Sonoma County needs more affordable housing. Is a state tax on short-term rentals the answer?

A bill that would impose a statewide tax on short-term rentals to fund affordable housing passed the California State Senate Wednesday.

Under SB 584, introduced by state Sen. Monique Limón, D-Santa Barbara, starting in January 2025, a 15% occupancy tax on the short-term and vacation rentals popularized by such platforms as Airbnb and VRBO would finance the rehabilitation and construction of permanent lower income housing owned and managed by public entities or nonprofits.

Operators collecting less than $100,000 from facilitating short-term rentals in the prior year would be exempt.

“SB 584 will provide a budget-proof source of income for more affordable housing that California desperately needs,” Limón said during the Senate vote.

“This is certainly a bill that has generated a lot of conversation, but it’s needed conversation.”

Tensions over vacation rentals have risen sharply alongside the proliferation of backyard cottages, condos and luxury homes reserved for short stays rather than more permanent residences. That’s especially true in tourism hubs like Sonoma County that also struggle with a lack of housing supply.

The issue has become a flashpoint at the local level in recent years where most regulations of short-term rentals have taken place to date. Rules that cap the number of such units, restrict where they can be located and establish permitting and taxes have led to hourslong debates at public hearings and constantly evolving ordinances.

In April, the Sonoma County Board of Supervisors approved new laws to standardize oversight and enforcement of the more than 2,000 vacation rentals in the unincorporated part of the county.

In Santa Rosa, a regulatory framework that was first established in 2021 and went through changes in 2022 with more adjustments is now on the table. Meanwhile, last month, the Windsor Town Council reversed course for a third time on potential short-term rental regulations after passionate testimony on either side of the debate from rental owners and opponents.

Local stakeholders have been watching the statewide legislation’s progress closely.

Liza Graves, board chair and president of the Sonoma County Hospitality Association, points out that adding the proposed statewide tax on top of local taxation could mean taxes as high as 30% in some county jurisdictions.

“That’s a huge amount of money on the backs of a very small segment of business in the county,” said Graves, who worries it will be enough of a burden to discourage tourism in the area with negative repercussions for local revenue and the businesses that rely on visitors.

“Anyone in hospitality knows the industry is dependent on creating more affordable housing, but this bill has many unintended consequences and there are alternatives,” Graves said, adding that something like a bond measure would be more equitable.

The role of short-term rentals

Understandably, with so many in need of housing, some advocates and experts see any unit now dedicated to vacation rentals as one less home to serve as a basic necessity. Proponents of SB 584 see the legislation as a way for the industry, then, to help financially contribute to expanding accessible housing.

But that reflects a misconception about the role short-term rentals play in squeezing the state’s already scarce housing supply, according to Lindsay Darrimon. She is a member of the Sonoma County Coalition of Hosts who also does property consultations and permitting for short-term rentals.

Darrimon said many of the short-term rentals in Sonoma County, which often serve as a more affordable option than hotels, aren’t the types of homes that would otherwise serve as affordable housing and ultimately only make up a fraction of the housing supply.

The bill is “a misguided attempt to solve one problem and cause three more,” she told me, adding she sees the costs as outweighing the benefits.

Studies vary as to the impact that short-term rentals have on housing affordability and availability. One national study found a measurable connection between an increase in short-term rental listings and rent and housing prices.

Another report, focused on California, outlined only a small contribution to a problem with much bigger drivers, meanwhile noting the boon these accommodations present for tourism.

In Sonoma County specifically, a 2021 analysis commissioned by Permit Sonoma concluded there was “little to no connection” between a rise in vacation rentals and the sale price of single-family home prices. They account for about 2% of the supply countywide, though the proportion varies depending on the community.

At the same time, the report noted that the broader research literature shows an effect on long-term rental prices, especially in urban areas. That’s due to the potential for reducing the availability of such units, an important consideration given escalating rental costs and the large share of California renters.

“The issue is whether or not the people who own those properties would instead rent them long-term or live there. That’s the big friction at least regionally here,” said study author and Sonoma State University economist Robert Eyler.

“I think (SB 584) seems good-hearted in terms of trying to find a clever way to increase affordable housing, but I just don’t think it’s going to work the way they think it’s going to work,” he told me. “They’re trying to solve too many problems with one swoop.”

According to a bill analysis, the legislation could bring in as much as $150 million annually, though some are skeptical and worry about how funds would be redistributed among communities.

Still for many housing advocates, the dire state of California’s housing crisis requires a fundamental realignment of priorities.

“I’ve used short-term rentals. They’ve been beneficial for families like mine,” said Rae Chen Huang, senior organizer with Housing NOW! California, a statewide coalition of local housing justice organizations. “However, we have to recognize that it’s vacation. In a time where we’re in a shortage, we need to find ways to encourage and move toward solutions.

“We know that vacation rentals are a way that people have been trying to make extra money, but as a result it removes actual opportunities for long-term housing in the state.”

The key is moving housing off the speculative market and into community hands, according to Huang. The bill presents an opportunity to work toward that.

“This is one component, and I think it’s a good one,” she said. The purpose of housing is “first and foremost as a home.”

SB 584 passed the state Senate 27-11 Wednesday and was read in the state Assembly for a first time on Thursday. State Sen. Mike McGuire, D-Healdsburg, voted in favor and State Sen. Bill Dodd, D-Napa, voted against.

During the debate, senators questioned whether the tax was too high. They also weighed the benefits of short-term rentals to local economies and mom-and-pop operators versus concerns that the market has, in some places, increasingly become another opportunity for bigger corporate real estate firms to buy up and withhold much-needed housing stock for profit.

“We need to start somewhere, and we need to have the opposition at the table in order to move forward to determine what is the right balance,” Limón said, emphasizing that while the state has made moves to streamline and incentivize affordable housing construction and acquisition, funding mechanisms are sorely lacking.

“I wish I was giving you an easier bill to vote on … but it turns out that a very difficult issue in the state is generating a difficult conversation. I will continue to work on this to find a way that we can try to do what we aim to accomplish, which is build more affordable housing and find funding for our communities.”

Editor’s note: This story has been updated to correct the spelling of Liza Grave’s name.

“In Your Corner” is a column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or marisa.endicott@pressdemocrat.com. On Twitter @InYourCornerTPD and Facebook @InYourCornerTPD.