Reconsidering AirBnB in Detroit

Home - Stock photo from Pexels

For several months, the City of Detroit has been looking for ways to better regulate short-term rental housing. This includes popular options like Airbnb and Homeaway that have been achieving more and more success in our area.

Critics of short-term rentals point to negative the impact these services have on hotels, housing prices, and the community at large. A study published in the Harvard Business Review, for example, showed that as more Airbnb rentals happened in a given area, the local rent prices would increase proportionately. In some cities, that increase has made a difference in whether or not someone could afford to live there.

These rentals also have a detrimental impact on hotels in the area, as Forbes magazine pointed out. This is important because traditional lodging options pay more taxes and generate more jobs. If hotels are hurt too much, we lose the thousands of jobs and millions in tax revenue that they create.

Supporters, however, point out that optins like Airbnb and Homeaway allow ordinary Detroiters to generate a few hundred dollars a month in extra income from an empty bedroom or two. That extra money can be invaluable to many families.

There is also the fact that when someone stays at a hotel by a large corporation like a Hilton or Marriott, much of the income generated from it leaves our state. In contrast, when money is spent with a small local person then, as a different study by Michigan State University pointed out, that money is more likely to be spent and reinvested locally.

Clearly, the ideal solution is to find some kind of balance that works for everyone. While I don't claim to have all of the answers, I do have a few ideas. For starters, let's talk taxes.

Taxes - Stock photo from Pexels

When someone rents a hotel room in Detroit for a night, they pay a 13% tax rate but when they rent an Airbnb for the same night, they only pay a 6% tax. The difference between the two tax rates is because, while both pay a 6% sales tax to the State of Michigan, short-term rentals do not pay either the 1% tax to Wayne County to support the stadiums nor the 6% tax to support the convention center.

This, I believe, is fundamentally unfair. There's no reason to tax one option for a night's lodging at one rate while taxing a different option at less than half that amount.

Therefore, I propose that we impose an additional 7% tax on short-term rentals in Detroit to even things out. I would further propose that most, if not all, of the revenue go towards improving mass transit. I say this because the stadiums and convention center are both doing just fine as is. Meanwhile, Detroit has what has been ranked as the worst mass transit system in the nation and could desperately use the extra revenue.

We could even add an extra 1 or 2% onto Lyft and Uber rides, while we're at it as well. This would bring them in line with the taxes that we levy on car rentals or taxi cabs. It would also generate even more revenue for mass transit.

The Detroit City Council looked into this issue in 2016; concluding that such a thing is indeed possible. We may have to put the question to a ballot referendum, much like we did with taxes for stadiums and convention center. However, I don't believe that would be a significant challenge.

Neighborhood - Stock photo by Pixabay

The next challenge is in terms of regulating how many Airbnbs can operate in the city. There was an efort by the City Council earlier this year to place a hard limit on the number of these rentals that could exist. This was intended to address the impact of these operation upon the housing market, which I mentioned earlier.

While that move was well-intended, I believe a better option would be to place on limit on the percentage of residential housing stock in a given area that may be used for such things. I believe it would be appropriate for a limit of 1 or 2% of the housing stock in any one square mile for short-term rentals.

In a place like the Warrendale neighborhood, with roughly 4,000 housing units per square mile, this would mean a limit of 40-80 homes that could be used for a short-term rental. As new housing is eventually added in, the limit would increase proportionately.

These, of course, are just a few ideas. I welcome feedback either in the comments below or by email.

This post is a part of the Warrendale Detroit Blog's Friday Focus series. The series endeavors to highlight news, events, and opinions that, in the view of this blog's publisher, don't get as much attention from the news media as they deserve.

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