.Short-Term Think: Will a Tax on Short-Term Rentals Deflate the Airbnb Bubble?

The short-term and Airbnb rental market could tighten by 2025, as state lawmakers look for new sources of money to fund affordable housing projects.

The California Senate on May 31 approved a 15% tax on Airbnb and other short-term rentals. The 27-11 vote beat the Legislature’s deadline to move bills forward, assuring hearings in the Assembly this month. But the bill faces stiff lobbying, plus as a tax measure a required two-thirds majority before it can make it to Gov. Gavin Newsom’s desk this summer.

Alexei Koseff of CalMatters reports that the new tax has revived the debate over Airbnb and its role in the housing crisis. The rapid rise of companies like Airbnb and Vrbo have been blamed for driving up housing prices and exacerbating an already strained housing supply.

Senate Bill 584 by state Sen. Monique Limón, a Santa Barbara Democrat, would impose a 15% tax on short-term rentals—homes and rooms that owners rent out like hotels for 30 days or less at a time—starting in 2025.

Limon told CalMatters that 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.”

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.

The proposed new state tax would nearly triple the 8% tax on vacation rentals enacted by Santa Clara County early last year. The county last year also limited rentals at Airbnb and other short-term rental properties to 90 days in a calendar year. The county’s transient occupancy tax on “regular” hotel and motel rooms is 10%.

The prospect of a tax on short-term rentals has rental platforms worried it would put them at a disadvantage to hotels, according to CalMatters’ Koseff. Airbnb encouraged its hosts in recent weeks to oppose the Senate 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,” Airbnb wrote in an email alert last month urging hosts to reach out to lawmakers.

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.

Limón told CalMatters she is not villainizing short-term rentals, but rather inviting them to be a part of fixing a statewide housing crunch they have helped create.

Another vacation rental boom over the past few years, fueled by the coronavirus pandemic, 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.

Koseff reports in CalMatters that 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.

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

“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.”CalMatters said 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.