating Airbnb and similar companies.

First, cities have an interest in protecting the security of the guest, the host, and the neighbors of the host. As a guest at an Airbnb rental, you have no idea of what you might walk into. Hotels have to pass inspections and meet requirements before they can operate.  Yes, Airbnb hosts have reviews, but that’s not an adequate substitution. Besides, hotels have reviews, too.  And as for the hosts, if a guest trashes your home, Airbnb is supposed to pay for it, but do they?  There are limits to what Airbnb will pay for when a guest damages a host’s room (see, for example, here), and hosts can get stuck with very expensive bills. Hotels are better equipped to handle damages from a bad guest because they have the proper insurance and also because having a rental trashed doesn’t force them out of a home for some period of time.  Furthermore, neighbors of Airbnb rentals also have rights.  They chose to live in a residential area, not a commercial area, and they have a right not to have to deal with the unexpected consequences and hazards of their neighbors running a hotel.  Apartment buildings go to a lot of trouble to prevent random strangers from entering the premises.  Airbnb allows random strangers to walk right in.  One of the reasons – of many – that cities zone neighborhoods as residential or commercial is to create spaces for people to live free from commercial traffic.  Companies like Airbnb completely circumvent that zoning.

Second, cities need to regulate available housing space.  If rich people/companies start buying up residences and renting them out, housing prices go up.  Let’s look at the statistics.  There are 372,560 housing units in San Francisco and there are 4,798 properties listed on Airbnb (specifically Airbnb – not including other listing companies).  The concern with respect to the housing supply issue is how many of those listings are full-time listings.  That is, how many listings are housing units that have been removed from the residential market and converted to commercial use. The data is not entirely clear on this. We do know that 1,526 of the listed properties were controlled by people with multiple listings.  (In fact, the top 10 renters collectively controlled 248 listings).  Since you can’t live in two places at once, I think it is fair to assume that at minimum, half of those listings were dedicated to full-time listings.  And since there are some people on Airbnb who control many properties, let’s split the difference and say ¾ of the 1,526 properties controlled by hosts with multiple listings are full-time Airbnb rentals (it won’t make much of a difference with the math). That’s 0.3% of the housing market.

Now let’s check our work by comparing San Francisco to New York.  Last year, the New York State Attorney General’s Office published a report on how Airbnb functions in New York City.  According to this report, the number of housing units that operate as hotels for over a quarter of the year, 4,600, make up 0.1% of the total 3,352,042 housing units in the city.  So the numbers are comparable.

There is a lot that we don’t know about this data.  What I have shown above is a bare minimum of the effects that Airbnb has had on the housing market.  Are Airbnb conversions disproportionately in middle and low income housing or are they evenly distributed?  Are any of the Airbnb listings that don’t rent out over a quarter of the year sitting dormant for the remainder of the year or are they occupied?  Without better data, we can’t be clear about the true extent of the company’s effects.

Now here’s the big concern: According to the New York City data, the number of Airbnb units has grown 10 times in just three years.  It is hard to estimate is how big the percentage needs to get before it starts significantly affecting housing prices in the city, but we really don’t need to let it get that far to find out.  Housing in these cities is expensive anyway.  So in Airbnb, cities have identified another threat to the housing supply, and they absolutely need a chance to address this threat before it begins to cause problems.  [Edit: Of course, I say “begin” to cause problems in reference to observing a significant effect on city-wide housing prices.  That is just one indicator of the effects of Airbnb.  If people are getting evicted from their homes because their landlord can make more money by turning them into short-term rentals, there are clearly already problems.]

Third, and this is the most important one for me, we need a level playing field for the free market to work.  The traditional industries get really upset about companies like Airbnb and Uber.  It’s not because these new companies are providing better services, although clearly in some ways they are.  It’s because they’re not subject to the regulations that the traditional industries are.  The immense profitability of these new companies comes almost entirely from skirting regulations and avoiding the associated costs, thereby allowing them to offer services at a lower price.  I am very much in favor of updating regulations to make them more efficient (more relevant in the taxi industry than the hotel industry), but it’s extremely important that everyone is required to play by the same rules.

Proposition F is a well-written law that achieves all of these goals.  It makes renting through Airbnb a safer process by bringing it into the open and regulating it.  It addresses concerns about zoning violations and forestalls a situation where residential units are excessively converted into commercial hotels.  And most importantly, in my opinion, it puts hotels and home-rental businesses on a more level playing field by not subjecting only one of those groups to regulation. It does all of this while still allowing residents the option to rent their home out for up to 75 nights a year.  I think it is a fair compromise, and I highly recommend you vote in favor of Prop F.

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Published by

Zach Perez

Law grad and aspiring economist.

5 thoughts on “Why We Need Regulations like Proposition F”

  1. I totally agree with sfjazzer. Prop F. totally punishes seniors and others who rent out a spare room to try to help make ends meet. The 75 day restriction on renting out spare rooms is ridiculous and does not honor the 2/1/15 legislation. Prop F supporters – Stop forcing seniors out of their homes!

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  2. And you don’t think the Proposition process, which leaves the regulation untouchable and unmodifiable except by popular vote, is the wrong way to do this?

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