A bill making its way through the California State Legislature could drastically impact the short-term vacation rental market in Palm Springs, some fear.
Senate Bill 584, put forth by state Sen. Monique Limón, a Democrat from Santa Barbara, would impose a 15% tax on short-term rentals for stays 30 days or shorter. That includes homes and rooms rented through sites like Airbnb and Vrbo. The bill was passed by the State Senate on May 31 and is currently being considered in the Assembly.
Limón estimates that starting in 2025, when the law would go into effect, the tax could generate $150 million annually. The bill then requires that any money raised from the tax must be used to build or rehabilitate low and middle-income housing by dispersing the funds to public entities or mission-driven non-profits.
The proposed 15% tax would be in addition to a city’s transient occupancy tax, which in Palm Springs is 11.5%. Adding a 1% fee collected for the city’s Tourism Business Improvement District, visitors could expect to pay 27.5% in taxes on their booking.
Locals with a stake in the vacation rental market, like Bruce Hoban, a co-founder and board member of the Vacation Rental Owners and Neighbors of Palm Springs (VRON), say they were blindsided by the bill.
Even though it was introduced in March, Hoban said he and others involved in the vacation rental business throughout the state weren’t made aware of it until about three weeks ago.
“Now, all the interested parties are coalescing and trying to get on the same page,” Hoban said, referencing groups like Airbnb, Vrbo, the Vacation Rental Management Association, Cal Travel, and the League of California Cities.
Over the last year, the median average daily rate for a short-term vacation rental in Palm Springs was about $576, according to AirDNA, a short-term rental analytics firm. But many homes also require at least two or three nights minimum for a booking, increasing the total to $1,152 for a two-night stay, and the added tax climbing to about $317.
A price analysis of roughly a dozen different Airbnb properties in Palm Springs shows the following: an average cleaning fee of about $250 for two nights; an Airbnb service fee of about $200; and what would be $317 in taxes if the bill passes. A typical two-night stay would end up totaling roughly $1,919.
Airbnb hosts nationwide say one of their biggest complaints from guests is the high cleaning fees, coupled with an expectation from some hosts for the guests to do laundry, dishes and other chores before checking out.
The cleaning fees were such an issue in discouraging guests from booking that the CEO of Airbnb, Brian Chesky, was forced to introduce some new features to allow for more price transparency in search results.
Still, Hoban thinks vacation rental guests are accustomed to high cleaning fees. “But this extra 15% tax from the state is over the top,” he said.
Hoban can count city officials among his allies. In a letter sent last week to Sen. Limón, Palm Springs Mayor Grace Garner wrote that the bill would, “[U]ndoubtedly result in a decrease in [short-term rental] utilization and negatively impact our local economy.”
Garner noted that the local economy of greater Palm Springs saw 14.1 million visitors with an economic impact of $8.7 billion in 2022, and that the tourism industry supports one in four jobs.
Proponents of the bill think it’s only fair that vacation rental operators foot the bill for affordable housing, given the research showing that home-sharing may increase the rent in an area. In Palm Springs, data revealed that there are 2,754 vacation rentals registered in the city, making up about 7.8% of the roughly 35,000 housing units — much higher than the state average of about 1%.
To try to combat the housing crisis, some cities, including Palm Springs, want to take the matter into their own hands.
Instead of raising taxes on vacation rentals, city leaders here are considering setting aside a portion of the revenue generated from the city’s 11.5% transient occupancy tax to go toward affordable housing. An ordinance providing for that was scheduled to be reviewed at a City Council meeting this week but was postponed as the hour grew late.
The city estimates that tax revenue generated from short-term rentals for FY 22-23 will be about $16.2 million, and under the city’s proposal, about $1.6 million would be set aside for housing.
In terms of the new bill, Hoban said he understands that the state needs more housing, but doesn’t understand why the burden of generating money for housing should fall on the shoulders of short-term vacation rental owners.
“We don’t have any housing in the state because of the permit costs, infrastructure prices and the years it takes to get things approved,” he said. “Instead of fixing that, they say, ‘Let’s blame vacation rentals.’”