Short-term gains exacerbate housing market

As housing availability for year-round Island residents continues to shrink, the benefits of an increasing demand for short-term rentals have been reaped by all six towns through a hefty excise tax collection for those vacation stays.

Reasonably priced and reliable rental units for Vineyarders, who call the Island home 12 monthsout of the year, have ceased to exist, causing eyes to turn to local governments in a Hail Mary for any effort to increase access to affordable housing. 

The Island-wide approval of the Housing Bank at all six town meetings this spring, initially brought forth by the Coalition to Create the MV Housing Bank, proved an acknowledgment of the housing crisis, and indicated possible relief for the teachers, hospital workers, and first responders being forced out of the housing market..

Seeing that Martha’s Vineyard’s real estate trends tend to follow that of its sister Island, Nantucket — where the median home price is $2.7 million as of 2021 — offers a glimpse into what the Vineyard could soon be facing regarding affordable housing. 

The Martha’s Vineyard Housing Bank, which would be funded by requiring a 2 percent fee from real estate sales over $1 million, does not involve making any use of the short-term rental revenue, despite that having been briefly mulled over and then abandoned several years ago. 

But while the Housing Bank Review Committee works to hammer out details of the Housing Bank Act before it can proceed to the state legislature, the housing crisis remains acute and deleterious. 

Following the 2018 approval of the short-term rental tax bill, which was signed by Gov. Charlie Baker and put into effect July 2019, revenue from short-term rental tax enters each town’s general fund, indistinguishable at the municipal level as to where the taxes originated from, and not earmarked for any particular use.

With the rental tax law, short-term rentals — such as Airbnb — are taxed by the state of Massachusetts in the same way as hotels and inns — at a 5.7 percent rate. Administering local tax on short-term rentals is optional, with tax rates being set at the discretion of town governments, not to exceed 6 percent.

Vineyard Haven, West Tisbury, and Oak Bluffs collect the maximum, while Edgartown, Chilmark and Aquinnah have a 4 percent charge — a vacationer renting an Airbnb-listed house will be required to pay between 9.7 and 11.7 percent on the rental. 

The state defines a short-term rental as “an occupied property that is not a hotel, motel, lodging house, or bed and breakfast establishment, where at least one room or unit is rented out by an operator through the use of advance reservations.” Short-term rentals are not limited to type of dwelling, but excludes timeshares, properties rented out “through tenancies at will,” and month-to-month leases. Rentals less than $15 per night are not taxed. 

The now-amended room occupancy tax law does not require municipalities to differentiate the kind of rental that’s generating the most revenue, subsequently muddying the local data that can help understand the rental market on a bigger scale. 

According to the Massachusetts Department of Revenue, between fiscal years 2013 and 2019, revenue from traditional room tax on the Island increased 6.67 percent each year, maxing out at $2.1 million in 2019. 

By 2020, room tax collected by Island towns rose dramatically — by a whopping 63 percent. After reaching $5.5 million in rental tax in 2021, Vineyard towns collected $8,631,200 in the recently closed fiscal year of 2022 — $5,775,393 of which came from short-term rental tax, as confirmed by the state Department of Revenue.

Despite it not being a requirement, the town of Oak Bluffs files rental tax by type; shedding light on the difference between collection of taxes on hotels/inns and short-term rentals. The town’s FY21 traditional lodging revenue amounted to $257,863 — exceeded by 127 percent by the tax on short-term rentals, reaching $1,162,644.

FY22 showed growth of Oak Bluffs hotels and inns by the $637,283 in room taxes collected by the town, but not nearly reaching the revenue of short-term rentals, which amounted to $1,694,716.

Upon The Times’ inquiry to Island town officials concerning where the money is going, town administrators for Oak Bluffs and Edgartown — the towns with the highest collections of short-term rental tax in the past two fiscal years, $2,857,360 and $3,824,773, respectively — both emphasized first accumulating “historical data” on the collections before using it for any particular expense.

Oak Bluffs town administrator Deborah Potter expressed hesitancy in making a commitment to allocate the town’s additional rooms tax toward a specific purpose. “There’s a lot of variability in the short-term rental revenue,” she said, “It’s still a fairly new component. It’s something we still need to track, probably for another year or two, before we start to really rely on some of these revenues to be solid and consistent.”

