CITY AND COUNTY OF SAN FRANCISCO BOARD OF SUPERVISORS BUDGET AND LEGISLATIVE ANALYST 1390 Market Street, Suite 1150, San Francisco, CA 94102 (415) 552-9292 FAX (415) 252-0461 Policy Analysis Report To: Supervisor Campos From: Budget and Legislative Analyst’s Office Re: Short-Term Rentals 2016 Update Date: April 7, 2016 Summary of Requested Action Your office requested that the Budget and Legislative Analyst prepare a report that estimates the number of units being used as short-term rentals in San Francisco, review transient occupancy tax collection for short-term rentals, and evaluates the existing enforcement process and the ability of the City to audit transient occupancy tax payments. This report will also include a comparison of the number of Airbnb listings estimated in the 2015 Short-Term Rentals report with current number of listings on Airbnb and other hosting platforms in San Francisco. For further information about this report, contact Fred Brousseau at the Budget and Legislative Analyst’s Office. Executive Summary  Effective February 2015, new laws went into effect in the City and County of San Francisco (City) regulating short-term rentals, defined as rentals of housing units or rooms for less than 30 days. Prior to that, short-term rental of residential units was illegal in San Francisco though the practice had become common, facilitated by online hosting platforms such as Airbnb, VRBO, Homeaway, Flipkey, and Craigslist.  As of November 2015, an independent webscrape of just Airbnb’s website identified 7,029 short-term rental listings, or 15 percent more than the 6,113 listings reported eleven months prior in December 2014 in a similar webscrape. The 7,029 listings were posted by 5,378 unique hosts.  Of the total listings in November 2015, 4,033, or 57.4 percent of the 7,029 total listings, were for unhosted entire homes, which for the most part are subject to a rental cap of 90 nights per year under City regulations.1 1 The Budget and Legislative Analyst used entire home listings as an estimate for unhosted rentals, or rentals subject to the 90 night per year cap in current City law, as these are the most clear cases where hosts would not be present and is the best proxy for unhosted units available at this time. Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016  Since the City’s short-term rental laws went into effect, all hosts offering Key Statistics: rooms or entire homes for short-term rent are now required to register with the City and meet certain requirements such as maintaining a 7,029 business registration certificate and liability insurance. Short-term rental Total number of Airbnb listings as of November 2015 hosts must also report the number of nights they rent their unit each quarter to the City’s Office of Short-Term Rentals (OSTR). OSTR is a unit of 5,378 the Planning Department created in July 2015 that is responsible for Number of unique Airbnb enforcing the City’s short-term rental regulations. hosts as of November 2015  Most short-term rental hosts are out of compliance. As of November 2015, OSTR had received 1,082 registration applications. While this 15% represents an increase from the 579 registered hosts as of May 2015, it Percent increase in Airbnb listings (December 2014 to suggests that there may still be up to 4,296, or 79.9 percent of the 5,378 November 2015) unique Airbnb hosts listed on Airbnb in November 2015, out of compliance with City law requiring short-term rental hosts to register with 1,082 the City. Since Airbnb is only one of several hosting platforms operating in Total number of short-term the City, the number of hosts out of compliance is likely higher. rental registration applications submitted to the In data released just prior to completion of this report, Airbnb reported City as of November 2015, or 9,448 listings on their platform and 7,046 unique hosts in March 2016. 20% of estimated unique hosts listing on Airbnb alone During the same period, OSTR had received 1,647 registration that month. As of March applications, indicating there may be up to 5,399 hosts, or 76.6 percent of 2016, 1,647 applications had all unique hosts, out of compliance with the City’s registration been submitted to the City. requirement. 285  Since February 2015, an estimated 285, or 26.1 percent of unhosted Estimated number of entire unit Airbnb listings booked entire home listings, appear to have been rented for more than 90 more than 90 nights per year nights, in violation of the 90-night cap. Under current regulations, between February and residents may rent their homes on a short-term basis for a maximum of November 2015. 90 unhosted nights per year, and for an unlimited number of hosted nights. Of the estimated 1,094 Airbnb listings that first posted in February 322 2015 or after, approximately 285, or 26.1 percent, are estimated by the Number of enforcement cases pursued by Office of Budget and Legislative Analyst to have been rented as entire homes for Short-Term Rentals as of more than 90 nights between February 2015 and November 2015.2 These March 2016. 285 listings were managed by 261 unique hosts and had a median of 180 rental nights during this period. 