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Airbnb Enlists San Francisco’s Biggest Landlord

San Francisco’s largest apartment landlord will begin allowing tenants to rent out their units on Airbnb Inc., a victory for the short-term-rental website that could prompt an outcry from opponents who say the site is helping to drive up housing costs.

Veritas Investments, which owns more than 5,000 units in San Francisco, will allow tenants to rent their units to tourists and other temporary residents as long as they use the Airbnb platform. The company is piloting the program in five of its buildings, with about 100 units in total.

“I’m just a fundamental believer that when you have a scarce resource, whether it’s housing or parking lots, there’s got to be a better way to share those scarce resources,” said Yat-Pang Au, chief executive of Veritas Investments, which is based in the city.

Airbnb, which was founded in San Francisco in 2008, has been in the cross hairs of numerous fights over housing scarcity, pitting it against tenant advocates and landlords alike. It has received a similarly contentious reception in other pricey cities such as New York, Los Angeles and Miami.

In the spring, the company settled a lawsuit with the city of San Francisco over a rule that imposed fines of $1,000 a day for hosts who don’t register their units with the city. Under the terms of the settlement, hosts are to register through Airbnb’s website and it will pass the information to city officials.

Airbnb has agreed to purge its site by the beginning of next year of listings of units that aren’t registered.

Veritas is the guardian of some of the city’s most politically sensitive housing stock: older buildings with many rent-controlled units. Airbnb officials said this represents a new market, distinct from its traditional focus on newer buildings owned by large, institutional landlords.

“The partnership really legitimizes home sharing for a community of apartment residents who weren’t really part of the home-sharing conversation prior to this,” said Jaja Jackson, director of global multifamily-housing partnerships at Airbnb.

Affordable-housing advocates fear that if renters are allowed to sublet their units on Airbnb it will boost rents further in the city, where rates already have risen by 50% since the recession.

Recent academic research into rents and home prices in the 100 largest metropolitan areas in the U.S. between 2012 and 2016 found that a 10% increase in Airbnb listings leads to a 0.39% increase in rents and a 0.64% increase in home prices.

But Airbnb executives argue that allowing tenants to rent their units out on the site helps make housing more affordable in costly cities, by enabling them to generate extra income.

“Your income should not define you as a San Francisco resident. We want this option to be available to people who want to live and stay in San Francisco,” Mr. Jackson said.

Veritas has been speaking with Airbnb for several years but Mr. Au said he was initially hesitant.

“It’s a particularly charged circumstance with Airbnb here,” he said. “Most of our assets are rent-controlled. People are paying super low rents and are scofflawing and making a profit on landlords and their neighbors.”

Mr. Au said he became more open to allowing Airbnb after the settlement with the city, which helped create legal limits designed to protect tenants. The company also has created a $1 million insurance policy that helps protect landlords from liability—though some owners say it isn’t enough.

The partnership between Airbnb and Veritas includes Pillow Residential, a startup independent from Airbnb that helps tenants and landlords manage Airbnb listings by arranging for cleaners, tracking how many nights a year tenants rent out their units and giving guests a point of contact if something goes wrong. Tenants in Veritas buildings who want to rent their units out short term will have to use Airbnb and Pillow.

Working with Pillow could be a tool for Airbnb to win over landlords who still have concerns about letting tenants open up their buildings to strangers.

Airbnb a year ago unveiled its Friendly Buildings Program, under which landlords permit tenants to rent their units out on Airbnb in exchange for a cut of the profits.

Apartment owners raised concerns initially about liability, the safety of residents and the effect of mixing long-term residents and tourists, but the program has been gaining traction, especially in recent months. There are now more than 13,000 units enrolled all told.

Charley Goss, government and community-affairs manager at the San Francisco Apartment Association, which represents landlords, said he has heard of limited interest from local landlords.

“We’re a little bit sensitive to affordability issues in San Francisco. The cost of our housing is very, very expensive. Conducting short-term rentals takes away housing from people who live here and work here and gives it to tourists who are visiting for the weekend.”

A survey by the National Multifamily Housing Council and Kingsley Associates found that tenants’ views of short-term rentals are sharply divided. According to the survey, 21% of renters between 25 and 34 years old said knowing that a building allows short-term rentals would positively affect their opinion of it, while 11% said they wouldn’t live in a building that allows the practice.

In contrast, 8% of those 65 years and older said they would view being able to rent their unit out short-term as a perk, while 32% said they wouldn’t rent in that building.

Residents were fairly evenly split in the Bay Area, where 18% of respondents said knowing a building allows short-term rentals would positively affect their view of the community and 21% said it would negatively affect it.

Mr. Au said Veritas has no set timeline for when it might decide to expand the program beyond the first five buildings because the company remains at the frontier of allowing tenants to use Airbnb’s services.There are still a limited number of landlords using the program in San Francisco. So far, buildings with 1,100 units are enrolled in the Friendly Buildings program.

“It could end up being a situation where our residents broadly hate it,” Mr. Au said. “It may turn into a huge success, where residents say, ‘I’m using it and I’m more affordably able to live in San Francisco.’”

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