Regardless of all the talk of a recession, soft landing, or something in between. Many…
Regardless of party affiliation, this has been a big voting season for Colorado real estate and there was a resounding message relayed at the polls. Voters in Steamboat Springs, Aspen, Dillon, Glenwood Springs, Carbondale, and Summit County all decided whether to impose additional taxes on short term rentals and/or restrictions. Which ones passed/failed and how will this impact real estate values. Furthermore, other cities like Salida, Durango, and Grand Junction are getting into the mix with sharp increases in taxes on nightly rentals
In 20 years living in the Colorado Mountains, I have yet to see such a universal theme emerge in one election. Of the 6 major initiatives on short term rentals in ski towns all passed. The results in most mountain towns were not even close. For example, in Steamboat, 70% voted for a 9% increase in taxes on short term rentals bringing total to over 20% and in Summit county 75% voted for further increases in taxes on short term rentals. Even more surprising in Steamboat opponents of 2A (nightly rental taxes) spent hundreds of thousands of dollars and backing from major home rental companies and yet the initiative still passed resoundingly.
What are the new short term rental taxes in each Colorado ski town:
- [ PASSED] Steamboat Springs: proposed 9% increase in taxes on short term rental stays, which would take the total tax rate to 20.4%
- [ PASSED] 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%
- [ PASSED] 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.
- [ PASSING as of this writing, but close to call] 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%
- [ PASSED] Carbondale: Proposal to impose a 6% excise tax on private home vacation rentals to help bolster the town’s affordable housing fund.
- [ PASSED] Summit County: 2% increase on short term rentals within Summit county, home to Breckenridge, Keystone, Frisco, Dillon, Silverthorne, Copper Mountain, etc…
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.
- 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.
- 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 impacts on prices on short term rental changes due to the huge quantity of cash purchases. Someone buying a $3 million dollar home doesn’t have to rent. Note, there will be some impacts on the condo market as prices in places like Breckenridge got bid up as a result of low interest rates and good returns on rental income. This dynamic has changes as rates have more than doubled.
- 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 Disney World 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.
- 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.
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. We saw this trend loud and clear in yesterday’s election. Unfortunately, many full-time residents feel that short term rentals have gotten out of hand and eroded quality of life which means that this is just the beginning of short-term rental taxes and restrictions.
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. It is important that the economic factors impacting real estate today (high interest rates, stock market volatility, recession talks, etc..) are not pinned on short-term rental taxes.
As all the major resorts towns in Colorado 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 in today’s tumultuous market over the long term.
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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.
Fairview is the recognized leader in Colorado Hard Money and Colorado private lending focusing on residential investment properties and commercial properties both in Denver and throughout the state. We are the Colorado experts having closed thousands of loans throughout the Front range, Western slope, resort communities, and everywhere in between.
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