Surge in SF Vacation Rentals Squeezes Residents
Largely illegal practice of turning homes into hotels is widespread
“Tourists are our bread and butter in this city, and many want that real San Francisco experience, not a hotel,” said Kelley, 48, who previously ran a cleaning service and a trophy engraving business.
The arrangement has been lucrative for both Kelley and the landlord, Harold Wong. As a tenant, Kelley paid $2,100 a month for her one-bedroom apartment. It now brings in $225 a night for Wong — more than $6,700 a month if the unit is fully booked. Kelley receives a 10 percent commission.
“It’s just better utilizing your assets to get a better return,” Wong said.
He has since turned over to Kelley a second apartment to manage as a vacation rental, and he is exploring additional conversions at the 13 properties his family owns throughout San Francisco.
Such conversions are largely illegal under San Francisco’s rent-control laws, but according to census figures released last month, the practice of converting private residences into what are effectively hotels is widespread. In some popular San Francisco neighborhoods, there are now more housing units dedicated to “seasonal, recreational or occasional use” than there are available apartments for rent.
In one section of Russian Hill, 176 second homes were available for rent, compared with 115 vacant apartments, the census showed. In Rincon Hill near AT&T Park, there were 594 second homes and 189 available rentals. Another census tract, in Pacific Heights, had 129 vacation homes and 95 units for rent.
“It’s become a very active speculative industry to be affirmatively turning rental apartments into hotels,” said Ted Gullicksen, executive director of the San Francisco Tenants Union.
The census counted 5,564 vacation homes in San Francisco — up from 3,764 in 2000 and 1,509 in 1990. (San Jose, by contrast, had 845 vacation homes, according to the census. Oakland had 633.)
Christine Haw, code enforcement supervisor in the San Francisco Planning Department, said the trend was “deeply troubling.”
“They are taking away from the city’s affordable housing stock and the amount of units available for permanent residents,” Haw said.
And yet the city is enabling the rapid growth of vacation rentals.
A three-decade-old ordinance forbids San Francisco property owners from renting out a private residence for fewer than 30 days without acquiring an expensive permit to convert the property to tourist use. But the measure is essentially unenforced.
Haw said the city did not have enough staff members to investigate dozens of complaints the Planning Department had received about illegal rentals. “We’d have to go out at night to verify that the person is renting out the property illegally,” she said. “They are difficult cases to prove.”
Jack Song, a spokesman for City Attorney Dennis Herrera, said Herrera was “aware that there are violations.” But the city attorney’s office has not initiated
legal action against a single property owner, Song said, because neither the Planning Department nor the Department of Building Inspection has referred a case.
At the same time, San Francisco’s treasurer has begun collecting a 14 percent hotel tax from landlords who rent apartments to out-of-towners on a short-term basis.
Everyone “should pay their tax and bring in revenue regardless of being a big operator or small operator,” said Greg Kato, a spokesman for José Cisneros, the city’s treasurer.
voltairesmistress
I have heard that in addition to this phenomenon of turning rental units into vacation units, there is another one. In San Francisco, ten percent of available rental units have been taken off the market by small-time owners. Bothering to rent out a single unit (like a mother-in-law unit)is not worth the headache and expense of SF's rent control laws. So the only landlords left are the big-time professionals or people who own a building with several units for rent.
I have seen some relatives make that decision -- they rent out a cottage next to their home in another California city, because they know they can live there themselves someday or move an elderly parent there when the time comes. And they can raise the rent on a yearly basis to reflect market rates. None of those things is easy or inexpensive to do in San Francisco.
I don't have a perfect solution or any solution for that matter But clearly, San Francisco's rent control laws may need to be re-tooled or we'll have to build municipally owned and managed properties to provide rent controlled apartments for people to live and work here. The current situation is not resulting in new, rent-controlled units coming onto the market, nor are we holding onto enough of the old units. You can only mess with the market so much before it messes with you.
calicokitten
I see lots of shiny new buildings being built (or recently built) in S.F., plenty of new housing coming in. I think the problem is that these new buildings are not intended as apartment units for rent ... they are intended to be sold as condos for at least $500,000 per unit. Lots of people can afford rent, but most people can't afford to pay half a million dollars to buy a condo. Especially when these condos are no nicer than a regular apartment in other towns. Who has $100,000 lying around to make the down payment? And even if you did have the money, would you want to spend it, just so you can live in what is essentially an apartment, with 10 or 20 other condo owners living in the same building? Some of these condos essentially make you feel like you're back living in college dorms again. Half a million dollars FOR THAT. Blech! It would make so much more sense to rent. So ... instead of building brand new condo buildings, let's build brand new APARTMENT BUILDINGS. That's what the City needs! IMHO. I know the developers want to make big bucks by selling condos, but ... isn't there an approval process from the Planning Dept? Is there some way for the city to require that new buildings be built as apartments, not condos? It seems like that would help a lot.
Cece Blase
A surge in Owner Move Ins, the phenomenon of TIC ownership and the abundant use of the Ellis Act were all ways SF owners, investors and buyers found to work around rent control to make home ownership (barely) affordable in San Francisco. The VRBO phenomenon is another fresh way people can make property ownership work for them in San Francisco. Sadly, in spite of rent control's best intentions, the net result is a loss of rental stock in SF and ever rising rents for the few homes that are available. I think housing activists don't understand how desperate some people are to buy and own here. Pass as many rent control laws as you want-- there will always be a way to circumvent them (including leaving the damn thing vacant until you are ready to sell).
Tizzie Lish
I would like to see tighter laws forbidding owners from renting out rental apartments and condos for short term tourist business or any other kind of short term. It's not right. A healthy city needs a healthy home/apartment rental market. More hotels can always solve the needs of travelers but the city needs a base of employees and residents. A city is more than tourists and hotel taxes.
It's baloney to say it's too hard to enforce the laws, or too costly. If these laws were written well, they would be easy to enforce and the penalties should cover what it costs to enforce the laws. BIG FAT PENALTIES should be assessed.
And the fact that this is done openly, with stories in the news, and no one in authority doing a darn thing to stop it is a travesty.
M L
The surge is primarily with condo's that the owners either can't sell (underwater or buyers unable to secure a mortgage loan) or that were bought as out of towner investment to be occupied by the owner a few weeks a year.
That's why the graphic shows the most of these units in the parts of town that have seen a lot of condo development in the last ten years.
Otherwise the number of units aside from those noted above is pretty stable.
But the method of finding customers has changed. Sites like airbnb have made it a lot more transparent and safe for both parties than Craigslist.
FInally, I find the Rent Board guy's quote fairly unintelligible.
calicokitten
Hi Aaron ...
Just wondering, on what facts are you basing the term "largely illegal" when you say "Largely illegal practice of turning homes into hotels is widespread."
???
As far as I am aware, San Francisco Municipal Code makes vacation rental conversions illegal only in apartment buildings with 4 or more units. From what I have seen, many of the vacation rentals being rented "by owner," are in buildings with 3 or fewer units. Therefore, I'm not sure it's accurate to say the practice is "largely illegal."
When you talk about how hard it is for the City to enforce the Municipal code on this matter ... you talk about the need to go during the middle of the night to verify whether these units are being rented as vacation rentals or not. That's ridiculous. First off, it's very EASY to find out which ones are vacation rentals because everyone has their apartments listed online. All the city staff would have to do is make some phone calls or e-mail's, from the comfort of their own office, during business hours, because all of the owners / managers list their contact information online. DUH.
Now for the real reason why it's "difficult" to enforce the Municipal Code ... Did you know that the only people with a legal right to make a complaint about an "illegal" vacation rental are LONG-TERM RENTERS who live in the same building? (Of course, it has to be in a building with 4 or more apartment units; otherwise, it's not illegal at all.) It appears that the Municipal Code is written in such a way that the City is only supposed to respond to complaints lodged by people who have the legal right to make the complaint. THAT, I believe, is the REAL REASON why the Municipal Code is difficult to enforce.
But don't take it from me ... go ahead and look at the MunicipaL Code and investigate it yourself.
http://blog.inhabitvacations.com/advice/for-owners/the-scoop-on-the-new-sonoma-vacation-rental-permit/
Afterward, it would be great if you could update your article accordingly.
calicokitten
Oh, it looks like the SF Municipal Code web site is "experiencing technical difficulties" right now.
