Real Estate Investor

Airbnb goes legit?

Home-sharing service begins collecting mandated hotel tax as city clarifies regulation
Airbnb co-founder and CEO Brian Chesky started his company after moving to San Francisco with a roommate. photo: @Kmeron for LeWeb11 Conference at Les Docks, Paris

Short-term residential rental companies such as Airbnb, VRBO, and HomeAway might be the biggest disruption to hit the real estate market since public online listings took away the Realtors’ MLS exclusivity. But recent developments in San Francisco show that both regulators and the new market entrants are learning to work with each other.

David Owen, Airbnb’s regional head of public policy, announced in late September that beginning in October the company would start to collect the city’s 14 percent hotel occupancy fees for customers using the service in San Francisco. As of Oct. 1, “guests will see a new line item on their Airbnb receipt for the city-imposed Transient Occupancy Tax. The tax will be added to the total amount paid by guests on stays of fewer than 30 days — hosts will not have to do anything extra. Those taxes will be remitted to the city by Airbnb on behalf of hosts.”

Airbnb called on other home-sharing services in the city to join it in collecting the tax. The San Francisco Chronicle estimated that San Francisco could get more than $11 million a year from the Airbnb fees alone; that money, like taxes from traditional hotels, would go to the city’s general fund and some of it is used for funding local arts programs.

The service has been a very controversial entrant into local real estate markets. Perhaps the angriest opposition has come from landlords who are forced to rent their units at artificially lowered rates; they can’t rent at market rates, but when their rent-controlled tenants did short-term sublets through Airbnb at market rates — reaping windfalls — the landlords cried foul.

Additional opposition came from condominium associations and their homeowners, who were unhappy with some of their neighbors letting their units to transient guests, raising issues of security and homeowners’ association policy compliance. Some low-income tenants association leaders objected to the use of these services in affordable housing, because they argued that it was taking low-income units off the market and turning them into high-income revenue generators, thereby further reducing the available rental inventory for affordable housing in the city (see News Briefs, page 28). Tenants’-rights groups have also worried about tenants being evicted under the Ellis Act so that landlords could reap much greater revenue by doing short-term rentals. In July, the San Francisco Tenants Union announced that it would target short-term apartment rentals by putting stickers on the buildings proclaiming that they were illegal occupancies and would be shut down.

The short-term residential rental services have also been battered by some negative publicity in the past couple years, ranging from the New York City host who returned early to find his guest was holding a big sex party in his unit to the guests in Palm Springs who refused to leave the unit after the agreed-upon 44 days (and in California, they earned generous renters’ protections after occupying a unit for more than 30 days).

Airbnb’s decision to collect the tax and pass it on to the city will likely be seen as a goodwill gesture; an alternative of having each individual Airbnb host or lessor do that would almost surely have resulted in lower compliance levels due to varying degrees of financial competency as well as varying levels of honesty among the hosts. In his statement, Airbnb’s David Owen claimed that its San Francisco hosts actually told the service that they wanted to pay the taxes, but “[i]n the past, it’s been difficult for individual hosts to pay taxes that were designed for traditional hotels that operate year-round. This has been a complicated issue, and we’re happy to be taking action to help simplify the collection process for hosts, guests, and for the city.”

Airbnb’s action comes as the city continues to work through legislation proposed by Board of Supervisors President David Chiu that would legalize this type of service and set up rules for its use in San Francisco. Currently, short-term residential rentals are not legal in the city, but compliance has mostly been left to landlords enforcing lease restrictions.

Legislation legalizing and regulating Airbnb would not overrule existing leases that forbid tenants from using the service in their units nor would it stop condominium associations from preventing their member homeowners from using it, city staff stated at a Planning Commission meeting in mid-September. Airbnb hosts would have to register with the city, and if they are renters, their landlords would have to be notified in a specified timely manner. The legislation would also likely exclude below-market-rate units from participation in the service.

Chiu’s legislation, as it was being considered by city legislators and regulators in late September, also gives tenants a first-time warning if found to be serving as home-sharing hosts, thus preventing them from being evicted for what might have been something done in ignorance of the rules. The second time, though? Sayonara.

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John Zipperer is the former senior editor of Apartment Finance Today and Affordable Housing Finance. E-mail: [email protected].