UPDATED: Cincinnati City Council Creates Affordable Housing Fund

Council approved a proposal by Councilman David Mann creating a dedicated fund for affordable housing. But will it use money from a short term rental tax?

Dec 4, 2018 at 6:04 pm
click to enlarge Cincinnati City Hall - Nick Swartsell
Nick Swartsell
Cincinnati City Hall

Cincinnati needs tens of thousands of more units of housing affordable to its lowest-income residents, according to recent research. On Dec. 12, Cincinnati City Council approved a new proposal from Councilman David Mann establishing a fund to help bridge that gap — but where the money would come from could get complicated.

Officially known as Fund 439, the money that will eventually go into the affordable housing trust fund would be used to create and preserve affordable housing in the city. Creation of the fund is just the first step, of course. The city would need to find revenue sources for the trust.

One possibility that has been discussed lately in council would be a 7 percent excise tax on so-called short-term rentals — that is, rooms or entire buildings rented on sites like Airbnb. Currently, those who rent out rooms or buildings as short term rentals don't pay a lodgings tax like hotels do.

Mann has proposed charging that tax for short term rentals — along with a number of other regulations on the practice — and using the tax to fund affordable housing. But council hasn't passed the proposal yet, and a group representing many Airbnb and other short term rental owners in the city says they support the tax, but oppose other regulations in Mann's proposal, including a cap on the number of units an owner can operate and licensing and inspection requirements.

Mann's fellow Democrat council member Tamaya Dennard, a potential key vote, says she opposes the tax on short term rentals because Airbnb operators aren't the reason the city lacks affordable housing and because they are often small business owners.

"I am not in favor of the short-term rental... tax," she wrote Nov. 19 on Facebook. "The argument presented to me was that we can use the tax for an Affordable Housing Trust Fund. Of course I think Cincinnati needs an affordable housing trust fund. However, I don’t believe that it’s the responsibility of everyday people making some extra money on their private property to feed that fund. We need to ask commercial developers who are becoming quite wealthy to help with a housing trust fund before we ask AirBnB owners to pony up."

Cincinnati has about 640 active Airbnb rentals, according to AIRDNA, which tracks rentals on the site by city. Roughly 67 percent of Airbnb rentals in Cincinnati are stand-alone units, meaning the operator isn't simply a homeowner renting out a spare room in a house.The city has seen a 41 percent annual growth rate in those rentals in recent years.

Airbnb, and other sites like it, allow property owners to rent rooms or whole buildings for short-term stays, similar to a hotel. The companies don't own any real estate but simply broker the transaction between the owner and guest via an app or website in exchange for a small fee. The arrangement can sometimes incentivize property owners, or investors who snatch up rental properties, to convert traditional houses or apartment buildings into full-time Airbnb sites, which in turn can displace residents and eat into a city's housing stock. Cities like Seattle, San Francisco, Philadelphia and New York have passed or attempted to pass restrictions on short-term rentals so they don't exacerbate housing shortages there.

There are other potential sources for the funding, of course. In the past two years, officials including Mayor John Cranley have floated a program called Voluntary Tax Incentive Contribution Agreement, which gives developers tax breaks in exchange for contributing money to a particular fund, as a way to pay for affordable housing development. Cincinnati has a VTICA covering downtown and Over-the-Rhine to fund streetcar operations and another one throughout the city that is supposed to fund affordable housing, but so far, contributions to those funds have been less than expected.

Cincinnati currently needs about 30,000 more units of housing that is affordable to its lowest-income residents, according to estimates from the Ohio Housing Finance Agency.