House Bill 1763: Raiding the Tourist Cookie Jar to Fund Affordable Housing

Democrats in Olympia are back at it again. House Bill 1763 (HB 1763), and its companion Senate Bill 5576 (SB 5576) propose a new 6%, (4% for the senate version) excise tax on short-term rentals booked through platforms like Airbnb and VRBO. Proponents say it will fund affordable housing programs, but as always, the devil is in the details.

HB 1763 and SB 5576 create a new "Essential Affordable Housing Local Assistance Account" in the state treasury. The revenue from this new 4-6% tax would be deposited into this account and then distributed to counties, cities, and towns based on where the short-term rentals are located. Local jurisdictions can then use these funds for affordable housing programs, homeless assistance, temporary shelters, or even "housing infrastructure" projects.

The bills create problems on several fronts, primary,

• Targeting Tourism: The bills unfairly target the tourism industry. Short-term rentals are a vital part of our state's tourism economy, providing flexible and often more affordable lodging options for visitors. Slapping a 4-6% tax on these rentals will undoubtedly make Washington State a less attractive destination for tourists.
• Double Taxation: Washington already has a complex web of taxes on lodging, including state sales tax, local hotel-motel taxes, and more. Adding another 4-6% on top of all that is simply piling on. This will drive up costs for travelers and make it harder for Washington businesses to compete.
• Vague "Housing Infrastructure": The bills allow cities and counties to use the funds for "housing infrastructure" projects, which are broadly defined as "all costs for the improvements needed in an area necessary to provide services that support the construction and ongoing use of new housing." This includes everything from transportation and water to broadband. The definition is so vague, there will be wasteful spending.
• Density Mandates and Restrictions: If localities use the money for infrastructure, there are strings attached. Municipalities will have to allow maximum density, potentially changing the character of neighborhoods. Single-family homes in those areas can't be bigger than 2,000 square feet, and if the project is in an urban growth area, the municipality must agree to annex the project upon completion. This is government overreach at its finest.
• The Illusion of Free Money: This tax creates the illusion that affordable housing can be funded without any real cost. But the reality is that this tax will be passed on to consumers, making it more expensive to visit Washington. Both bills will also discourage investment in short-term rentals, ultimately harming the tourism industry and potentially reducing the overall supply of lodging options.
• Lack of Accountability: While HB 1763 and SB 5576 allow localities to retain up to 20% (15% for the senate version) for administrative costs, there is no clear mechanism for ensuring that the funds are used effectively and efficiently. There should be more transparency and accountability in how these funds are spent.

Instead of targeting specific industries with new taxes, the legislature should focus on creating a pro-growth environment that encourages private sector investment in affordable housing. This means reducing regulatory burdens, streamlining the permitting process, and promoting policies that make it easier for developers to build new housing.

HB 1763 and SB 5576 are short-sighted solutions that will ultimately harm Washington's economy and make it more difficult for people to visit our state. It's time for our lawmakers to abandon this misguided approach and embrace policies that promote economic growth, opportunity, and a truly affordable housing market.

It seems Olympia (and other jurisdictions in Washington) want to destroy any innovation in any sector, or in this case, the short-term rental market, that brings in the tourist dollars.