What’s the gist?
The city of San Francisco is evaluating the corporate housing industry and considering several actions to further regulate how and where corporate housing companies can operate. Corporate housing availability would most certainly decrease, and rents would increase, should the proposed legislation pass.
Because extended-stay units typically call for rates far below the city’s average hotel prices, despite the city cracking down over the last three years on short-term rentals, the market for corporate apartments has continued to expand significantly. An ordinance was introduced on October 22nd at San Francisco’s Board of Supervisors meeting that would amend the planning code to add a new "intermediate length occupancy" classification and allow for regulation of extended-stay apartments also referred to as corporate rentals. This proposed legislation would apply to a unit offered for occupancy for more than 30 days, but less than one year. The legislation would limit the overall capacity of this classification to just 500 units, with no more than 20% of the dwelling units within a specific building being able to be assigned to this class. Some estimate that this would be a reduction in corporate housing of approximately 90%.
The proposal also creates an "explicit ban on corporate rentals in rent-controlled housing and would amend The City's rent ordinance, which protects tenants in covered rental units from evictions without just cause, to extend protections to tenants in corporate rentals and restrict when landlords can allow their units to be occupied by non-tenant entities."
If passed, this legislation would initiate February 1, 2020 and moving forward San Francisco would prohibit the use of rental units for temporary occupancy for non-tenants, including the renting of a unit to a corporate entity or using a rental unit as housing for the company’s employees.
Who would be impacted?
In short, corporate mobility programs and their mobile employees would be impacted. This proposed legislation would challenge the ability to source and impact the cost of corporate apartments for those relocating or coming into San Francisco for temporary assignments. It would be expected that the reduction in inventory for these types of units would drive the costs higher. This, in turn would likely add significant cost to companies relocating talent into San Francisco.
For those companies providing corporate apartments as part of their temporary living benefits, they would also need to consider the additional gross-up costs tied to this taxable benefit. For those providing lump sums to employees to manage this on their own, they will likely need to reconsider the amounts provided. Additionally, with fewer properties like this available, many employees will have to stay at more expensive hotels, which in turn would add cost to relocation programs.
As many relocating employees prefer to live and work in the city, this may also adversely impact the temporary lodging experience. Due to limited supply, employees may not get their preferred location when looking for traditional temporary housing options. They may need to find temporary housing options in communities outside of San Francisco and experience longer commutes. Additionally, it could impact the speed required to book options as supplies will go quickly.
Why this matters?
Corporate mobility teams that are involved in moving talent into San Francisco should be aware of the proposed legislation and consider the possible impact to cost if this passes. Besides cost, the employee experience will likely be impacted as employees find it harder to find, secure and pay for their temporary housing needs in San Francisco with leases between one and 12 months.
Plus Relocation is monitoring the situation and working with our corporate housing partners to consider the impact to specific client mobility programs along with their individual mobile employees. We will look to update clients as the proposal proceeds and as new information becomes available. We will also help clients consider the potential impact to their mobility programs for 2020.
We encourage clients to review the proposed legislation to understand the potential business impact and actions that may be taken.
For more information related to this proposed legislation, try the following article:
Legislation introduced Tuesday aims to regulate a growing trend of companies leasing out units in projects approved for housing as so-called “corporate rentals,” or extended-stay apartments. The San Francisco Examiner has previously reported that some developers who have won approval to build housing are instead leasing out large portions of the constructed units to third-party companies that specialize in furnished apartment rentals advertised for limited stays of 30 days or more.