The company whose mission it is to make you feel at home anywhere in the world hasn't been so welcome in its own hometown lately. On Tuesday, San Franciscans will head to the polls to vote on Proposition F, a ballot measure that, if passed, would greatly restrict the ability of residents to rent out their homes and apartments to travelers through Airbnb and similar services.
Prop F is the work of affordable-housing advocates who believe Airbnb is taking desperately needed housing inventory off the market by making it more profitable to host tourists and business travelers than to offer it for residential lease. Right now, a host who lives in a unit full-time can rent out spare beds without restriction in San Francisco, and an absent host can do it up to 90 days a year. Under Prop F, all hosts, live-in and absentee, would be limited to 75 days per year.
Research into Airbnb's impact on housing availability in San Francisco and other inventory-constrained markets has been equivocal. The company maintains it's softening the effects of San Francisco's undeniable housing crisis by giving hosts a new revenue stream to offset their high rents and mortgages. It has spent $8 million making that case through lobbying and advertising, and it seems to be working: The latest polls show Prop F being defeated by a narrow margin.
That's good. Prop F is a bad piece of legislation and would be an even worse precedent for other cities to copy. The biggest problem with it is the mechanism: As a ballot measure, it could only be repealed or amended by another ballot measure. Trying to regulate a fast-changing industry like home-sharing through such an inflexible and blunt instrument would be a terrible mismatch. Prop F also creates a new regulatory burden for would-be hosts, who would have to submit quarterly data reports to the city's planning agency. That kind of red tape is pure friction, discouraging economic activity without creating any value.
There's a simpler, more economically rigorous way to achieve Prop F's aim: through taxation. San Francisco is already one of a handful of markets where Airbnb guests pay the same 14 percent "transient occupancy tax" they would if they were staying at a hotel. The tax applies to any stays of 29 days or fewer. That's a good start. A big part of what drew guests to Airbnb early on was the low cost -- 21.2 percent cheaper than a hotel, on average, in San Francisco. But the majority of that differential was in effect an artificial discount that disappeared when Airbnb started collecting occupancy tax in 2014. If Airbnb hosts have to compete on a level playing field with San Francisco's 35,000 hotel rooms, running an Airbnb won't be as lucrative, and people will have less incentive to offer their properties to short-term guests. (That's especially true when you consider all the advantages of renting to long-term tenants, who don't require daily attention and are more likely to take care of the property and less likely to party every night, etc.)
Why stop at 14 percent? If the aim is to encourage anyone with residential space to offer it as housing rather than hotel rooms, the higher the transient occupancy tax, the stronger the incentive gradient. Airbnb has been bragging about how much tax revenue it generates for the city. The higher the tax rate, the more money San Francisco has to put toward things like subsidizing low-income housing and building out transit links to more affordable neighborhoods.
Airbnb, which reflexively fights all regulations, would probably hate my proposal only slightly less than it hates Prop F. The hotel industry, which has helped to bankroll the Prop F campaign, would hate it too, as would the restaurants, shops, and other businesses that thrive on tourist traffic.
Too bad for them. It's still up for debate how much Airbnb is contributing to the housing crisis. But if you really believe that it's feeding the problem, then you have to address the incentives that encourage people to take housing inventory off the residential market. Raising the occupancy tax would be a simple, transparent, and flexible way to change those incentives. Prop F wouldn't.
Listen to Jeff Bercovici discuss Airbnb and Proposition F on the Inc. Uncensored podcast: