The Final Word on Prop F

The vote on Proposition F is coming up on Tuesday. With Prop F, San Franciscans have a chance to take a leadership role by becoming one of the first cities to effectively address the negative consequences of the so-called “sharing” economy. I strongly encourage everyone to go vote Yes on Prop F because it will curtail additional stresses on the housing supply and promote fairness in the marketplace.

We can’t Airbnb our way out of the housing crisis.

Renting out a spare room short-term is a great way to make some extra money, but that can only be true for a minority of people. On the whole, Airbnb actually makes the housing crisis worse. Under a system where the company is given free rein to work wherever it wants, it will necessarily drive up housing prices through two mechanisms. First, Airbnb limits supply. As I have already discussed here, the company drives up prices by taking a number of units off the market and converting them to short term rentals. Second, Airbnb inherently makes housing units more valuable. Thanks to Airbnb, every housing unit has the potential both to be rented out short term and to be rented out on a permanent basis. In this scenario, every unit has the potential to bring in much more income than if it were only to be rented out on a permanent basis. When housing units get this increased income potential, they become a more valuable asset, and their prices go up.

Skyrocketing housing prices are a symptom of nationwide inequality. When multimillionaires decide they want to live in a particular city, they outbid everyone else and drive prices through the roof. The solution to this problem is to tax top incomes, or have the city put large taxes on expensive homes. That would guarantee that prices come down. The solution to this problem is NOT to have everybody take on part time work by renting out their things and their homes to some corporation. Again, that might help one person get ahead of everyone else, but it cannot help everyone stay afloat in an increasingly unfair economy.

You’re not Sharing a Room, You’re Running a Business

Airbnb is a business, just like any other business. If you are, on a regular basis, charging tourists and travelers to stay in your apartment, then you’re running a hotel business. And since businesses are always subject to regulations, then you should expect to be treated just like any other business and play by the same rules. Playing by the rules means you pay your taxes like everyone else, and it means that you don’t get any special thank you when you do so. Playing by the rules means that you keep business records – that are free from and not considered personal information – so that you can prove you are following the rules. Playing by the rules for hotels includes inspection and registration. If you decide that you want to break the rules, then you are subject to the penalties. If you break the rules a lot, you should expect the penalties to be quite large. There is nothing unusual or unreasonable about such expectations.

I’m sure you’ve heard the arguments that Airbnb is a dynamic company and a change in its business model would render Prop F useless. I fail to see how that’s possible. Prop F requires people who rent their homes out on a short-term basis to register with the authorities, pass inspections, and keep records of when they rent out their rooms. If a person rents out their room short-term, they must follow the law. The only way to get around the law is to come up with a business model that doesn’t require renting out rooms, and that model might not be very profitable.

You might have also heard the rumor that the hotel industry has invested a lot in the Yes campaign, but it’s completely untrue. According to this article, the largest contribution to the Yes campaign has been $125,000 that came from a hotel labor union. Meanwhile, Airbnb has spent $8 million on the No campaign. This is truly a case of a big business trying to stop legislation that would help out the little guys. Like the taxi industry with Uber, the hotel industry is being hit hard not by the natural competition of the marketplace, but because traditional hotels are playing by the rules and Airbnb isn’t. Airbnb provides rentals at a lower price than hotels not because it has a more efficient business model, but because it doesn’t have to go through the regulatory requirements that ensure safety, loss prevention, and consumer protection, among other things.

The Proposition system is the Right way to Deal with Airbnb.

Lastly, there is a big concern that Prop F will be unchangeable if it passes. According to the San Francisco charter, a proposition that passes by popular vote cannot be amended by the legislature. Needless to say, Airbnb would love to make you think that this is a flaw or a dangerous proposition, but the immutability of the ballot initiative is, in my opinion, a very good thing. AirBnB has spent millions campaigning against this initiative, and it could easily spend that money lobbying the city’s legislature to change whatever law the citizens pass. By making the enacted ballot initiative unalterable by the legislature, the city charter ensures that special interests cannot buy their way out of the popular vote.

But the legislature is not the final word on all laws. Laws must be enforced by the executive branch and must be interpreted by the judicial branch. Just because a law is passed does not automatically mean it will be enforced. We hear all the time about crazy old laws that are still on the books but that are not enforced. More recently, at the federal level, the Obama administration decided it would no longer enforce the Defense of Marriage Act, even though it was still a valid law. (It was shortly thereafter struck down by the Supreme Court).
The executive branch and administrative agencies do more than just enforce the law. They must also decide *how* a law is enforced. This discretion allows agencies flexibility in order to make sure that law enforcement achieves its desired effect. For instance, we can see administrative discretion in traffic laws. Speed limits are intended to promote traffic safety, but enforcing the speed limit doesn’t mean that you get pulled over every time a cop sees you going 66 in a 65 mph zone.

This all goes to say, you should not be afraid of the permanentness of Prop F. If there is some weird quirk in the law that no one thought of, then an administrative agency can decide how or whether to enforce that weird part of the law. If the agency decides to enforce it in a harmful way, a court is free to invalidate either the administrative agency’s interpretation, or the part of the law that is causing problems. There is also a severability clause in Prop F, which means that, should a court find a part of the law to be invalid, that part may be removed from the remainder of the law, which will remain in effect without the offending language.

Proposition F is about Community

Like it or not, if you live in a large city or a small town, then you are part of a community. Your actions affect those around you, and the actions of those around you affect you. You should keep this in mind when you consider how to vote on Prop F. For the vast majority of us, Prop F will have no *direct* effect. Yet there are two main ways it affects us all. First of all, as I mentioned above, Airbnb does not make the housing crisis better, it makes it worse. If you do not currently own a home in San Francisco, but dream of a day where it might be possible, you will be much better positioned to buy a home in a regulated marketplace. Second of all, you might not work in the hotel industry, but that doesn’t mean your industry won’t get screwed tomorrow. Some new startup could come along, ignore all the rules, and start to put your company out of business. It’s happening with surprising frequency today – See Uber, Airbnb, Draftkings. These companies have all profited immensely NOT by providing superior competition, by blatantly breaking the rules and skirting regulations. When this happens to you, do you want a government that will enforce the same rules for everyone, or a government that will just shrug and let them put you out of business?

We desperately need government to enforce the rules of the marketplace. By coming together and passing laws like Proposition F, we can address issues in our communities and make our lives better.  On the other hand, if government isn’t even strong enough to openly admit that a hotel company is in fact a hotel company, how can we expect it to achieve bigger goals, like solving the housing crisis? I hope that you decide to take up this opportunity to make the world a fairer place.  I urge you to go out and make your voices heard by voting Yes on Prop F.

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Published by

Zach Perez

Law grad and aspiring economist.

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