79 No. of notices of violations  Because there are an unknown number of duplicate listings on the issued by City as of end- various hosting platforms, it is not possible to estimate the total number February 2016 of unique listings across hosting platforms in San Francisco. Simply adding the total number of listings on each platform would include $680,000 duplicates as hosts can list their short-term rentals on multiple hosting Amount of fines issued for platforms. As of early March 2016, VRBO had 1,793 listings in San short-term rental violations as of end-February 2016 2 The Budget and Legislative Analyst’s Office used the 72 percent review rate cited by Brian Chesky, Co-Founder and CEO of Airbnb, and the average short-term stay of 5.1 nights, as estimated by SF Travel, to estimate the number of nights booked per year. Budget and Legislative Analyst 2 Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016 Francisco, while Homeaway had 1,774 listings and Flipkey had 896 listings as of the end of March 2016.  Enforcement of February 2015 Legislation. OSTR’s strategy in its initial year of operations has been to first ensure that eligible residents are registered, and then to shift more focus to enforcement. To achieve this, OSTR provides information about City regulations on its website, has conducted events to educate the public on short-term rental regulations and has extended business hours to make it more convenient for residents to access the information they need. OSTR also pursued 322 enforcement cases, which resulted in 79 notices of violations and $680,000 in assessed penalties as of the writing of this report.  Hosting platforms do not provide information about their hosts to OSTR to aid in enforcement. The lack of data from online hosting platforms on short- term rental hosts and activity in San Francisco creates significant barriers to enforcing the existing regulations. For example, hosting platforms do not report hosts listing on their platforms that do not have required registration numbers or report the number of hosts renting out their units unhosted for more than 90 nights per year. There are no penalties for hosting platforms listing rentals that are not in compliance with City laws.  Enforcement cases have mainly been driven by resident complaints. Though OSTR does not track the total number of complaints received, it does estimate that approximately 92.2 percent of its 322 enforcement cases active since February 2015, or 297 cases, were generated by complaints (274) or referrals (23) from other City departments. However, OSTR has new strategies to pro- actively identify non-compliant hosts. OSTR now analyzes webscrapes to identify residents in violation of existing regulations. OSTR is also building in- house capacity to conduct independent webscrapes of online hosting platform websites.  Limited Information on Transient Occupancy Tax Collection from Short-term Rental Hosts. The Treasurer & Tax Collector’s Office reported that they have issued over 1,500 business registration certificates to short-term residential rental hosts or hosting platforms. The Treasurer & Tax Collector reports they are developing an approach to providing aggregate information about short- term residential rental transient occupancy taxes paid by short-term rental hosts.  The Treasurer & Tax Collector’s Office states they conduct audits of any business in San Francisco that they have reason to believe are not paying their due taxes, but could not provide specific information on whether any short- term rental hosts have been audited since the City’s regulations went into effect.  The Treasurer & Tax Collector’s Office reports that they are now sharing business registration information with OSTR to help identify short-term rental hosts. OSTR plans to use this data to identify short-term rental hosts who may be out of compliance with City laws. Based on provisions of the City’s Business and Tax Regulations Code, the Budget and Legislative Analyst believes that a Budget and Legislative Analyst 3 Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016 similar effort to confidentially share transient occupancy tax data between the two offices may be possible and could further assist OSTR’s enforcement efforts However, the Treasurer and Tax Collector’s Office disagrees that the pertinent Code sections allow for such data sharing and has stated the Office’s practice for many years has only been to share transient occupancy tax data with other taxing agencies. Policy Options To enhance compliance with the City’s short-term rental laws, the Board of Supervisors could consider the following: 1. Amend existing law to expand the role of online hosting platforms in compliance efforts. 2. Improve reporting and accountability measures for transient occupancy tax collection as one means of gauging short-term rental activity in the City. 3. Request a report back to the Board of Supervisors on possible increased collaboration and data-sharing between the Office of Short-Term Rentals and the Treasurer & Tax Collector in the interest of improved enforcement tools. 4. Simplify the short-term rental registration process as the existing system might deter otherwise compliant short-term rental hosts. Project Staff: Fred Brousseau, Latoya McDonald, Mina Yu and Julian Metcalf Budget and Legislative Analyst 4 Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016 TABLE OF CONTENTS Section Title Page Number Executive Summary ............................................................................................................................................... 1 Background ............................................................................................................................................................ 