Last year, Pamela Kelley went to her landlord with a business proposition: She would move out of her rent-controlled apartment in the Russian Hill neighborhood of San Francisco if the owner agreed to turn the unit into a vacation rental and pay Kelley to manage it.
“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.