Sep 235 min read

#9 Politics in Real Estate: Property Tax Reforms and Short-Term Rental Regulations

Updated: Sep 25

As the 2024 election approaches, property tax reforms and short-term rental regulations have emerged as two key issues affecting the housing market across the U.S. Both have a direct impact on homeownership costs, housing availability, and community character. With cities across the country facing rising home values and shifting demand for housing, local governments are grappling with how to balance tax burdens and regulate the growing short-term rental market.

Property Tax Reforms: A Nationwide Debate

Property taxes vary widely across the U.S., and changes to these taxes can directly impact homeowners' financial stability. Local elections often bring this issue to the forefront, as cities struggle to balance budgets while keeping homeownership affordable.

Republican Approach to Property Taxes

The Republican Party typically advocates for lower property taxes, arguing that reducing taxes will encourage economic growth and relieve middle-class homeowners. Key reforms backed by Republicans include:

Caps on Property Tax Increases: In states like Texas, Republicans have successfully passed laws that cap the annual growth of property tax revenues at 3.5%, preventing sudden increases in tax bills for homeowners. This helps protect homeowners from rising costs but can limit funding for public services like schools and infrastructure.
Assessment Limits: Republicans also support limits on how often property assessments can be updated, or they propose basing taxes on the purchase price of a home rather than its market value. In California, Proposition 13 caps property taxes at 1% of a home's assessed value and limits annual increases to 2%, unless the property is sold.

While these reforms provide relief to homeowners, they often lead to underfunded public services in areas that rely heavily on property taxes to fund education and infrastructure.

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Democratic Approach to Property Taxes

The Democratic Party favors progressive property tax systems, where wealthier homeowners pay a higher share of taxes. Their approach focuses on:

Property Tax Relief for Low-Income Homeowners: Democrats support expanding property tax exemptions and relief programs to help retirees and low-income families who may struggle with high tax bills as property values rise. For example, in Illinois, Democrats have pushed for expanding the Senior Citizens Homestead Exemption to reduce the tax burden on seniors.
Increasing Taxes on High-Value Properties: Democrats in cities like New York City and San Francisco advocate for increasing taxes on luxury properties and using the revenue to fund public services like affordable housing.

Examples of Property Tax Reforms in Action

New York City: Despite having some of the highest property values in the country, New York City’s property tax system is widely considered inequitable, with high-end properties often benefiting from loopholes that lower their effective tax rate. Democrats in the city have been pushing for reforms to create a more progressive tax system, increasing rates on luxury homes while providing relief for middle-income homeowners.
Houston, Texas: Texas has no state income tax, but property taxes in cities like Houston are relatively high, with an average rate of 2.03%. However, Republican-led reforms have capped tax revenue increases, ensuring that homeowners are protected from rapid hikes even as property values rise.
Chicago, Illinois: Chicago’s high property tax rates, averaging around 2.25%, reflect the city’s need to fund its pension system and public services. However, rising taxes have priced out many middle-class homeowners in gentrifying neighborhoods.

Short-Term Rental Regulations: A Growing Debate

Alongside property tax reforms, the regulation of short-term rentals (STRs) is another major issue impacting housing markets. The rise of platforms like Airbnb and VRBO has led to a surge in STRs, but many cities are now cracking down on these rentals to preserve housing affordability and neighborhood character.

Liberal Cities Favor Restrictions

Many liberal cities have moved to restrict or ban short-term rentals, citing concerns about housing shortages and the hotel industry’s lobbying efforts. In cities like New York, San Francisco, and Los Angeles, local governments argue that STRs reduce the availability of long-term rental housing, driving up prices and displacing local residents.

New York City: Recent regulations in New York limit residents to renting out their homes only if they are present during the rental period and restrict STRs to fewer than 30 days. This has significantly reduced the number of available short-term rental listings.
Asheville, North Carolina: Asheville has implemented strict regulations on STRs, allowing them only in commercial zones or as homestays, where the homeowner must be present during the rental period. The move aims to protect affordable housing in a city experiencing rising property values due to tourism and migration.

Republican Support for Property Rights

Republicans generally favor property rights and argue that homeowners should have the freedom to rent out their homes as they see fit. They often view restrictions on short-term rentals as government overreach and a way to protect the hotel industry at the expense of homeowners.

Miami, Florida: Miami has relatively lax regulations on short-term rentals compared to many other cities, making it an attractive destination for both tourists and property investors. Florida's low property taxes and no state income tax also make it a popular state for STR hosts.
Texas: In Austin, a Republican-leaning city, short-term rentals have been the subject of legal battles, but the state’s more pro-business approach has kept regulations relatively light, allowing homeowners to continue renting their properties with fewer restrictions.

Who Owns Short-Term Rentals?

A common misconception is that STRs are owned by large companies or wealthy investors. In reality, many short-term rental properties are owned by mom-and-pop landlords who use the income to maintain inherited properties or supplement their incomes. This is particularly true in cities like New Orleans and Asheville, where many STR owners rent out part of their homes or secondary properties.

Property Tax Reforms and Short-Term Rentals in the 2024 Election

As we approach the 2024 election, property tax reforms and short-term rental regulations will remain central issues in local and national political debates. Republicans advocate for lower taxes and property rights, while Democrats push for progressive tax systems and housing affordability measures. Whether through reforms to tax systems or stricter regulations on STRs, the future of housing affordability and availability will largely depend on the political landscape.

Ready to move? Take advantage of our Full Market Value Cash offer - get your home's market value from our expert agents. Send friends to this series at www.PoliticsInRealEstate.com

Disclaimer:

This post is for informational purposes only and does not constitute financial or legal advice. Please consult with a tax professional or legal expert to understand how property tax reforms and short-term rental regulations may impact your personal situation.