Tech companies have followed a familiar pattern for decades now: Break the law, fend off enforcement, then hire enough lobbyists and give politicians enough money to get your activities retroactively legalized.
That’s what Uber did. It’s what Airbnb did.
Now apparently it’s what a company called Brownstone Shared Housing is doing, according to former Sup. Dean Preston.
Brownstone’s model is pretty dystopian from the start. It offers single beds in dorms for $700 a month (a sign of just how terribly San Francisco has failed to provide affordable housing.)
The city has already approved the first set of what Wiliam Gibson, in an early dystopian tech novel, refers to as “coffins.”
But under state law, landlords can’t rent these sorts of beds. As Preston points out:
[California Civil Code] Section 1950 prohibits what’s known as “double letting.” The idea is that if a landlord rents out a room to someone, the person is entitled to the entire room. A landlord cannot then rent the room, or any part of it, to another person.
The statute reads:
One who hires part of a room for a dwelling is entitled to the whole of the room, notwithstanding any agreement to the contrary; and if a landlord lets a room as a dwelling for more than one family, the person to whom he first lets any part of it is entitled to the possession of the whole room for the term agreed upon, and every tenant in the building, under the same landlord, is relieved from all obligation to pay rent to him while such double letting of any room continues. (Civil Code §1950)
That would suggest that the entire model is illegal, and the city shouldn’t have approved it:
It’s unclear how Brownstone thinks they will get around this. Maybe their lawyers didn’t catch it. Or maybe they did, but like so many tech startups, they figured they could violate the law and never get in trouble. The difference here is that while tech-backed politicians are unlikely to intervene, Brownstone’s business model could easily collapse if pod renters (or even any tenant in the building) sues for rent back because of Section 1950.
San Francisco officials looked the other way while Uber and Lyft destroyed the taxi industry. They looked the other way while Airbnb cost tens of thousands of tenants their homes. They seem to be doing the same thing here.
More: The AI boom is, as in past tech booms, bringing massive wealth into San Francisco, and massive wealth coming into a city has far more of an impact on housing prices than supply or zoning.
(When I moved to San Francisco, in 1981, the “rich” young people were in finance, and the highest paid were making maybe $50,000 a year. The older people who made a lot more than that paid high taxes on their marginal income (until Reagan cut taxes on the rich). Nobody could possibly afford $5,000 a month for rent. So rent wasn’t $5,000 a month. When we talk about markets, we need to keep that in mind. Landlords back then made money and lived comfortably; few of them made the kind of massive speculative fortunes we see today, and if they did, they paid enough taxes that their wealth was relatively limited anyway).
So now the AI boom is creating bidding wars for apartments. This has been going on for years for homebuyers; some real estate agents intentionally list properties for less than what they are worth, to drive up a buying frenzy as they pit desperate buyers against each other with higher and higher bids.
But rentals? For years, that was considered, as the Standard notes, “douchey.”
Unbridled late-state Capitalism doesn’t care about “douchey.” It’s all about the maximum profit.
I’m not sure this is entirely legal, either.
California Penal Code Section 396 outlaws bidding wars during an emergency. After the wildfires in LA, Attorney General Rob Bonta issued an alert to consumers stating that bidding wars were illegal under the state’s price gouging statue.
From the press release:
“Reports of rental bidding wars are deeply concerning, especially because some landlords seem to be encouraging them. The bottom line is this: landlords cannot charge, or accept, rent that exceeds the 10 percent cap set by California’s price gouging statute, even if they find someone who is willing to pay it,” said Attorney General Bonta. “Our legislature has enacted robust protections for renters during times of crisis, and I’m committed to ensuring that those protections are followed and respected.”
San Francisco isn’t under a traditional state of emergency—but I could certainly argue that the AI boom has created a new level of housing emergency. And the law seems to suggest that if the mayor and the supes made that declaration, Section 396 might apply.
If we had a Board of Supes that cared about tenants, the city could also pass its own laws banning this kind of price gouging.
If an earthquake hit the city, and supplies like water and food and toilet paper were desperately scarce, and a few merchants tried to make a fortune by charging outrageous prices, most city residents and public officials would be furious, and try to shut them down.
When an AI boom hits the city and a few landlords try to make a fortune by charging too much rent, city officials seem to think that’s fine. (Or they say that it’s a lack of housing supply, which shifts the blame away from the greedy speculators).
If we had a city attorney willing to defy the landlords and the tech industry, the city might be able to shut down the bidding wars.
