City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Amending the Regulation of Short-Term
Residential Rentals: Economic Impact Report
Office of Economic Analysis
Items #150295 and #150363
May 18
th
, 2015
City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Introduction
• The Office of Economic Analysis (OEA) has prepared this economic impact report in
response to the introduction of two proposed ordinances that would modify the regulation of
short-term rentals in San Francisco:
– Item #150295, introduced by Supervisor Campos on April 14
th
("the Campos legislation").
– Item #150363, introduced by Mayor Lee and Supervisor Farrell, also on April 14
th
("the Mayor/Farrell
legislation").
• A short-term rental (STR) is the leasing of a residential unit for a short period. The lessor
may be a unit's owner or its tenant, and is referred to in this report as a "host".
• While a segment of the city's housing has been used for this purpose since at least 1990,
the development of online hosting platforms since 2005 has given the practice more
prominence.
• The City clarified its regulation of short-term rentals with the passage of Ordinance 218-14
in 2014.
• That ordinance established rules regarding registration and reporting of short-term rental
activity, set annual limits, and established rules for enforcement and redress.
• Major differences between Ordinance 218-14 and the proposed ordinances are set forth on
the following two pages.
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City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Major Differences between Current Law and the Two Proposed
Ordinances
Provisions Current Law Mayor/Farrell Legislation Campos Legislation
Annual Hosting Days 90 for entire units, unlimited
for hosted.
120 60. Platforms prohibited from
listing units known to exceed
the 60 day limit.
Civil Proceedings by the City Allowable only after a
complaint and Planning
determination
Any time Any time
Definition of "Interested
Party"
Unit owner; HOA or resident
of the building; the City; non-
profit dedicated to housing
Adds permanent residents or
owners within 100 feet.
Adds permanent residents,
not absentee owners, within
100 feet
Private Right of Action Allowable only after a
complaint and Planning
determination.
Allowable after a complaint. Allowable after a complaint.
Criminal Penalties Hosts' violations are
misdemeanors
Same as current law. Adds that platform violations
are also misdemeanors
Registry Requirements Host must register and remain
in good standing
Same as current law Platforms prohibited from
listing units not in good
standing. Planning required
to notify neighbors upon
receipt of completed
application.
3
City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Major Differences between Current Law and the Two Proposed
Ordinances (continued)
4
Provisions Current Law Mayor Legislation Campos Legislation
Reporting Requirements Hosts must report annual
usage as STRs.
Same as current law Adds a quarterly reporting
requirement for platforms
Privacy Registry is a public document;
host names are redacted
Host names and addresses to
be redacted.
Host names and addresses to
be redacted.
City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Background
• Online hosting platforms such as Airbnb (founded 2008), VRBO (founded 1995), and
HomeAway (founded 2005) have facilitated the listing of residential property for short-term
use.
• Airbnb, in particular, also permits the leasing of a private or shared room, in an otherwise
occupied unit.
• Hosting platforms facilitate these transactions by not only creating an online marketplace
that processes the financial transaction, but by providing insurance, communication, and
reviewing tools that allow both sides an opportunity to reduce their risk.
• While these platforms facilitate the short-term rental of a unit by an occupant, who either
remains in, or temporarily vacates, the unit, they also facilitate a form of serial short-term
renting in which the unit is never occupied by a resident, and effectively becomes a hotel
room.
• In the former situation, short-term renting may increase the population density of the city,
but does not affect the demand for or supply of housing for residential use.
• In the latter situation, short-term renting effectively removes the unit from the residential
housing market.
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City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Housing Use for Tourism in San Francisco, 1990-2013
6
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Housing Units Recorded by the Census as Vacant because of
"Seasonal, Recreational, or Occaisonal Use" in San Francisco, 1990-2013
The chart to the left indicates
the number of housing units
represented as vacant in
San Francisco for what the
Census terms "seasonal,
recreational, or occasional
use. Some housing has
been used for tourism since
at least 1990, but the
number grew rapidly from
1990 through 2012, where it
peaked at 9,000 units,
approximately 2.4% of the
city's housing stock.
In 2013, the number
dropped to 2005/2006
levels.
From the Census data, it is
impossible to determine if
these units are being kept off
the residential market
entirely, or only used for
tourism reasons from time to
time.
City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Potential Economic Benefits of Short-Term Rentals
• Short-term rentals provide additional income to hosts, increase the City's hotel tax revenue,
and increase the amount of visitor spending that occurs in the city.
• In cases when a host temporarily vacates the unit for a visitor, then the city's economy
receives host income and visitor spending, but may lose resident spending, depending on
where the resident relocates.
• San Francisco Travel has recently conducted an intercept survey of visitors to the city, which
asked about their spending patterns and lodging type. The research found that visitors
staying in short-term rentals spent (as a party) an average of $215 per day at local
businesses.
