Should Airbnbs Be Taxed as Residential or Commercial?

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Most of us remember playing musical chairs as a kid. We’d grab the dining room chairs and set them up in a circle, giggling and eyeing each other as we walked around and around in anticipation for the music to stop. And once the music did stop, the tense walk would turn into a race of who could plop down on the open seats first. Someone would always be left standing, or sitting on the lap of another, since they moved too slowly, and would be forced to sit out for the rest of the game. 

Many people have used the concept of musical chairs to relate to housing shortages in Northern America. We’re all playing a game, but instead of a race to see who can sit down the fastest, it’s usually centered around who can acquire the most cash flow and buy up the market.

Imagine there’s two potential homeowners and two potential homes. Person A has more cash than person B and buys one of the available homes. Before person B can save enough to purchase the second home available, person A decides to go ahead and buy it. Now person A owns the entirety of the market. They decide to rent out the second property they purchased—but, instead of creating a long-term rental that the second citizen can afford, they create a short term rental, such as an Airbnb, because that will ultimately create a higher cash flow for them. 

This is an overly simplified example of one version of Housing Musical Chairs we citizens face in the housing market. It’s not saying short-term rentals are bad, but merely another stone we must juggle in our capitalistic game of life. But let’s take it a step further and examine short-term rentals past how they can potentially affect the housing market, and how they play a role in contributing to our local economy.

Property taxes represent a large source of public revenue for local governments and pay for the majority of vital services the state provides. In North Carolina, public education, infrastructure, and safety are just a few of the categories covered by property owners. 

A few weeks ago, Joe Minicozzi from Urban3 presented to the Asheville Buncombe County Ad Hoc Committee about property tax inequities riddled within the state, and suggested some possible solutions on how to fix them. Urban3 has been researching property tax inequities in North Carolina for over a year. Since 2012, the firm has been working to help local governments take charge of their financial future with revealing visualizations of financial analysis. Their work has expanded internationally and they’ve received awards and recognition for their use of 3-D modeling software. 

One topic Minicozzi dove into within his presentation was short-term rentals and how they are taxed. 

There’s a street in Asheville that when you pass by in your car, you’d assume it was a group of residential homes—but it’s not. Each house on that block is an Airbnb, some of which are rented up to almost $2,000 for one night: a staggering amount compared to local long-term rentals in Ashville, which have a reported median two-bedroom monthly rent of $1,771

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