City Concerns Halt Airbnb Law in San Francisco

Issues over insurance, enforcement and taxation spur supervisors to revise short-term rental legislation for Airbnb hosts.

by / September 16, 2014
Attorney David Owen, Airbnb regional head of public policy, listens to concerns by San Francisco's Board of Supervisors about insurance requirements for its lodging hosts. Owen stood to represent and defend Airbnb during a regulatory hearing on Sept. 15. Jason Shueh

Tax collection, insurance coverage and enforcement issues sent San Francisco’s most recent proposal to regulate home lodging services like Airbnb back to the drawing board Sept. 15 during a seven-hour hearing on the subject.

The piece of legislation came from a code amendment authored by District 3 Supervisor and tech advocate David Chiu. For the last two years, his office has worked to fine-tune the amendment, which would legitimize the app's currently-illegal usage and plug a stream of lost hotel tax revenues. Since Airbnb launched in 2008, that lost revenue has reached an estimated $10 million. The current tax is 14 percent.

Chiu’s proposal, reviewed at a Board of Supervisors Land Use and Economic Development Committee hearing, legalizes what it calls “short-term rentals,” a term to define Airbnb’s residential-hotel services. It does this by requiring homeowners and renters to -- among other qualifications -- live in the short-term rentals at least nine months out of the year, register with the city, and pay a $50 fee every two years to support city enforcement and administration costs.

“There are really two major aspects our legislation addresses," Chiu said. "To shut down activity that threatens access to affordable housing, and to hopefully assist thousands of San Franciscans which are struggling to survive and afford to live in our city."

Outlining concerns, he condemned a current trend by profiteering landlords to vacate their affordable housing units while capitalizing on a more lucrative hotel business model. Certain owners, he said, have converted entire buildings into Airbnb-only hotels while others -- renters -- commit to multiple leases to create chains of Airbnb sublets.

“There are many practitioners of short-term rentals that are pushing San Franciscans out of our city,” Chiu said.

Conversely, he acknowledged the app’s beneficial quality to help thousands of residents keep their homes through the limited stays and Airbnb’s capacity to stimulate the local economy through atypical tourism --  tourism generated from visitors staying outside the city’s typical tourist destinations.

Airbnb supporters represented a vast majority of residents soliciting legalization, and many voiced concern that a prohibition or severe restraint to short-term rentals would effectively price them out of the city. A few of these identified themselves as retirees on fixed incomes and young families on tight budgets.

Those against Airbnb were largely landlords and those associated with the city’s hotel industry. Landlords complaints centered around undue liabilities they’d unknowingly taken on through the app’s additional lodgers and a fear Airbnb would covertly rezone residential areas into commercial centers. Those associated with hotels argued against a double standard in regulatory requirements for app users undermining the city hotel rates.

Aaron Peskin, a former president on the board, also decried Airbnb for its payment of tax revenues. Though promised, Airbnb has yet to develop its app with the functionality to charge users for the city’s hotel tax. Peskin called for back taxes from the company as well.

Like Chiu, his fellow supervisors expressed a general desire to legalize the app through regulation. However, solutions and concerns varied. A chief worry stemmed from insurance gaps that might compel lawsuits against homeowners who’ve used the service or whose renters have used the service as a host.

District 6 Supervisor Jane Kim questioned David Owen, Airbnb’s regional head of public policy, on how the company typically handled insurance claims in the event of accidents. Owen said Airbnb did have a $1 million insurance policy for property damage, but couldn't share specifics because insurance claims and policies varied greatly.

"Every situation is different,” Owen told Kim, to which Kim replied that this represented a significant cause for worry.

“I understand there are multiple types of situations and everyone has different types of insurance, and Airbnb might handle each inquiry in a different way," Kim said, "but as a policy maker, I want a clear answer to that question."

According to the Airbnb website, the $1 million coverage offered to hosts only extends to certain kinds of property damage. It does not include cash and securities, collectibles, rare artwork, jewelry, injury to pets or, most notably, personal liability coverage -- which relates to potential medical care that may be required following accidents.

The committee was unanimous that this protection would have to be written into the eventual regulation, meaning either Airbnb will have to pay for increased coverage or its hosts will.

Kim additionally touched upon enforcement issues, skeptical how the city could monitor -- without invading privacy -- the rule for hosts to live in their units at least 275 days.

Suggestions for possible additions included a 90-day limit for hosting, raising the registration fee, using fines to subsidize enforcement costs, and including a requirement for renters to notify and receive consent from landlords before hosting Airbnb guests.

After seven hours of debate, the committee moved to delay an official vote on the legislation for two weeks so Chiu could edit recommendations into the legislation.

Jason Shueh former staff writer

Jason Shueh is a former staff writer for Government Technology magazine.