Short-term rentals can hurt small communities. So Colorado is on a mission to rein in Airbnb

Few travel platforms are as beleaguered or controversial as Airbnb, even as it has quite a few competitors these days. While the model enables homeowners to bring in much-needed income to lower their own expenses, it can also reduce housing opportunities for long-term residents who get priced out in favor of short-term guests with deeper pockets. And for all the individual homeowners renting out their own homes, there are also countless rental agencies and property developers who use the platform to manage dozens, if not hundreds, of listings operated like mini-hotels.

It’s a tricky problem to solve, but one US state thinks it has the answer. In Colorado, many tiny mountain towns have been battlegrounds for cases of short-term landlord versus long-term renter, and now the state wants to quadruple taxes on these rentals, treating them the same as hotels.

Currently, short-term rentals in Colorado are taxed at a rate of 6.8 percent, which is the same as the residential tax rate. But a bill being considered in the state legislature this year would hike that to 29 percent starting in 2026, which matches what hotels are forced to pay. If it succeeds, it could raise over USD$370 million in tax revenue in a single year. It could also make Airbnbs more expensive, and therefore potentially less desirable for both guests and homeowners who might not find it worth the hassle for lower returns. This could also devastate the tourism industry, the Colorado Lodging and Resort Alliance says.

“While we’re looking at maybe creating a tax parity, the reality of this is that we’re actually hurting our own economy,” the organization’s Dana Lubner told CBS News. “My concern with this bill is ripping a dream away from working-class Coloradans.”

It isn’t fair to compare hotels and bed-and-breakfasts with short-term home rentals, she said, as the former typically make money off many rooms at once, and may also make money from food and beverage sales. Increasing the tax could cause a spike in rent prices and deter people from visiting the state, she added. A study conducted by the organization projected that the tax increase could result in losing out on USD$1.6 billion in tourism revenue, as well as 8,000 jobs.

The Economic Policy Institute, however, might beg to differ. In 2019, the institute published a report that concluded: “The costs of Airbnb expansion to renters and local jurisdictions likely exceed the benefits to travelers and property owners.”

While the report conceded that Airbnb might help to keep travel costs down, the price of traveling is “not a first-order problem for American families.” Rising housing costs, on the other hand, “are a key problem for American families, and evidence suggests that the presence of Airbnb raises local housing costs.”

If the bill is passed, Colorado would increase taxes only for properties that are rented out for more than 90 days per year. That means that families looking for guests for the odd weeks they’re out of town, or someone seeking a seasonal renter for a second home, likely wouldn’t be impacted by the new taxes. But families who rent out a second property for the majority of the year would be.

Airbnb exists in cities across the world, and Colorado’s mountain towns aren’t the only ones struggling to manage it. In Paris, which has some 60,000 Airbnb listings, inventory for long-term rentals has fallen by 73 percent in the past three years, according to The Times. Recently, the French National Assembly voted to end tax breaks for such rentals and grant local authorities power to crack down. Last year, New York City changed rules for Airbnbs that made it significantly harder for hosts to qualify, and London now limits all short-term rentals to a maximum of 90 days per calendar year. Airbnbs listed in the city have a built-in countdown for hosts, so that the listing automatically goes dark once the limit is reached.

“Young people in my district and nearby along the coast around Biarritz simply cannot afford to live here anymore and that’s not right,” Iñaki Echaniz, a Socialist lawmaker from the Pyrénées, told the Financial Times. “Even in popular tourism areas, housing should not be a speculative asset dominated by private interests.” 

It’s unclear, however, whether even super-strict government restrictions can make a serious impact, according to a newsletter analyzing such laws recently published by the Mountain Gazette. Even in New York, where Airbnb has been all but banned since last year, there hasn’t been a significant impact on long-term rental availability.

“Many have argued that removing the ability to host short-term renters will open up tens of thousands of available rental units in the city, yet, more than four months after New York City’s short-term rental rules went into effect, there has been no detectable increase in available rental inventory and rents have only risen further,” Taylor Marr, senior housing economist at Airbnb, said in a statement, Skift reported. “Policymakers should continue to focus on reforms that encourage new housing construction throughout the region to address the root cause of the affordability challenges.”

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