California lawmakers are considering whether to tax short-term rentals (think Airbnb and Vrbo) to help fund affordable housing initiatives. The proposed tax measure comes as major insurers Allstate and State Farm pull back on new business in California and the Golden State struggles with a housing crisis largely fueled by supply and demand challenges and a lack of affordability.
Bill sponsor state Sen. Monique Limón (D-Santa Barbara) reportedly told local news outlet CalMatters, that she’s often asked by local cities and counties about affordable housing. Limón says people wonder, “Where is the money to build the housing?”
Whether the short-term rental tax will become a reality remains uncertain. The bill (SB 584) passed the California Senate but would need two-thirds approval of the state Assembly.
- Many state policymakers acknowledge the housing challenges in the state. But the question of how to fund affordable housing (specifically whether this new tax is the best way forward) will be debated.
- Various bills have been proposed in California over the years to regulate online vacation rental companies and vacation rental owners in the state.
California's Proposed Airbnb, Vrbo Affordable Housing Tax
The proposed California tax would be 15% on the rental price for short-term rentals (i.e., properties rented for less than 30 days). If passed, the tax would take effect in 2025. Proponents estimate the vacation rental levy could bring in $150 million in revenue a year. Those funds would be used to create more housing in California for people with lower and middle incomes to afford.
Creating more housing could include repairing and upgrading existing housing units to accommodate Californians with low and middle incomes. Funds generated from the short-term rental tax could also help build new housing. Those projects could potentially funnel through grants to nonprofit organizations.
Another California Tax?
The proposed 15% tax would be on top of existing city and county occupancy taxes that currently range from 10-12%. The two taxes together could potentially strain some owners of short-term vacation rental units. Some “hosts” profit on their rentals only to the extent that they can remain competitive with rates offered by California hotels.
Opponents of the bill have reportedly argued that a tax on short-term rentals like those offered through Airbnb and Vrbo would hurt California tourism. Airbnb and Vrbo would rather see alternatives to their hosts paying additional taxes.
California Housing Crisis
The need for stable, affordable housing in California is well-documented. The Public Policy Institute of California (PPIC) reports that as of last year, 30% of all people experiencing homelessness in the United States resided in California. The organization cites data showing that homeless populations in the state are rising and the challenges are most significant in California's large cities.
Likewise, data from the National Low Income Housing Coalition confirms that some of California's high rates of homelessness are due to a significant affordable housing shortage.
- To afford a two-bedroom rental home at fair market rates in California, a family would need to make about $81,133 a year. But on average, a family of four with low income in the state makes a maximum of about $29,350 a year.
- At last count, according to the Coalition, there were close to a million fewer homes available than are needed in California to house families with low incomes.
High living costs and inflation in the United States don’t help. Families with middle and low incomes must sometimes choose between paying rent each month and affording necessities like healthcare services and food. Adding to the homeownership challenges in California, State Farm, and Allstate recently announced that they will no longer issue new home insurance policies in the state. That change could impact already high prices for housing and home insurance in California.
Additionally, in a survey conducted earlier this year by the PPIC, one in three Californians said that housing costs would make them “seriously consider moving out of the state.” Notably, and speaking of taxes, recent IRS migration data bear that out. In the last couple of years, California lost residents and billions of dollars to states with lower taxes and perceived lower cost of living overall.
