6 CO ski towns have short term rentals on ballot; what does this mean for real estate

Voters in Steamboat Springs, Aspen, Dillon, Glenwood Springs, Carbondale, and Summit County will all decide whether to impose additional taxes, with at least part of those funds in each municipality going to support affordable housing. What are the new short term rental proposals in each city?  How will the increase in short term regulation impact Colorado ski real estate?  Is Colorado ski real estate still a good investment with the new proposed changes?

What are the new short term rental proposals in each Colorado ski town:

1. Steamboat Springs: proposed 9% increase in taxes on short term rental stays, which would take the total tax rate to 20.4%
2. Aspen: additional 5% or 10% in taxes on STRs, depending on whether the unit is owner-occupied. That would put the tax rate for an STR at 21.3%
3. Dillon: Dillon voters will face two lodging tax questions. The first would create a 5% excise tax specifically on STRs and the second would increase the town’s lodging tax from 2% to 6%. Hotels and motels are exempt from the excise tax, but would pay the increased lodging tax if passed.
4. Glenwood Springs: A 2.5% proposed lodging tax would apply to all lodging and not just short-term rentals. That tax stemmed from months of work by the Glenwood Springs Community Housing Coalition to find a funding mechanism for sustainable housing. The total taxes would be around 13.6%
5. Carbondale: Proposal to impose a 6% excise tax on private home vacation rentals to help bolster the town’s affordable housing fund.
6. Summit County: 2% increase on short term rentals within Summit county, home to Breckenridge, Keystone, Frisco, Dillon, Silverthorne, Copper Mountain, etc…

Will these new short term rental initiatives pass?

Yes, I think all these taxes will pass.  There were three recent taxes on the ballots in various ski towns and everyone passed easily.

1. Frisco’s tax passed in April with 64% of the vote. It adds a 5% excise tax on short-term rentals, bringing the tax rate on these units to 15.725%.
2. Silverthorne increased its lodging tax from 2% to 6% with nearly 75% of voters in support, brining the rate for STRs to 14.375%.
3. Avon’s 2% tax passed with about 70% support in November, bringing the tax rate there to 14.4%.

Will real estate prices in Colorado ski towns be impacted by the short term rental taxes?

There are many passionate voices on both sides of the debate.  Here are a few scenarios to consider.

1. Will prices of real estate fall?  I hear this time and time again that any action on STRs will cause a real estate collapse.  Unfortunately, I don’t see this in the cards.  Most of the recent demand for real estate is from high-net-worth buyers looking for a “safe place” outside of an urban center for their personal use. This “safety” is both physical and from an asset protection standpoint.  With markets in turmoil, there is a demand for hard assets and many ski towns fit the bill.  Many of these buyers are cash buyers that do not need to short term rent their property. Furthermore, inventory is not increasing meaningfully.   As a result, the impact should be muted as there is considerable demand and virtually no meaningful increase in inventory.
   1. It is also important to note the values have gone up in many Colorado ski towns over 40% so we are destined for a pullback throughout the country.  It is not plausible to blame any impact in prices on short term rental changes due to the huge quantity of cash purchases.
2. Will this trigger an increase in real estate values?  An increase in prices is a plausible outcome.  Will Crested Butte become more desirable (in higher demand) because of less visitation.  Would someone choose to buy in Steamboat over other communities as they can be confident that they will not end up with a house next to a nightly rental and a town overrun with tourists?  Essentially capping visitation/short term rentals and increasing room rates via taxes should help better balance tourism to enhance the visitor experience. Think of DisneyWorld for this theory as they are making more money with higher prices. I think that it is greater than 50% probability that prices could accelerate as demand accelerates due to enhanced user experience.

3. Almost every Colorado ski/resort town has imposed increased short term rental taxes. Will ski town prices fall in every community?  I would be doubtful of this theory as inventory is limited and there is not an “arbitrage” opportunity as basically every community has taken steps to address short term rentals.  For example, if Breckenridge imposed caps and taxes, Steamboat could be an alternative for a higher rate of return, but Steamboat put in caps and taxes of their own basically leveling the playing field amongst competing ski towns.  This in turn will limit the downside risk on prices as short-term taxes are in every ski town and now the “cost of doing business”.  Over the long term look for ski real estate to continue to perform well even with higher short term rental taxes.

Summary

Remember, only full-time residents get to vote, as more properties are used for short term rentals, there are even fewer permanent residents which means that every vote of each resident is even more valuable.  Unfortunately, many full-time residents feel that short term rentals have gotten out of hand and eroded quality of life which means that the new short term rental taxes will likely pass.  Fortunately, there should be little direct impact on real estate values as demand is severely constrained in each market due to high building costs and lack of land.

Furthermore, as almost all the major resorts have targeted short term rentals, there will be a somewhat level playing field amongst resort communities so one should not be impacted considerably more than others.  Even though many are predicting the bottom to fall out in real estate prices due to short term rentals, the reality is considerably different as ski real estate will remain a valuable asset over the long term.

Additional Resources

1. https://www.steamboatpilot.com/news/steamboat-voters-arent-only-mountain-residents-weighing-str-taxes-this-fall/
2. https://www.postindependent.com/news/carbondale-to-seek-6-tax-on-short-term-vacation-rentals/
3. https://www.rmpbs.org/blogs/news/short-term-rental-steamboat-summit-county-november-election/

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Written by Glen Weinberg, Owner Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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