Copyright San Diego Union-Tribune
Some San Diego elected officials are exploring a possible ballot measure that would ask city voters to levy an annual tax of $5,000 per bedroom on many vacation rentals and second homes. Supporters say the tax would raise many millions in new revenue for the cash-strapped city, while simultaneously encouraging property owners to help ease the local housing crisis by renting out their second homes long-term. Critics say the tax would hurt tourism and the broader local economy, punish locals who rely on vacation rental income and result in an overall drop in city revenue, rather than the jump supporters promise. Taxing vacant homes in cities around the world has been a popular move by governments over the last five years, with mixed results. The San Diego ballot measure is still being studied, but could end up on the ballot by next summer. Question: Should San Diego pursue a vacation-home tax ballot measure? Economists Caroline Freund, UC San Diego School of Global Policy and Strategy YES: Vacation rentals drive up home prices in San Diego. A tax would both raise revenue and expand the housing supply, as some owners switch to long-term rentals or sell. It’s a win-win: more funds for the city and more homes for residents. It is better to manage demand for vacation homes with taxes that generate revenue than with regulations that are expensive to enforce. Kelly Cunningham, San Diego Institute for Economic Research NO: Having already paid to own the home, including annual property taxes, associated utility and maintenance costs, homeowners are expected to pay more taxes when they do not reside in the home? Increasing homeownership costs does not improve affordability. The limited number of homes used for vacation rentals, which are mostly located only in beach communities, will not generate as much tax revenue as projected after subtracting for lost visitor revenues and vacation rental income. Alan Gin, University of San Diego YES: One of the problems affecting the housing market is increased speculation. Part of the speculation is by institutional investors, and that is a large problem. But institutional investors will at least rent out the homes purchased, which will help the rental market. People who buy property and leave it mostly vacant, such as with vacation homes, are reducing the supply of housing. Someone who can afford a second home can afford the tax, and it may help the city raise a little money. James Hamilton, UC San Diego NO: The city is spending almost twice as much as it did 10 years ago. Yet council members think the only way to balance the budget is to find more new things to tax. If every resident were taxed an additional $5,000 for every bedroom, the citizens would be up in arms. So council members target just a few people to pay the new tax and tell the public the tax will be paid by “somebody else.” Norm Miller, University of San Diego NO: Respecting property owner rights and market stability is essential for economic efficiency. Policies like lottery style short-term residency, or STR, permits, rent controls, and vacation home taxes distort markets and sometimes constitute uncompensated takings. If revenue from wealthier residents is essential to balance the budget, a city income tax is more equitable than targeting specific industries. To tax tourists and owners fairly, use a revenue-based hotel and STR tax — not unit-based fees. David Ely, San Diego State University NO: At $5,000 per bedroom annually, the proposed tax is quite large and will have unintended consequences. Owners of vacation rentals will increase fees or withdraw their units from the rental market. Such responses discourage tourists from visiting San Diego, negatively impact the local economy and lower receipts from the transient-occupancy tax. The tax would also fall on residents who own a vacation rental and are dependent on the income earned on their property. Ray Major, economist NO: The empirical evidence from cities like Vancouver and Melbourne, where this has been tried, show that it does not free up additional homes for renters and will not ease the housing crisis. This is just another attempt by the City Council to extort tax revenue to the tune of tens of thousands of dollars per year per unit from people owning vacation rentals. The housing crisis cannot be fixed by taxing housing. Period. End of story. Executives Phil Blair, Manpower YES: But the devil is in the details. We need to separate Airbnb rentals from vacation homes, which should be paying full TOT fees. Is the council considering only vacation homes owned by individuals as second homes for the $5,000 per bedroom fees, or Airbnb bedrooms too? Homes being taxed because the owner is not there needs some explanation as to why they deserve additional taxation. Also, $5,000 seems very high coming out of the gate. Gary London, London Moeder Advisors NO: The city should seek confirming analysis of its impact on the visitor industry, and the unknown of how much revenue would actually be brought in. I have determined that by simply eliminating minimum residential lot sizes the city could take in triple the revenue suggested by Councilman Elo-Rivera, through property tax revenue. There are other money raising (and money saving) options available. Maybe it’s time for a creative approach to exploring those options. Bob Rauch, R.A. Rauch & Associates NO: A proposed $5,000 annual tax per bedroom on about 10,000 qualifying properties would go toward the general fund. It might reduce speculative buying and generate revenue, but this council taxes us as if there were an unlimited number of taxes. Parking taxes followed trash taxes, and now the bedroom tax. Managing a city is not about how many taxes and regulations we can create. It’s about making it a great city. Austin Neudecker, Weave Growth NO: While the concept of taxing vacant units could nudge some vacant homes into rental or sale markets, the theory has mixed results, and enforcement has proven to be a challenge. San Diego should not adopt a broad scheme without further evidence that it will add supply or raise net revenue. Hasty implementation will have unintended consequences. Chris Van Gorder, Scripps Health NO: This is a slippery slope and a complicated issue. Additional taxes aren’t always the answer. While this proposal could increase housing availability, it would discourage people from investing in real estate and owners from using their properties for rentals. It could also impact tourism and jobs. At a minimum, the carve-outs would have to be carefully considered and extensive. Jamie Moraga, Franklin Revere NO: San Diego shouldn’t pursue a vacation-home tax. Budget shortfalls should be fixed through smarter management and cost-cutting, not new taxes. This measure harms owners and guests, as costs will be passed on. Higher prices could drive visitors away, risking jobs and revenue. The cost of living is already too high — the council must stop adding to the burden by creating more new taxes. It’s time to look inward and fix shortfalls through accountability, not taxation.