6 New Local Regulations for Short-Term Residential Rentals ...................................................................................... 6 2015 BLA Report Findings on the Impact of Short-Term Rentals on Housing ........................................................... 7 Purpose of 2016 Short-Term Rentals Update Report ................................................................................................ 8 Short-Term Rental Listings in San Francisco ........................................................................................................... 8 Airbnb Listing Trends in November 2015 .................................................................................................................. 9 Data Limitations of Webscrapes .............................................................................................................................. 12 Short-Term Rental Listings Data Reported by Hosting Platforms ............................................................................ 13 Total Short-Term Rental Listings in San Francisco ................................................................................................... 14 Compliance with February 2015 Legislation ......................................................................................................... 14 Compliance Efforts of Online Hosting Platforms ..................................................................................................... 15 Enforcement of Registration Requirements ......................................................................................................... 16 Short-Term Rental Registration Statistics ................................................................................................................ 17 Office of Short-Term Rentals Public Awareness Efforts .......................................................................................... 18 Registration Process ................................................................................................................................................ 19 Enforcement Strategies & Results ........................................................................................................................... 20 Collection of Transient Occupancy Tax from Short-Term Rental Hosts ................................................................. 22 Policy Options ...................................................................................................................................................... 25 Appendix I. Methodology .................................................................................................................................... 28 Budget and Legislative Analyst 5 Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016 Background The short-term rental industry in San Francisco and elsewhere has expanded significantly in recent years with the introduction of online hosting platforms such as Airbnb, Homeaway, Flipkey, Craigslist, and VRBO. Through these new services, San Francisco residents can earn income previously unavailable to them by renting out their primary homes, spare rooms, and vacation properties for short-term stays. Staying in private residences has become increasingly popular with travelers interested in alternatives to staying in hotels. New Local Regulations for Short-Term Residential Rentals In October 2014, the Board of Supervisors passed legislation that took effect in February 2015 to regulate the use of short-term rentals in San Francisco.3 The goals of the legislation were (1) to provide an exception to the then prohibition on all short-term rentals, and (2) to establish the authority and procedures for the regulation of short-term rentals. Prior to the 2015 ordinance, short-term rentals, defined as rentals of residential units for less than 30 days, were not allowed in San Francisco though rental of such properties had become a common practice in San Francisco and elsewhere. Effective February 2015, short-term residential rentals in San Francisco became legal for permanent residents, defined as natural persons occupying a residential unit for at least 60 consecutive days, with the intent of establishing that unit as his or her primary residence. Through the ordinance, such residents were now allowed to rent their residences on a short-term basis unhosted for a maximum of 90 nights each year. A limit was not set for permanent residents to rent out rooms or a portion of their homes for hosted stays, which is when hosts are present during the rental stay. The legislation established that a permanent resident could be an owner or a lessee but could only have one permanent residence. The February 2015 legislation, which was codified through amendments to the Administrative Code, required that short-term residential rentals be regulated by the Planning Department. This delegation of authority was further refined in July 2015 through adoption of an ordinance by the Board of Supervisors creating the Office of Short-Term Rentals (OSTR) within the Planning Department, which was made responsible for timely and efficient short-term rental regulation.4 Upon its creation, OSTR became responsible for ensuring that all short-term rental hosts comply with the following regulations: (1) registering with the City, (2) being permanent residents of the units being rented, (3) obtaining a business registration certificate from the Treasurer & Tax Collector prior to