• The OEA has no information on how many residents temporarily move within the city, or
outside the city, to accommodate a short-term visitor. If only 25% remain in the city, which
is probably a conservative assumption, then based on the average resident household
expenditures, and the mix of Airbnb rental types scraped from its website in 2014, the net
increase in spending per STR unit per rental day is $177.
• The SF Travel research indicated that STR guests spend $95 per day for lodging, on
average, which would lead to a $13.30 per day hotel tax.
• According to the OEA's REMI model, the total economic impact of such daily spending at
businesses, including multiplier effects, is $376.
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City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Potential Economic Costs of Short-Term Renting
• According to the Planning Department, although Ordinance 218-14 limits the number of
nights per year that a unit may be legally used for short-term rentals to 275, in practice this
limit is unenforceable. This is because it is impracticable to determine whether or not a host
is in their unit on a given night.
• As a result, if the incentives exist, a host may fully withdraw the housing unit from the
residential market, and use it for short-term renting on a full-time basis, potentially up to
every night of the year.
• If short-term renting results in the withdrawal of a housing unit from the residential market,
then the reduced supply would lead to higher housing costs.
• The citywide economic harms associated with higher housing costs are fairly severe.
According to the REMI model, removing a single housing unit from the market would have a
total economic impact on the city's economy of approximately -$250,000 to -$300,000 per
year. This exceeds the annual total economic benefit from visitor spending, host income,
and hotel tax, given prevailing short-term rental rates.
• On a net basis, then, a housing unit withdrawn from the market to be used for short-term
rentals produces a negative economic impact on the city, even if the unit generates host
income, visitor spending, and hotel tax every day of the year.
8
City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Economic Impact Factors
• In terms of the two proposed ordinances, the OEA projects that both would affect the city's
economy in two primary ways:
1. By affecting the incentive of a host to remove a unit from the housing market and devote it to short-
term rental use on a full-time basis, through the annual caps that each would impose. Compared to
the current regulation of short-term rentals, establishing an effective cap to maintain housing on the
market would prevent housing price inflation, and would have a positive economic impact.
2. By affecting the amount of host income, visitor spending, and hotel tax that short-term renting adds
to the city's economy. Compared to current law, establishing an effective cap would reduce that
spending and tend to affect the economy in a negative way.
• The analysis that follows presumes that the annual caps in each ordinance are enforceable.
The OEA cannot assess the relative efficacy of the different enforcement mechanisms in
each proposed ordinance.
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City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Methodology
• The OEA is not aware of any sources of data on the number of housing units taken off the
market to be used as a short-term rental on a full-time basis, within San Francisco.
• Because we lack data on how owners and tenants actually behave in this regard, this report
studies the economic incentives that a host faces, given the current state of the market for
short-term rentals and rental housing. This involves comparing the income that a host could
potentially receive by renting a vacant unit as a short-term rental, and as a long-term
residential rental.
• We acquired data retrieved from Airbnb's and Craigslist's websites, and for data quality
reasons focused on our comparison on 2 bedroom units in neighborhoods that had over 20
listings in both of the samples.
• We then estimated the income that a host would receive, by deducting various operating
expenses. This allowed us to estimate an average daily income associated with short-term
renting, and an average annual income associated with long-term residential renting.
• We then calculated the number of days per year that a unit would have to be in operation as
a short-term rental, for its STR income to equal its annual income as a residential rental.
• A given annual cap is likely to produce a positive economic impact if it is below that break-
even level. However, a cap that is far below the threshold would reduce the positive
economic and fiscal benefits of short-term renting, and thus the overall economic impact,
because it would limit spending, host income, and hotel tax revenue, without providing
significant additional protection to the housing stock.
10
City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Short-Term and Long-Term Rental Rates for Entire 2 Bedroom Units
in 16 San Francisco Neighborhoods, 2014
11
Airbnb Craigslist
Neighborhood Count Average Price Count Average Price
BernalHeights 70 $207 145 $3,585
Castro/UpperMarket 74 $252 222 $4,372
HaightAshbury 45 $250 179 $3,990
InnerRichmond 25 $222 223 $3,440
InnerSunset 21 $186 196 $3,585
Marina 42 $324 239 $4,904
Mission 145 $238 406 $4,472
NobHill 30 $273 267 $4,459
NoeValley 52 $258 336 $4,135
NorthBeach 27 $292 154 $4,614
OuterRichmond 21 $193 242 $3,052
PacificHeights 29 $307 313 $5,247
PotreroHill 38 $290 325 $4,396
RussianHill 35 $488 166 $4,811
SouthofMarket 58 $331 2354 $4,890
WesternAddition 76 $392 758 $4,030
City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Cost Assumptions Used in Estimating Short-Term and Long-Term
Rental Income
Costs applicable to Short-Term Rental Hosts Costs Applicable to Residential Lessors
Hosting Fee: 3% of revenue Residential vacancy loss – 3.7% of revenue
Fixed cost of furnishing unit: 1.5% of revenue Apartment management fee – 7% of revenue
Gas & Electric: 3% of revenue Water – 1.5% of revenue
Cable / Phone / Internet: 1.5% of revenue Garbage – 1% of revenue
Water – 1.5% of revenue Operating Income –87% of revenue
Garbage – 1% of revenue Maintenance – 10% of operating income
Operating Income– 88% of revenue
Maintenance – 15% of operating income
Income: 75% of revenue Income: 78% of revenue
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City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Break-Even Analysis Results
13
Analysis of 2 bedroom entire apartment
data from 16 San Francisco
neighborhoods reveals that the average
number of days that a host would need
to engage in short-term renting, to equal
the average income they could receive
from residential renting, ranges from 123
days a year in Russian Hill to 241 days a
year in the Inner Sunset.
