City of San Francisco Enters the Hospitality Business

On Tuesday, October 7, 2014, the San Francisco Board of Supervisors voted 7-4 to pass a law that came to be known as the “Airbnb Law” which will take effect in February 2015. It is estimated that this will generate over $11M in tax revenue for the city of San Francisco. This law legalizes the practice of turning homes into little hotels.

These hotels are part of a worldwide phenomenon originated by Airbnb, a company now valued at $10 Billion and sights on going IPO. Incidentally, that valuation is higher than some very established hotel companies. So, from Paris to Portland the trend of turning homes into “ad-hoc” hotels have generated much controversy with regards to legality, taxation, and safety.

This law addresses some of those concerns and puts restriction on the practice. More than two years in development, the law now allows for the Airbnb practice to be a reality. San Francisco has long barred residential rentals of less than 30 days. This new law allows short term rentals under certain caveats. The law allows only permanent residents to offer short term rentals. It also establishes all the new hotels “defined as a registry of hosts”. It also mandates Transient Occupancy Tax (TOT). And, limits the rental in terms of days, and lastly it requires “the host (hotel)” to carry a liability insurance level of $500,000.

All of these guidelines will fall for enforcement by the Planning Department. This is great opportunity for San Francisco residents to earn extra income and for the city of San Francisco to maintain permanent residential units converting to vacation rental.

Airbnb has over 5,000 rental units available in San Francisco. The 6 year old startup has a valuation higher than many established brands. Airbnb was very upbeat in statements after the law was passed. Good news for residents of San Francisco, they are now able to get into the hospitality business. Bad news for hoteliers, 5,000 rooms are like 50 new hotels with a 100 rooms each coming into the environment.

Since the dawn of time, it has been practiced to allow at your option a stranger, who is far away from his home, stay in the comforts and conveniences of your house. A simple and responsible act of kindness that now is a business opportunity for the household and the city of San Francisco.

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