registering with the City, (4) posting their City–issued short-term rental registration number on 3 Ordinance No. 218-14, codified in Administrative Code Sections 37.9(a) and 41.A. 4 The Planning Department processed short-term rental registration applications from February 2015 until the launch of OSTR. Budget and Legislative Analyst 6 Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016 any hosting platform where they offer their unit for short-term rent, (5) maintaining $500,000 or more in liability insurance for their short-term rental unit, and (6) providing a quarterly report to OSTR on the number of nights their unit is rented. The short-term rental legislation authorized OSTR to conduct investigations and issue fines to hosts found to be out of compliance with City regulations. Further details on the role of OSTR are provided in subsequent sections of this report. The adopted legislation required that hosting platforms inform their users of the requirements of the ordinance, which include the specific requirements for short- term residential rental registration and transient occupancy tax obligations. The legislation also states that hosting platforms are liable for collecting and remitting all required transient occupancy taxes and are not relieved of these obligations when their users are not in full compliance. The legislation does not relieve hosting platforms of liability if a host fails to fulfill transient occupancy tax obligations. 2015 BLA Report Findings on the Impact of Short-Term Rentals on Housing Though short-term rentals under 30 days were illegal prior to the February 2015 legislation, the Budget and Legislative Analyst identified 6,113 Airbnb listings in San Francisco as of December 2014 in a May 2015 report.5 Listing data for Airbnb was obtained through webscrapes prepared by independent analysts.6 Of the 6,113 Airbnb listings in December 2014, 3,651, or 59.7 percent, were for entire unit listings. 2,196 were for private room listings, while the remaining 266 listings were for shared rooms. Airbnb listings could be found in almost every neighborhood in December 2014 but the highest number of listings was found in the Inner Mission, Haight- Ashbury/Western Addition, Castro/Eureka Valley, and Russian Hill/Polk Gulch neighborhoods. The Budget and Legislative Analyst concluded in its May 2015 report that enforcement of the City’s short-term rental laws that went into effect in February 2015 had been hampered by the City’s lack of information about the location and number of bookings for each short-term rental listing. Since short-term rentals operate in private residences without any commercial signage posted and hosting platform companies do not disclose addresses or booking information about their hosts, the City had limited information for enforcement. To address these limitations, the report included a number of policy options for the Board of Supervisors to consider, including (i) requiring that hosting platforms share 5 Analysis of the Impact of Short-Term Rentals on Housing, Budget and Legislative Analyst, prepared for Supervisor Campos. May 2015. 6 After reviewing webscrape data from three independent technology professionals, the Budget and Legislative Analyst’s Office used webscrapes completed by Murray Cox to evaluate short-term rentals advertised on Airbnb. A webscrape is a technique used to extract and compile information from public websites. Budget and Legislative Analyst 7 Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016 location and booking activity information about their hosts on a quarterly basis, (ii) requiring that online hosting platforms only list hosts who are registered with the City, (iii) consider limiting the number of unhosted nights allowed per year to a number other than 90, consistent with the Board of Supervisors’ policy goals; and (iv) amending City codes to allow the Planning Department to levy fines against hosting platforms that list unregistered hosts. Proposition F, a measure to tighten restrictions on short-term rentals to 75 nights per year, was on the City’s November 2015 ballot. This measure included enforcement tools to ensure that hosts paid the total transient occupancy taxes due to the City. Proposition F would have also outlawed renting in-law units on a short-term basis and would have required hosting platforms to report the location and booking activity of their short-term rental hosts in San Francisco. Proposition F was defeated and was not implemented. Purpose of 2016 Short-Term Rentals Update Report This report provides an overview of how the prevalence of short-term rentals has changed over the past year in San Francisco and provides details on how the February 2015 legislation is being enforced in terms of short-term rental registration, compliance with the 90-night limit, business registration certificates, and transient occupancy tax collection. Short-Term Rental Listings in San Francisco Both the number of short-term rentals and online hosting platforms serving San Francisco has increased since the Budget and Legislative Analyst’s 2015 report on the topic. The number of listings below is for Airbnb only because there is credible available data from independent sources on the number and characteristics of that hosting platform’s listings. Further, Airbnb is a major competitor in the short- term rental industry and appears to have the majority of listings. In this report, listings are defined as any advertisement that can be found on