Sharing economy: San Francisco becomes first major US city to legalize Airbnb

Nearly every US city currently bans short-term rentals in residential areas. Some see the San Francisco ‘Airbnb law’ as a practical shift, while others see it as further hurting neighborhoods.

In a move being watched from New York to Los Angeles, the San Francisco Board of Supervisors voted Tuesday to enact what is being called the “Airbnb law.” The new regulations – which will go into effect next February, if signed by the mayor as expected – will allow permanent residents for the first time to rent out their homes on an ad hoc daily basis.

The regulations clarify a practice that has mushroomed into a global movement, led by Airbnb, a six-year-old home-sharing firm that began in San Francisco and has battled for the right to do business in cities around the world. Nearly every city in the United States currently bans short-term rentals (under 30 days) in residential areas. Some such as New York City have moved aggressively against individuals and landlords who allow the rentals.

But the practice has nonetheless flourished as cash-strapped cities have declined to prosecute thousands who flout local zoning laws by listing and renting their properties through websites such as Airbnb and VRBO.

Experts who have observed the swift expansion of the peer-to-peer home-sharing movement say the San Francisco regulations – the first for a major US city – represent an important shift from suppression to acceptance and accommodation. The whole nature of the business will now change, says Peter Zaleski, an economics professor at the Villanova University School of Business in Villanova, Pa.

Potential temporary landlords who were a bit risk-averse about the idea of home sharing may feel braver about renting homes now that the market has legal restrictions. And potential renters who may have felt uncomfortable renting from a "stranger" may now be more likely to participate, Professor Zaleski says.

“The net effect is that the market may grow – not because the regulations necessarily make the market better, but the perception will be there,” he adds via e-mail.

The San Francisco measure allows only permanent residents to offer the short-term rentals and puts a cap of 90 days on full-home rentals. It also requires residents to register and pay local taxes.

In a statement, Airbnb reinforced the idea that the practice is based on person-to-person sharing, stating that the measure “will give regular people the right to share the home in which they live.”

But observers in other localities who have begun working to oppose the expansion of Airbnb and others like it regard the San Francisco regulations with dismay. They say the original philosophy has been lost in the dust as commercial interests have taken over entire residential buildings and neighborhoods have been turned into tourist zones wracked by late-night partying and even violence.

“This may have begun as a nice person-to-person home sharing, but it has turned into home grabbing for business,” says Judith Goldman, a Los Angeles member of a coalition called Keep Neighborhoods First. In Los Angeles, she notes, entire areas have been taken over by middlemen real estate agents who buy up the homes and run them as short-term rentals.

“This has really reduced the stock of homes available for normal residents to rent and has turned these areas into hotel strips,” she says.

It’s happening in cities around the country, particularly in high-priced ones such as New York, Ms. Goldman says. She works with ShareBetter, a New York coalition dealing with similar issues on the East Coast.

The San Francisco measure “is really unfortunate,” says Robert Cherno, a California land-use consultant, adding that “once it has happened in one city, it will begin to happen in others.”

Mr. Cherno has worked with numerous southern California residents who have found their neighborhoods transformed by the presence of daily out-of-town visitors. “They party into the night, there is no oversight, and if you call the police, they consider it a very low priority and may [not come] for many hours,” he says.

Cherno suggests that a legally defined marketplace would be the best solution – complete with enforcement of violators. And he’s skeptical that the San Francisco regulations will accomplish that: “I doubt that San Francisco is going to fund police checking up on how many days you have rented your home to strangers, and that is the basic problem.”