Potter said it’s possible that the COVID-19 pandemic may have had an effect on the short-term rental revenue stream, so it’s difficult to determine whether the upward trend will continue or not. This is despite the fact that the short-term rental tax bill only went into effect less than a year before the onset of the COVID-19 pandemic; before which the town lacked the means — and records — to ascertain how much money was being generated by short-term rentals before the taxation. 

Edgartown town administrator James Hagerty said that although there have been various discussions among municipal officials regarding how to appropriate the money following the enactment of the local tax in 2019, the revenues have not been distributed for any purpose. 

Changes in year-round and shoulder-season residency, much of that being COVID-19 related, adds precarity to the market and the revenue stream, explained Hagerty, echoing Potter’s sentiment.

“The question is, Are the numbers going to increase or stay [the same]?” he said. Therefore,there is a need for “a long basis of historical data to know or predict in the future how much [tax money] we’re going to get.”

“Allocating [short-term rental revenue] prematurely without conservative mentality,” Hagerty said, “could end up hurting [the town] in the long run.” The collections kept the town “afloat during COVID,” he said, adding, “It got us to a point where we didn’t have a structural deficit in our budget.” 

Hagerty said this last year, the room tax has been put into a capital stabilization fund, but “we’re not distributing it all, we’re saving it.” 

At April’s Tisbury town meeting, voters were presented with — and ultimately approved — a warrant article authorizing a $750,000 Proposition 2½override for an unspecified use, coincidentally just $5,179 over what the town had collected in short-term rental revenue.

Tisbury town administrator Jay Grande told The Times that the override was to “allow for a cushion” in order to avoid the town being “up against the wall financially.” 

He said there was no discussion among Tisbury officials specifically related to use or allocation of the short-term rental taxes. 

Because the returns are lumped in with traditional lodging tax when they enters the general fund, the process by which the short-term rental tax funds can be used and distributed remains unchanged from before the excise tax amendment — contingent on voter approval at town meetings.

As of July, there are 934 short-term rentals registered with the state’s Registry of Lodging Operators in Edgartown alone. This adds to 590 residences registered in Oak Bluffs, 439 in Vineyard Haven, 221 in West Tisbury, 275 in Chilmark, and 93 in Aquinnah. 

With current Island-wide dwellings — including entire homes, private rooms, and shared rooms —  available on Airbnb averaging $1,934 per night as of July 29, and the third week of August offering “relief” with averages around $1,165 per night, Martha’s Vineyard towns will continue to get substantial payouts from the transactions. 

As of July, one weeklong vacation for a family of four in August amounts to between $11,971 and $12,189, and depending on municipality, generates between $1,058 to $1,276 for its associated town.

Via its website, the Martha’s Vineyard Chamber of Commerce estimates that around 63 percent of Island residences are seasonal. Little data points to how many of those have since become available for rent year-round, but history would suggest they are few and far between. 

Seasonal homes that remain shuttered for the off-season months, along with the 2,500 Island registered short-term rentals with prices too high for many year-rounders — and offering no assistance in securing affordable housing — ultimately leaves Vineyarders having to face the truth: The local community, and its teachers, police officers, town employees, business owners, restaurant and retail workers, artists, fishermen, hospital staff, and senior population, are getting pushed off and priced out. 

In an interview with The Times, Island Housing Trust CEO Philippe Jordi highlighted the importance of looking into the economic impact of investment properties — second- or third-home buyers who purchase homes on-Island for the sole purpose of renting them out for short-term stays. 

Unlike owner-occupied rentals, where live-in homeowners may rent out a guesthouse for additional income, investment properties are doing the most damage. “It facilitates something that has been happening, but much more pervasive,” Jordi said, considering the ease that comes along with simply posting a rental on the internet or through an app. 

Jordi said the first grassroots housing bank initiative had suggested distributing a portion of the rooms tax collected to town’s affordable housing trusts — a concept that was essentially stonewalled by select boards, unwilling to part with the influx of money. 

Jordi said the goal would be to leverage some of the excess funds in order to obtain further affordable housing funding from the state. The caveat there is that the state looks favorably at town support and involvement, without which initiatives to make a real impact on year-round housing availability fall short on execution.

The short-term rental market is “absolutely having a huge impact” on the housing market in a general sense, Jordi said. Speculative investments made for lucrative, passive income have indeed hindered the possibilities for Island residents to secure stable, year-round housing, he explained: “We’re losing ground to this.”