Several weeks ago, I revealed that staying in an AirBnB could be cheaper than renting an apartment:
‘My parents rent a place in the States with 4 bedrooms on a lot about the size of a rugby pitch. It costs them $900 per month.
‘I knew that Auckland’s pricy, so I figured I’d roughly double the budget and halve the number of rooms, and I should be in the right ballpark.
‘[My AirBnB host] Paul scoffed.
‘He said, “I’ve got a friend who has a place for rent. It’s not in a great location…and it’s small — a studio…and in an older apartment building. She’d be willing to rent it to you for the small sum of $500 per week. And between you and me, that’s a steal.”
‘A steal indeed. But I’m not sure I’d be the one stealing…
‘A little back-of-napkin math and you’ll realise that $500/week is $71/night.
‘For that amount, I can get a hotel or AirBnB that comes with electricity, water, utilities, repairs, and a cleaner! Maybe even breakfast!’
Well, my excitement was short-lived — the party may already be over…
Recently, thousands of AirBnB hosts in Auckland received a bill for Auckland Council’s new bed tax.
Many were shocked to find out that they owed thousands and thousands of dollars for rooms they rented as far back as July 2017. Plus, now they’re on the hook for paying the new tax on any upcoming reservations as well.
The new rate is in response to outrage from the hotel/motel industry. They claim that people who host on AirBnB should pay the same rates that commercial businesses pay.
So, the Auckland Council launched their new bed tax.
The tax is based on the value of the property, its location, and the number of bed nights booked in the last year.
The whole thing is mucked up. Here’s why… [openx slug=inpost]
What’s wrong with the tax
Instead of levelling the playing field by lowering taxes for hotels and motels, the council decided to increase taxes for the other guys. They could have — and should have — considered balancing the tax rates between AirBnB and hotels in the middle or lower end of the bracket.
That way hotels and motels can better compete with AirBnB’s low prices.
Sure, it would mean less revenue for the city, but what are Aucklanders getting out of the bed tax anyways? In other words, what is the city doing that permits them to stake a claim on you renting out your guest room?
I get charging rates to pay for public works like libraries or roads or schools. You live in this city. You benefit from the things that the city maintains. We’re going to charge you for that service. Income tax. Okay.
But a bed tax has nothing to do with any of that. The city isn’t providing bed frames or mattresses or sheets. It’s not involved at all.
To the city, this is one more revenue stream that they can stick their hands into.
The second mistake is how they executed the new tax.
The council relied on people coming to them and declaring that they were running a business out of their homes. The council found some hosts by searching online, but they expected the rest to declare themselves.
If they didn’t, they are avoiding paying the tax.
In my view, a better strategy would have been including hosts in an open discussion from the beginning…that way everyone is at least aware of how and why the project is the way it is.
When the Auckland City Council did it, they kept everyone in the dark. For many, the first communication they received about this new tax was their bill.
That makes it hard to plan and budget for the future, let alone adjust for new debts from past activity.
The tax also targets the older population. Like my host Paul, they purchased their home decades ago and have enjoyed the values rising over time. And many of these older neighbourhoods have developed into high-demand areas.
High home value and convenient location are two things that the new tax targets. Older hosts like Paul will have to pay a much higher rate than others.
It’s caused many hosts to pull out from the business altogether.
Even those who have bookings in place for months to come. The bills are too high, so they call it quits.
Hopefully, there aren’t too many property owners who recently purchased a house with the intent of renting out a part of it. A new tax like this could push them into the red.
And that’s my biggest beef with this issue. The losers in this deal are the consumers and the individuals/small businesses trying to make a buck. The winners are big business and government.
In the end, one of the most unaffordable cities in the world became a bit more unaffordable.
Editor, Money Morning New Zealand
PS: If you’re a victim of the new bed tax…or think it’s a fantastic idea. Let me know! I want to hear where you’re coming from. You can reach me at [email protected].