A Rental Tax for Housing

Creating affordable housing and providing financial help for first-time homebuyers have been among the major goals of leaders on the East End for decades. Results have been mixed. East Hampton Town has led the way in efforts to make units available, but has never been able to keep up with the demand. The pressure on modest-income families has been made worse by a shift among property owners away from year-round rentals and into the lucrative short-term-stay market.

Now, Assemblyman Fred W. Thiele Jr. has introduced a bill in the New York Legislature that would impose an additional half-point tax on real estate transactions, to help spur development of new housing initiatives. Like the community preservation fund’s 2-percent transfer tax, this proposed housing tax would be set aside for new low-income developments and town-managed loans. Mr. Thiele has estimated that the housing tax could bring in up to $13 million annually in both East Hampton and Southampton Towns.

The greatest obstacle facing the new tax is likely to be the real estate industry. Considering that it took about a decade to get the community preservation fund approved, adding another half-percent fee might be a hard sell. And, even if the objectives are unimpeachable, some might say it would not be quite fair to go back and again single out one sector of the local economy. 

But there are other potential ways to support affordable housing.

On Martha’s Vineyard, activists are hopeful that a new state tax on short-term rentals could fund a housing “bank.” As of July 1, Massachusetts will collect a 5.7 percent tax on rentals of fewer than 31 days, matching the tax applied to hotel rooms. (Property owners who rent for a total of 14 days or fewer a year are exempt, mirroring a federal tax rule.) 

One of the main concerns driving the Massachusetts law was that the rise of short-term rental services such as Airbnb was depleting housing stock that otherwise might be occupied by lower-income members of the work force, and others for whom home ownership is out of reach. It is much the same story here.

Though Airbnb, for example, collects hotel-occupancy taxes for a number of New York counties, Suffolk is not among them. This means that short-term hosts here are getting a free ride when it comes to sharing the cost of services their paying guests require. If visitors in other areas are already paying into their county coffers, it is hard to argue that extending such a tax to Suffolk would impose an undue burden.

Back on Martha’s Vineyard, they are saying that the rooms tax could bring as much as $4 million a year into the planned housing bank. On the East End, a similar rate might net significantly more. 

Mr. Thiele’s bill is worthwhile and should be pursued. But if it fails to get enough support to reach the governor’s desk, a high-turnover-rental tax would be a worthwhile alternative to explore.