Adding Some Data to the Prop F Debate

The debate surrounding San Francisco’s Proposition F has been very heated and understandably so; if passed, Prop F stands to drastically alter the city’s relationship with short-term rentals and the companies that serve as online marketplaces for them — most notably SF’s own Airbnb.

It is no secret that the impetus for Prop F is the city’s severe housing affordability crisis. The measure seeks to keep housing units on the long-term market by regulating the incentive to convert such units to short-term rentals. Specifically, it reduces the number of days that a unit could be rented per year as a short-term rental from 90 to 75. It also sets up some mechanisms for enforcement. See the city’s voter guide for a full list of the proposed revisions.

In essence, Prop F asks voters to decide if the short-term rental incentive is strong enough to warrant stringent regulation. Unfortunately, this is a very hard question to answer. It is a complex problem and little has been written about the many forces that pull units from the long-term market to the short-term market.

One important variable that is relatively quantifiable, however, is the “break even point.” This is the number of days per year that a unit would have to be occupied as a short-term rental in order for the property owner to make as much money as he or she would from a traditional 12-month lease. I used data from Craigslist and Airbnb to predict the rate that a typical one-bedroom unit could get on a nightly basis on Airbnb as well as the monthly rate it could get on the long-term market. This methodology was inspired by a similar analysis conducted by the San Francisco Planning Department. After making some simple assumptions about operating costs, I calculated the break-even point at each location. My predicted break even points are mapped below. The darker the circle the faster the owner of that hypothetical unit would “break even” on Airbnb.

Next, I aggregated these predictions and I looked at the median break even point per neighborhood. This is graphed below, along with the citywide median break even point and the current maximum number of days allowed for short term rentals.

In every neighborhood the median break even point surpasses the current legal maximum for short-term rentals. The citywide median break even point is more than twice the current legal maximum.

So does this mean we don’t need Prop F after all? If property owners can still make much more money on the long-term market then we don’t need to further regulate the short-term market, right?

Not so fast. Potential revenue is not the only factor that incentivizes property owners to list on Airbnb. This is especially true in a city like San Francisco, which has some of the strongest tenant’s rights in the country. On Airbnb, property owners don’t have to deal with rent control and other tenant protections. Add to that the convenience of an online marketplace and the freedom to choose when your unit is available and it might be enough to tip the scale in favor of the short-term market. It was already enough to tip the scale for the several thousand apartments in SF listed on Airbnb as entire homes.

With these hard-to-quantify benefits in mind, the proposed 75-day maximum would definitely chip away at the incentive to choose the short-term market. This maximum would apply not only to entire homes (so-called “unhosted rentals”) but also to shared apartments (“hosted rentals”). The effect of the proposed limitations on hosted rentals vis-à-vis the long-term market is important but harder to quantify and goes beyond the scope of what I tried to do.

It seems, however, that the most effective mechanism for keeping units in the long-term market is the permanent resident requirement, which is already in place. This requirement specifies that short-term rental hosts must live in the units they rent out on sites like Airbnb. Given the tenant’s rights that exist in this city, this requirement alone should be enough to keep the two markets separate; if you’re the permanent resident of an apartment then that apartment has already been taken off of the long-term market. Unfortunately, the city has complained about not being able to enforce the current law. And when the law is enforced, the most common offenders are property owners who list on Airbnb but do not live in their units. SPUR estimated that roughly “90 to 95 percent of the short-term vacation rental enforcement cases reported to the San Francisco Planning Department are found to be units that are rented in their entirety and have no long-term tenant.” In addition to the 75-day rule, Prop F introduces new ways to enforce the primary resident requirement, including quarterly occupancy reports from hosts.

In sum, there is indeed an incentive to list units as short-term rentals. The current law, which has the potential to be effective at keeping units on the long-term market, is not being widely enforced. Prop F definitely sets up means for enforcement. But it also goes beyond that and reduces the maximum number of days allowed for both hosted and unhosted stays. If you care about the housing crisis in San Francisco, it’s hard to argue that Prop F would not address the conversion of would-be long-term rentals to short-term rentals. The question, then, is: does it go too far?

The 75-day limit is perhaps an arbitrary regulation since few, if any, hosts will break even with the current 90-day limit. Perhaps a better alternative would keep the 90-day maximum but set up the channels for enforcement of the permanent resident requirement.