Colorado real estate is on a tear, with appreciation off the charts. In Denver appreciation…
Travel Crested Butte put up a social media post last weekend that messaged Crested Butte was not all sunshine and rainbows. “As beautiful and breathtaking as Crested Butte is, the community you love to visit is hurting,” This is not your typical warm and fuzzy marketing 😊 What does this mean for real estate?
What happened to cause the tourism issues in Colorado mountain towns?
If you have visited or live in any Colorado mountain town, if feels like all the sudden the city is like main street at Disneyworld’s Magic Kingdom that has been overrun with tourists. This is not unique to Crested Butte; for example, Chaffee county (Salida) recently pulled the plug on a large music festival due to the impacts from a large number of tourists. There are three primary economic drivers that has led to unprecedented issues in resort communities. These issues have always lingered below the surface, but Covid has amplified them.
- Lack of housing: Mountains always expensive, but prices got turbocharged with the flight to smaller more rural locations. Many Colorado mountain locations are up 50-100% in values over the last two years due to increased demand. It is impossible for resort communities to build there way out of the inventory shortage as prices are too expensive and costs too high.
- Increases in demand/visitation: Visitation has been off the charts in Colorado’s resort communities. As Covid spread there was a large increase in demand to get to smaller locations that had amenities and out of urban areas. Every Colorado resort community is surrounded by outdoor recreation that has surged during the pandemic. Furthermore, as the pandemic subsided and many overseas markets closed, the demand has further increased.
- Nightly rentals: As demand increased there were very few if any hotels built which means that the visitors were housed elsewhere in nightly rentals. The increased tourism demand as well as no change in commercial hotel inventory has led to huge increases in demand for nightly rentals.
What are resort communities doing?
A lack of housing, increases in demand, and nightly rentals have collided to make the perfect storm from Telluride to Steamboat and everywhere in between. Residents and business owners are uniting as locals are pushed out of the communities and businesses cannot hire workers to meet the increased demand from visitors. This summer was a breaking point in many communities. There are three primary steps communities are taking:
- Restrictions on nightly rentals: There is a proposal in Frisco to prohibit nightly rentals on single family homes. In Steamboat, city council informally voted to explore requiring permits, levying a fee for all short-term rentals and restricting where they could be located. Others are not far behind with increasing regulations.
- Elimination/reduction in advertising: Crested Butte, Telluride, and others have moved to try and “limit” tourism with a reduction in advertising to attract less people. Unfortunately I’m not sure this will be enough as social media is still driving unprecedented demand to the respective mountain towns.
- A move to better “manage” tourism: Salida (Chaffee county) recently pulled the plug on a large music festival. I suspect other towns will follow suit as they are no longer able to handle the demand as worker shortages persist.
Unfortunately even with these measures, I don’t see a huge let up in tourism anytime soon. For example, winter tourism will likely increase as Vail resorts dropped the epic pass price 20%. The Salt Lake Tribune stated that “ Vail Resorts has opened the floodgates with the hope skiers and snowboarders who skipped last season with concerns about the coronavirus will come pouring back in 2021-22.
The company that owns the largest collection of ski resorts in North America on Wednesday announced a 20% price reduction for all its Epic Pass products. Depending on the version, the Epic Pass provides access to all 34 of Vail’s North American resorts, plus three in Australia and limited days at numerous partner resorts.”
How will this impact real estate?
- Nightly rental owners: Anyone renting their property on a nightly basis could have severe impacts. Many communities are working to significantly limit the number of nightly rentals and tax them appropriately with impact fees. Nightly rentals will continue to be in the spotlight. If owners depend on this income, they could be significantly impacted.
- No drop in values: Even with all the changes coming down the pipe to limit tourism, I do not see any substantial changes to values. With remote work, there is a whole new group of high-net-worth individuals that desire the mountain lifestyle. Each of the mountain communities will continue to evolve to more year-round communities that will limit any downside price risk.
As Colorado mountain communities become year-round with permanent residents. The tensions with tourism will only amplify. Restrictions on nightly rentals, reductions in programs to attract visitors, and elimination of festivals/events will only continue as full-time residents demand action and are the only ones that get to vote in local elections. Fortunately, as mountain economies have diversified with full time residents, the impact on real estate should be limited unless you own a nightly rental.
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Written by Glen Weinberg, COO/ VP 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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