Startups live by “moving fast and break things” and “asking for forgiveness, not permission.” This is a story about the fallout of what actually happens when a startup infuriates city regulators, and how the real losers are the city’s long-term homeowner base.
- Sonder, a “proptech” startup, leased an entire building on Market Street. The building was originally intended for year-long leases but Sonder instead turned it into month-to-month rentals that they intended to rent out to long-term visitors.
- There were already many property management companies who have been doing this for years and the city was fine with it. What Sonder was doing was legal, but the fact that it was so brazen, and the fact that the city regulators already disliked tech companies, infuriated City government. In response, earlier this year, the Board of Supervisors enacted a complete ban on rental agreements with end dates. The legislation, passed in June 2020, outlaws renting a residence for a set amount of time (i.e. I am leaving on sabbatical for 6 months and would like to rent out my home and know I can return to it after six months). If the owner wants the tenant to leave, they will have to go through the eviction process. SF will issue 1,000 permits allowing monthly rentals, but these can basically only be issued in newer condo buildings and 2/3 must be in the “downtown core”. Any unit under rent control or in a building less than four units will never be allowed to be rented on a month-to-month basis. The legislation will come into effect by the end of the year.
- In response, Sonder has been packing its bags and fleeing SF, and not paying the rent (they have since gotten into a lawsuit with the building’s owner).
- But the real losers? The city’s long-term homeowner base (about 160,000 homes), who now will never be able to do something like rent their home for a period of time while they see new grandchildren, go on sabbatical, or live abroad for a quarter of the year. This especially affects long-time homeowners who are not wealthy, and cannot afford to let their homes just “sit there” while they are away.
- In a survey I conducted on Nextdoor, 28 of 33 homeowners said the new law would force them to keep their homes off the rental market rather than being forced to rent out their homes with the potential of not being able to return.
View full text of the legislation.