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Tax on short-term rentals like Airbnb could fund California affordable housing

By Alexei Koseff, CalMatters

California lawmakers are considering a measure this session that would tax short-term rentals to fund affordable housing projects, a proposal that has revived dormant tensions at the state Capitol over the rise of companies like Airbnb and Vrbo and their responsibility for the state’s constrained housing supply.

Senate Bill 584 by state Sen. Monique Limón, a Santa Barbara Democrat, would impose a 15% tax on short-term rentals — the homes and rooms that owners rent out like hotels for 30 days or less at a time — starting in 2025. This statewide surcharge, an addition to the local transient occupancy taxes that most communities already require, could generate an estimated $150 million annually to build or rehabilitate low- and middle-income housing.

“One of the things that I get asked very often by my local cities and counties is: ‘Where is the money to build the housing?’” Limón told CalMatters. “I see this bill really saying everyone has a role to play.”

The Senate passed the measure Wednesday, with the bare minimum of 27 votes needed and sent it to the Assembly.

While legislators have made a few unsuccessful attempts to regulate vacation rentals over the past decade, these fights largely played out at the local level, where the effects of their surging popularity with travelers is more immediate.

But the prospect of a tax that rental platforms worry would put them at a disadvantage to hotels has sent them scrambling, with Airbnb rallying its hosts in recent weeks to oppose a bill it argues would “hurt the local tourism economy.”

“While the bill aims to boost housing affordability, it does so at the expense of regular Californians who are struggling to keep up with the rising costs of living,” the company wrote in an email alert last week urging hosts to reach out to lawmakers.

Limon’s proposal already faced higher hurdles as a tax measure, requiring a two-thirds vote of both houses of the Legislature. Now it must contend with a shaky economy, which has stoked apprehensions about increasing taxes among even some Democrats, including Gov. Gavin Newsom.

“It doesn’t mean that we don’t raise the difficult question of what is the solution,” Limón said.

An invitation to invest Limón unveiled her bill in March as a way to create a steady stream of money to help local governments meet ambitious housing development targets set by the state.

The short-term rental tax would fund grants for public entities and nonprofit providers to create affordable housing projects — primarily through new construction, but also by fixing up existing buildings — that would be permanently set aside for low- and middle-income renters.

The measure, which is sponsored by the State Building and Construction Trades Council, an umbrella organization for construction worker unions, would also require certain wage and labor standards for projects.

Limón said she is not villainizing short-term rentals, but rather inviting them to be a part of fixing a statewide housing crunch they have exacerbated. If the industry has ideas, she said she’s open to alternatives to the 15% tax rate, which was suggested by a Senate committee where the bill passed earlier this month.

“This is a conversation about investment. And I think it’s unfortunate that those that are being asked to invest in solving a problem for the communities where they do work or business, see it as” a punishment, Limón said. “So if a 15% investment, you know, is not the number, then what is?”

Another vacation rental boom over the past few years, fueled by the coronavirus pandemic, has reignited debates across California about whether locals are being priced out of their communities, leading to a wave of new bans, permit caps and other restrictions.

Recent research has found a reallocation of long-term housing units into short-term rentals, leading to an upward pressure on prices. A 2020 study by a team from the National Bureau of Economic Research; California State University, Northridge; and the University of Southern California pegged the number at an annual increase of $9 in monthly rent and $1,800 in home prices in the median neighborhood. That is often driven by large-scale operators from outside of the communities; a 2017 analysis of short-term rentals in New Orleans found that nearly half of permitted units were registered to fewer than a fifth of operators.

But the industry disputes that vacation rentals comprise enough of California’s housing stock to have a significant effect on affordability.

A 2022 report by the Milken Institute, an economic think tank, noted that only about 1% of housing units in the state are short-term rentals — though it’s far higher in some popular tourist destinations — which it concluded “cannot be considered a meaningful driver of California’s housing shortage.” The report was backed by the Travel Technology Association, an industry group that includes short-term rental platforms among its members.

Falling behind the competition Alongside opponents such as the California Chamber of Commerce and other business groups, Airbnb and Vrbo have raised concerns that Limon’s proposal would give hotels an unfair advantage over mom-and-pop vacation rental operators who rely on hosting for supplemental income. Local transient occupancy taxes, for stays at hotels and short-term rentals, can exceed 14% in some places.

“SB 584 would harm California’s travelers, its vacation rental community, and the network of small businesses that depend on them,” Alyssa Stinson, California government and corporate affairs manager for Vrbo’s parent company, Expedia Group, said in a statement. The state should “find sustainable, balanced solutions to address California’s housing needs without threatening its tourism economy.”

Airbnb declined to discuss its position on the bill. In its alert to hosts, the company claimed the tax would “make vacations more expensive” and burden “everyday Californians who rely on the income from home sharing to afford everyday costs or stay in their home.”

Dan Johnson, who rents out the first floor of his San Diego home as a suite for visitors, said he was “pissed off” when he found out about the tax proposal last week from the Airbnb email and he has reached out to more than half a dozen senators asking them to vote against it.

Johnson, 62, an environmental consultant who also develops infill housing on formerly contaminated sites, said he started hosting through Airbnb and Vrbo a year and a half ago as he and his wife prepare for retirement.

“As you move away from a steady paycheck, it’s nice to have a supplemental income,” he said. “It gets a little scary, right?”

Though he supports Limon’s goal of addressing housing affordability, Johnson said he believes that short-term rental owners are being picked on to solve a problem they didn’t create because they don’t have a powerful lobby at the Capitol.

If the tax is adopted, Johnson worries that operators like him will not be able to pass the price increase along to customers if they want to remain competitive with hotels and they will be forced to reduce their rates.

“The only place this is coming from is our pocket,” he said.


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