This analysis suggests that an STR use
at a maximum occupancy rate (such
85%-90%, or 310-330 days a year)
would easily exceed the break-even
point in every neighborhood. For this
reason, some cap is necessary to
prevent a negative economic impact.
These results further suggest that both
the 60-day and 120-day caps in the two
proposed ordinances are conservative,
and likely to eliminate the risk of
withdrawal of housing units from the
residential market, in the vast majority of
cases. Because the Mayor/Farrell
legislation would allow more short-term
renting while discouraging the
withdrawal of housing units, it likely has
a more positive economic impact.
Neighborhood
Average Annual
Income, Long-
Term Rental
Average Daily
Income, Short-
Term Rental
Average Days of
Short-Term Rental
to Equal Long-
Term Rental
Income
Bernal Heights $33,555 $155
217
Castro/Upper Market $40,921
$189 217
Haight Ashbury $37,347
$188 200
Inner Richmond $32,200 $166 194
Inner Sunset
$33,555 $140 241
Marina $45,902 $243 189
Mission $41,854 $178
235
Nob Hill $41,734
$205 204
Noe Valley
$38,699 $194 200
North Beach $43,185
$219 198
Outer Richmond $28,568 $144 198
Pacific Heights $49,111 $230 214
Potrero Hill $41,148 $217 190
Russian Hill $45,034 $366 123
South of Market
$45,767 $248 185
Western Addition $37,725 $294 129
City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Caveats to This Analysis
• Because of data limitations, the analysis in this report covers only 2 bedroom units. While
the findings from these areas are fairly conclusive, it is possible that the short-term rental
market places a higher value on other unit sizes, relative to the residential market.
• Secondly, this analysis also only considers the relative income that a host would receive
putting an entire vacant unit into service as a short-term rental or a long-term rental. It does
not compare the short-term market for private rooms, with the residential market for
roommates: private rooms within residential units.
• Analysis of this second question is complicated by the fact that an owner or tenant of an
occupied unit with a spare bedroom essentially faces three choices: short-term renting,
finding long-term roommate, or personal use of the additional space.
• U.S. Census micro-data indicates that over 20% of San Francisco housing units have more
bedrooms than occupants, and this percentage has remained relatively steady over the
2006-2013 period. The rapid increase in residential rents since 2010, and the availability of
online platforms for short-term renting, have not reduced this percentage.
• For this reason, the OEA believes that if a given cap is effective at preventing entire vacant
units from being removed from the housing market, it would be unlikely to be less effective
at preventing a vacant bedroom from being withdrawn from the market.
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City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Conclusions
• Because the City has only recently required clarified its regulations regarding short-term
rentals, the amount and quality of City data on the subject is very limited. It is likely that our
understanding of short-term renting, and its impact, will continue to develop as more and
better data becomes available.
• In particular, the OEA is unaware of any data on how many housing units are being
removed from the market to be used as short-term rentals on a permanent basis. Such a
withdrawal from the market would lead to a negative economic impact, notwithstanding the
increased visitor spending, host income, and hotel tax that short-term renting provides.
• Without data on actual behavior, this report studied the incentives that exist to remove a
vacant unit from the housing market, by comparing the income that it could earn as a short-
term rental and a residential rental.
• The analysis found that the average number of days that a unit would need to be short-term
rented, to create an incentive to withdraw it from the housing market, ranged from 123 to
241 days per year in different neighborhoods of the city. The annual caps in both proposed
ordinances are well below these break-even points, in most neighborhoods.
• Because the Mayor/Farrell legislation allows more short-term renting while setting a cap well
below the break-even point in the majority of neighborhoods, it likely has a more positive
economic impact.
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City and County of San Francisco
Office of the Controller – Office of Economic Analysis
Staff Contacts
Ted Egan, Ph.D., Chief Economist, ted.egan@sfgov.org
Asim Khan, Ph.D., Principal Economist, [email protected]
The authors thank Alex Marqusee and AnMarie Rodgers from the Planning Department for their
assistance in the preparation of this report. All errors, omissions, and conclusions are solely the
responsibility of the Office of Economic Analysis.
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