Wouldn't you know it? Well, if it ever starts working again, here are some direct links.
Link the entire SF Municipal Code.
http://library.municode.com/index.aspx?clientId=14131&stateId=5&stateName=California
Link to Chapter 41A - Apartment Unit Conversions.
http://www.municode.com/content/4201/14131/HTML/ch041a.html
Jal Moore
There's a lot of misinformation out there. As a Board of Director for a Condo Association, I have a lot of experience in this arena. The City will never succeed in passing legislation, nor does it have the power, to insist Condos/TICs cannot have vacation rentals. Condo Associations are governed by the Davis-Sterling Act as non profit 501(c)5 Corporations. The CC&Rs, created by the membership, determines most aspects of condo living. The city's current ordinance applies to apartments as noted by CKitten above. As for TICs, while not non-profits, they too are owner owned, owner determined.
That said, most Condo Associations I know of & collaborate with, have prohibitions, in their CC&Rs, against Vacation Rentals. Why? Because the HOA has to pay more for the master policy insurance & lenders frown upon having VRs in the complex. Heck, they even frown upon exceeding 28% rental rate. We have dealt with several owners who have attempted this, literally tried to sneak it by the HOA/Board, but if you're going to list in Craig'sList or we notice you have new tenants every 2 weeks, it's a red flag. Also, most HOA CC&Rs require a minimum of 12-month lease agreements if an owner rents.
So, I can assure you, if Condos are allowing this, they either have no VR prohibition in their CC&Rs, or the owner is violating the CC&Rs & maintains a VR.
As for Condos costing $500,000, I have to take issue. The current mortgage default rate on condos is about 29%, much higher than free standing homes. We've got (4) one-bedrooms in my complex listed at: $225K, $238K, $245K & $275K (she had it listed at $299K). None are selling. We have a Jr. (1) bed @ $220. A bank just foreclosed on a 3bed/2bath w/separate dining and they are asking $430K The last one sold for $525,000 a year ago. Condo prices are plummeting. And, banks typically don't want to foreclose because then they have to pay the dues. I've watched 2bed/1bath condos on Diamond Heights drop to $285 & $300K. For condos buyers, it is a buyer's market
As one posted noted, there are rental units in SF, not on the market due to the hassle of rent control or management issues. The last figures I saw were approximately 58,000 units are off the market. Part of this is from condo owners who default on mortgages, but then leave their units vacant, as they don't want to show any income to the lender: dealing with one like that now. They could be getting $3,800/mo for the 3bed, but it's been vacant for 2 years, and they are paying the mortgage.
The City does not have the resources to monitor vacation rentals in apartment complexes now, so any additional ordinance change will not change much. I've watched new apartments go up everywhere, but the shortage is due to the rentals off the market. I've advocated for years to dump rent control. Every municipality who has done so, saw rents fall. This is because currently landlords must jump hoops to renovate their property. Now, while they can pass along capital improvements to their tenants, most don't because they still have to endure the petition process. Thus, they just empty the unit and leave it vacant. When control drops, landlords can't be aggressive to raise rents because why would a tenant rent a 1 bed in a old beat up Victorian, when they could rent someone's condo in a newer building. Municipalities that have dropped controls have seen a stabilization in rents.
What the City/State need to enforce/fix, is the ability to bargain wholesale evictions via the Ellis Act. The way it is used in the City is not in the spirit of the law and should be addressed. I've watched disabled friends evicted under Ellis Act, which is not legal, and when the Sup of that district was notified, no action was taken.
the cheap seats
Your letter is a great reminder that a Condo owner never really owns their condo, they just rent it from The Association.
American Voter
Let me start this conversation off on the right foot. Before we can even begin to talk about vacation rentals we need to have a little history about rent control and the tenants union. Ted Gullicksen, Executive Director of the Tenants Union has no credibility on this issue. And the reason, look at the building the Tenants Union and Ted occupy at 558 Capp Street San Francisco, CA 94110-2516.
The building was a residential Victorian in the Mission and part of San Francisco’s “affordable housing stock” until removed and converted to office use. Can you guess by who? Anyway, Ted will tell you the conversion was for a noble cause. And what might that be? To house Ted of course and his minions associated with the Tenants Union. He claims the the building affords “crash pads” for the needy. Sort of a place for vacation renters one might say. One can only guess how many seniors, families and low-income tenants were displaced by the conversion of the building to office. Oh, I guess I failed to mention the Tenants Union are also the owners of the building. I wonder if Mr. Gullicksen allows the visitors to stay beyond 30 days?
