California wants to increase affordable housing. A bill would tax AirBnb, Vrbo to pay for it

Many of the bills California lawmakers have passed to spur the growth of affordable housing have focused on streamlining rules around local approval and paying construction workers living wages.

But this week legislators advanced three measures that represent a shift in approach — from subsidized private development toward a European model of public ownership for apartments and homes.

Advocates call it “social housing,” an umbrella term for government or nonprofit ownership intended to keep homes permanently affordable. It also empowers tenants to meaningfully participate in decision making, rather than living at the will of a landlord.

The concept is more than a re-branding of public housing, which many Americans associate with down-at-the-heels government-owned projects for large concentrations of poor people. Social housing developments include a range of incomes, from extremely low to moderate and even above average, with the idea that the higher rents will subsidize lower ones.

Each of the bills offers a different vision for what social housing could look like in California.

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A proposal from Sen. Monique Límon, a Santa Barbara Democrat, would pay for the new housing by imposing a 15% tax on guests of short-term vacation rentals, such as those available on platforms like Airbnb and Vrbo. The bill passed with 27 votes, the required minimum.

“It’s not enough just to say, ‘We’re going to build and make it easier to build,’ if you actually don’t have the resources to do it,” Límon said in an interview with The Bee. “Everyone in our community has a vested role to play in investing in how we solve this housing crisis.”

Sen. Aisha Wahab, a Hayward Democrat, authored a bill that would require the Department of Housing and Community Development to craft a plan by 2025 for producing 1.2 million units of “stable affordable” housing within 10 years. By the five-year mark, 600,000 of those units would need to be complete, and at least a third of them must be available to extremely low and very low income households. Thirty-one senators chose to send the bill on to the Assembly.

And a measure from Assemblymember Alex Lee, a San Jose Democrat, calls for creation of a California Housing Authority – similar to a municipal public housing authority – to govern the production and acquisition of social housing. The Assembly sent the bill to the Senate with 55 votes.

“We’re really trying to decouple the basic human need for housing from the speculative market,” said Megan Nguyen, policy associate with the housing advocacy group East Bay Housing Organizations, which supports social housing policies.

“I do see these three bills, and just the larger conversations, as really remarkable.”

What is ‘social housing’?

There’s no commonly understood definition for the term social housing.

The Organization for Economic Cooperation and Development, a global pro-trade policy group, describes it simply as below-market-rate rentals offered to tenants based on specific rules, such as financial need or waiting lists.

Other versions of social housing require that the property be permanently affordable and owned by the government or a nonprofit. Currently, most of California’s affordable housing is developed privately. There also isn’t a permanent guarantee that the units will remain affordable.

Unlike most affordable housing in the United States, which comes with an income restriction, European models, like the one in Vienna, Austria, welcome people from across the economic spectrum. Rents paid by higher-income tenants subsidize the rents from lower earners. Even if tenants start to earn more, the only rent hikes are linked to inflation, as The New York Times Magazine reports.

California’s interest in social housing has picked up steam in the last two or three years, according to Nguyen. But the three bills reflect the different ideas about what it means.

Lee’s bill, sponsored by East Bay for Everyone, closely resembles the Viennese model. The California Social Housing campaign’s website emphasizes housing availability for middle income earners, such as teachers, who generally can’t afford market-rate rentals but make too much to qualify for subsidized housing.

Wahab’s proposal focuses less on middle income tenants and requires that at least a third of the units produced through the Social Housing Plan be affordable to extremely low and very low income households. Government entities, along with nonprofits and community land trusts, would be owners under this bill.

Given the ambiguity of the term “social housing,” Wahab prefers to say her bill creates “stable affordable housing.”

“I think people get stuck on labels,” she said to The Bee on Wednesday.

Límon’s bill uses the term “labor force housing” rather than social housing, but the meaning closely hews to Wahab’s definition. The units would be owned by a public entity or nonprofit, and would serve a mix of incomes from extremely low to moderate. Tenants would have the right to participate actively in decisions made about their homes.

No matter the terms, lawmakers still must answer the question of how to fund the construction or acquisition of new units. Límon’s bill offers a somewhat controversial proposal.

Vacation rental tax provides ‘budget-proof’ seed money

Supporters of social housing say the practice of turning homes into vehicles for investment, like short-term rental properties, depletes the supply of long-term rentals. They cite, among other evidence, a paper written by researchers for the National Bureau of Economic Research, California State University, Northridge, and the USC Marshall School of Business.

“People no longer see their homes as places to live, but places for investment,” said Saki Bailey, executive director of the San Francisco Community Land Trust. “It’s a full-on business model.”

A vacation rental tax would provide a stable source of funding for social housing and could push more short-term rentals into to the long-term housing stock, proponents say.

“How can we find a funding mechanism that brings revenue to the table without being a burden on the vast majority of taxpayers in California?” said Andrew Meredith, president of the State Building and Construction Trades Council, which is sponsoring Límon’s bill. “How do you go after a segment of the industry that may actually be exacerbating the housing crisis?”

The tax would apply to most short-term rentals in the state, including those listed on popular platforms like Airbnb and Vrbo. Property owners would still have to pay transient occupancy taxes, which are collected by many California cities and counties. Those typically hover between 10-12%, according to data from the State Controller’s Office.

The rental tax would underwrite a new “Labor Force Housing Fund” and generate an estimated $150 million per year. Counties would then have access to funds proportional to the amount of tax revenue they generated.

“Developers can’t be expected to build projects that are not going to be profitable,” Meredith said. “Until we resolve the funding issue, we’re not going to build affordable housing in the state.”

Under a social housing scenario, the issue of profitability goes away. Only projects that are owned and managed by public entities, local housing authorities and “mission driven nonprofits” would be eligible to receive the funding. While the new fund wouldn’t cover the full cost of a project, Límon and Meredith argue that even offering 5-10% in seed money could make the difference between projects succeeding and failing.

Short-term rental owners have expressed alarm that another tax on top of local transient occupancy charges could put them out of business.

Sheri Cecil, 60, uses Airbnb to rent out two rooms in the Ventura house where she lives. She started hosting when her sons left for college about nine years ago. The revenue has helped her pay the mortgage and care for her aging parents, she said.

“I think it’s devastating,” Cecil said of the proposed tax. “I don’t know that I would be able to continue to do Airbnb.”

Cecil estimates she brings in less than $50,000 a year from her rentals, and her profit margins hover around 20%. She tries to keep her prices comparable to the hotels in the area, but if her guests faced an additional 15% tax on her place, she worries she’ll lose business.

Airbnb and Vrbo argue that the new tax gives an unfair advantage to the hotel industry, since guests in hotels would not be subject to the 15% premium. Both companies say they’re committed to working with legislators to find other legislative solutions that don’t involve taxing their hosts.

Continuing the conversation

Questions still remain about whether a social housing model is the best way to get people housed quickly. Lawmakers who opposed the bills cast doubt on the idea.

“We have done social housing projects before,” said Republican Senator Kelly Seryato, of Murrieta, in his speech to the floor Wednesday, “and they’re called exactly that — the projects.”

Advocates like Nguyen agree that more discussions and conversations need to be had around what a true implementation of social housing in California would look like. To her, the fact that three social housing bills are moving through the legislature means lawmakers are taking the idea seriously. For now, that’s a win in itself.

“I think it’s been brewing for a really long time,” she said. “It’s really exciting to see it manifest on the legislative scale.”