New housing code expected to impact corporate housing in San Francisco

What’s the gist?

The city of San Francisco has recently passed legislation that lays out the definition and framework for Intermediate Length Occupancy (ILO) housing, which are often referred to as corporate furnished rentals. The slightly revised version of the original proposal was reviewed and approved by the Board of Supervisors this past May. Although it aims to disincentivize landlords from leasing out portions of buildings (or even entire buildings) to a handful of startups that specialize in furnished apartments with short-term leases between 30 days to a few months, it impacts the availability of temporary housing units in the city in general.

While there are many details that require clarification, most expect that corporate housing availability in San Francisco will decrease, and rents for corporate furnished apartments are likely to increase now that the proposed legislation has passed. 

What happened?

Previously unregulated, these extended-stay units typically were available for rates far below the city’s average daily 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. The original ordinance was introduced last October at the Board of Supervisors meeting. It requested an amendment to the planning code to add the "intermediate length occupancy" classification and allow for regulation of these extended-stay apartments. A Policy Analysis Report was provided to the Board of Supervisors in late February that helped establish the current guidelines for the corporate housing industry within the city of San Francisco. ILO housing is now defined as “furnished and serviced housing units that are available to rent on a temporary basis with rental contracts that are typically for more than 30 days and less than a year."

The new legislation limits the overall capacity within San Francisco of this housing classification to just 1,000 units. ILO units cannot be more than 25% of units within a specific building that has between four and nine total dwelling units nor more than 20% within a specific building that has 10 or more total dwelling units. The legislation also creates an explicit ban on corporate rentals in rent-controlled housing being converted to an ILO and amends the rent ordinance to protect tenants in rent-controlled units from evictions without just cause. 

Who would be impacted? 

Companies that provide temporary furnished accommodations to their employees will be affected, as will their mobile employees. This new legislation will likely add challenges to the ability to source units and impact the cost of corporate apartments for those relocating to San Francisco or those coming into the city for temporary assignments. We expect that the reduction in inventory for these types of units will drive the costs higher.

For companies providing corporate apartments as part of their temporary living benefits, they will also be impacted by 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 deal with longer commutes. Additionally, it could impact the speed required to book options, as supplies will go quickly.

Actions taken?

Plus Relocation will be monitoring the roll-out of this new legislation 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 this new housing code for ILO housing gets clarified and possibly revised via amendments. Look for updates from us as new information becomes available. We will also help clients consider the potential impact to their mobility programs for the remainder of 2020 and heading into 2021.

We encourage clients to review the new legislation to consider the business impact.

For more information related to this newly passed legislation, try the following:

• New Intermediate Length Occupancy Housing Codes… What Corporations Need to Know
• San Francisco Board of Supervisors May 12 Meeting, which included ILO legislation
•  'Corporate rentals' regulations up for approval as industry grapples with Covid-19