Now lets look at what Ted had to say about owners of property turning to providing tourist with interesting alternative housing when visiting San Francisco.
“It’s become a very active speculative industry to be affirmately (sic) turning rental apartments into hotels,” said Ted Gullicksen, executive director of the San Francisco Tenants Union.
Ok, rental property owners see a demand and they decided to fill that void. There is nothing “speculative” about what some property owners are doing with their property. They are meeting the needs of visitors to San Francisco. Visitors that contribute to the economic health of our city in many ways.
Then Mr. Gullicksen goes on to say.....
Gullicksen, of the tenants union, argued that the expansion came at a cost. “We call it the ‘hotelization’ of San Francisco,” he said. “Seniors, families and low-income tenants are being pushed out. We have to fight for every affordable unit.”
I guess then it's OK to push “Seniors, families and low-income tenants out for his special purpose? I see. What we have here is hypocrisy in it's purest form. I won't dwell on this point any longer. Hopefully you are starting to see how it works in San Francisco. Do as I say...not as I do.
Rent control in San Francisco has been perverted, twisted and contorted beyond belief by those self serving tenant activist looking to take control of personal property. They are Marxist and Maoist and make no excuse for their manner. Their chant of “housing is a human right” is one of their favored battle cries. They use term's like, “Our affordable housing” and “Our housing stock” when referring to private property.
Even the term “Rent Control” is a misnomer. It is not about control of rent, it is about the control of property. Ask any property owner with a rent controlled property in San Francisco who actually has control of their property in a rent controlled building? It's obvious it's not the owner. When did you add the tenants union to the title of your property's? When you decided to rent it to the public, that's when.
Rent control activist created their own mess by forcing landlords out of the market of providing housing to residents. They force rent controlled tenants to remain locked into their apartments until death. They have caused rents to skyrocket for newcomers to the city. It is intellectually dishonest to blame landlords for the state of the housing condition in San Francisco today. The tenant union and their political hacks on the Board of Supervisors and the liberal courts are all culpable for today’s present condition of rental housing in the city.
This cat and mouse game will go on forever as long as groups like the Tenants Union control the conversation of rental housing in San Francisco. But there is hope as more folks become homeowners through TIC's or condominium conversions. As folks become owners they begin to see how perverted the rent control laws have become in San Francisco. Undoing the damage the tenants activist have done will take time. Electing more responsible conservative members to the governing bodies that recognize how unjust the current form of rent control laws are would be a step in the right direction. Instituting a means test for tenants could be the first step to creating more affordable housing in the city.
In the meantime landlords will continue doing what ever it takes to make ends meet in this challenging economy. Renting to tourist still provides a service to the city, displaces no one and is a better use of a resource for the owner. Unfortunately I think this is only the beginning of this story. Every time a property owner figures out how to make a living off their property, the tenant activist resort to to putting some stupid shortsighted initiative on the ballot disguised as some tenant protection measure.
Yea right, those measures do nothing but keep rent controlled tenants locked up and keep the rents rising. As a landlord I really don't care. If I were a tenant or employer in San Francisco I would be livid. As the cost of housing goes up, wages have to increase to match. Anyone connecting the dots here?
SF Reader
I like reading the Bay Citizen but I find the "statistics" cited in this article misleading. If a landlord has a standard rental (often a one year lease that then goes month to month, subject to rent control) then that unit only comes on the market -- at most once per year. More likely, with long term tenants (who often stay longer due to rent control) the unit is only available and posted (on Craigslist etc.) every few years. Compare this to a vacation rental that is on is available for short term (a few days, one week or one month) stays. The vacation rental is on the market every single day looking for the next short term rental. By analysising what is one the market at any given time, of course it will show that there are allot more short term rentals. A short term rental is constantly posted and a long term rental is posted, at most once per year. The article does not take this into account and so the comparison between the two does not seem accurate.
As a side note, one common group that stays in short term rentals is people looking for a long term rental that want a roof over their head while they look -- so it is good for them too.