Proposed New Tax and Restrictions on Short-Term Rentals

New Tax.jpg

Game-Changing Government Policies & Drivers

By William Hillis

William Hillis.jpg

William Hillis

Broker & Research Editor, Realogics Sotheby's International Realty

"These disincentives will raise the risk of hosting short-term rentals, but will not necessarily leave these homes on the low-income housing market." 

 

Over the past two years, as Seattle rents have continued to rise, short-term rental platforms like AirBnB and VRBO have found a new enemy: home affordability advocates. Earlier this month (September 2017), the Seattle City Council floated new rules to prevent residential investors from operating homes as hotels, imposing new tax and licensing requirements and limiting the number of rental properties to two per host.  

william-iven-8515.jpg

The first opponents of short-term rental platforms were hotels operating in Seattle, San Francisco, and other cities popular with tourists. They complained that hosts of these homes-for-rent were not subject to overnight lodging taxes and thus were undercutting their business. These concerns were allayed by local government action to subject operators to taxes: a 14-percent hotel tax in San Francisco starting in October 2014; and effective a year later in Washington State, a battery of taxes including special hotel/motel taxes, and convention and trade center taxes, in addition to the state and local sales tax paid by all retail businesses in the state.

Since then, hosts on the platforms have been marked as impeding affordable housing by buying up available homes for short-term rentals, removing them from the tenants’ market. Moved by these fears, the Seattle City Council plans to impose effective October 2018 an additional tax of $10 per overnight stay, the aforementioned limit of two dwellings per operator, and require purchase of a short-term rental operator’s license. Noncompliance will invite onerous penalties of $500 per day and $1,000 per day after ten days.

These disincentives will raise the risk of hosting short-term rentals, but will not necessarily leave these homes on the low-income housing market. The Council cannot prevent investors from buying properties for lease to higher-end tenants, or for that matter, keeping the properties vacant.

Impact: The short-term rental market in Seattle will be seriously damaged by the regulations. Hosts will prefer to invest in properties outside city boundaries.