a hosting platform, whether for a private room, a shared room, or an entire house. Each host can have one or more listings on an online hosting platform for the same housing unit; it can be listed as an entire house or unit, or as one or more private or shared rooms, depending on whether or not the host will be present. Hosts can also list the same unit on multiple platforms. Airbnb and Tripadvisor, which is Flipkey’s parent company, voluntarily provided listing data to the Budget and Legislative Analyst just prior to the completion of this report. That data is presented in the Short-Term Rental Listings Data Reported by Hosting Platforms report section below. Because the data from the November 2015 Airbnb webscrape was more detailed and allowed for preparation of estimates of the number of booked nights per host, this report contains both the webscrape data, and our associated estimates, and the Airbnb and Flipkey data. Budget and Legislative Analyst 8 Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016 The Airbnb-provided data was as of March 15, 2016 and shows growth in the total number of listings compared to the November 2015 webscrape. However, measures such as the proportion of entire units rented relative to the total number of listings as well as the number of unique hosts compared to total listings are proportionally similar between the two datasets, lending credence to the independently prepared webscrape. Airbnb Listing Trends in November 2015 To estimate the number of Airbnb listings available, the Budget and Legislative Analyst used data provided by Murray Cox, the founder of Inside Airbnb. A webscrape is a technique used to extract and compile data from websites beyond what is visible to the public. Mr. Cox analyzes publicly available information about a city’s Airbnb listings through webscrapes and publishes his findings on the Inside Airbnb website. Mr. Cox shared the original data collected from his December 2014 and November 2015 webscrapes with the Budget and Legislative Analyst’s Office. The Airbnb statistics included in this report are based on those two webscrapes. The number of short-term rental listings available on Airbnb increased by 15 percent from 6,113 in December 2014 to 7,029 in November 2015, as shown in Exhibits 1 and 2 below. While there were greater rates of increase in shared rooms and private rooms for rent between the two webscrapes, the majority of listings continued to be for entire units in November 2015, as they were in December 2014. The total number of listings, number of listings by type, and number of unique hosts as of December 2014 and November 2015 are presented in Exhibit 1. The unique host count eliminates duplicate listings by a host for the same property, which may be listed as an unhosted entire unit for some nights and a hosted private room available for other nights. Exhibit 1. Number of Airbnb Short-Term Rental Listings in San Francisco December 2014 November 2015 Percent Change No. of Entire Unit Listings 3,651 4,033 10.5% No. of Private Room Listings 2,196 2,624 19.4% No. of Shared Room Listings 266 372 39.8% Total No. of Airbnb Listings 6,113 7,029 15.0% No. of Unique Hosts 4,815 5,378 11.7% Source: December 2014 and November 2015 webscrapes completed by Murray Cox, for Inside Airbnb (www.insideairbnb.com). The number of unique hosts, or individuals with Airbnb accounts, also increased between December 2014 and November 2015. Approximately 5,378 unique hosts were responsible for the estimated 7,029 listings on Airbnb in November 2015, an 11.7 percent increase compared to the 4,815 unique hosts who advertised the estimated 6,113 Airbnb listings as of December 2014 though this rate of increase was slightly less than the increase in total listings. This statistic indicates that there are a number of hosts with multiple listings on Airbnb. However, the nature of the listings for this group of multi-listing hosts remains unclear. Some hosts choose to Budget and Legislative Analyst 9 Report to Supervisor Campos Short-Term Rentals 2016 Update April 7, 2016 post several listings for the same property, while other hosts may simply post an entire house as one listing. For this reason, the Budget and Legislative Analyst is unable to clearly identify how many hosts are listing multiple entire homes for short-term rent on Airbnb. The proportion of unique hosts relative to total listings, at 76.5 percent in November 2015, declined slightly from December 2014 when it comprised 78.8 percent of total listings. Exhibit 2 below depicts the changes in Airbnb listings in graphic form. Exhibit 2. Number of Airbnb Short-Term Rental Listings in San Francisco 7,029 Total Listings 6,113 372 Shared Room Listings 266 November 2015 Private Room Listings 2,624 December 2014 2,196 4,033 Entire Unit Listings 3,651 - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Source: December 2014 and November 2015 webscrapes completed by Murray Cox, Founder of Inside Airbnb (www.insideairbnb.com). The six neighborhoods with the highest number of Airbnb listings remained unchanged between December 2014 and November 2015, as shown in Exhibit 3 below. Overall, there was a 15 percent increase in the number of Airbnb listings in San Francisco during that time. Though higher growth rates were experienced in neighborhoods with relatively lower numbers of listings in 2014, the majority of listings were still in the same top six neighborhoods, as shown in Exhibit 3. Budget and Legislative Analyst 10