CO Short term rental elections 20% tax rates approved, what are the results and what does this mean to you and Colorado ski real estate?
Regardless of party affiliation, this has been a big voting season for Colorado real estate…
Breckenridge, Steamboat, Vail, Winter Park, and Telluride have all achieved record sales tax revenue this season. You aren’t imagining it, the mountains are getting busy! What is driving these all-time records? How does this impact real estate? Will real estate follow sales taxes and continue to increase or is there something else lurking? Is the growth sustainable?
What is driving the increased revenue?
The increased tourism as a result of Denver/Front range population increases, the expansion of summer, and elimination of the shoulder seasons has propelled the tax revenue in the various mountain towns to record highs.
How is mountain real estate impacted?
Not only has tax revenue been rising, but Real estate has also been hitting record highs in the various Colorado mountain towns. As more people are in town, more people end up buying real estate to take advantage of whatever drove them to visit the town. Many of the new buyers are following the mantra “buy for the winter, stay for the summer” as the mountains towns are becoming coveted for year-round recreation and quality of life.
Is the growth sustainable?
With sales tax revenue doubling over the last ten years in Breckenridge, it is impossible for sales tax revenue to continue growing at this pace. It is not possible to continue the current growth with existing infrastructure and it is difficult to substantially add infrastructure as many of the communities are basically built out. For example, look at a resort like Vail. There are only so many rooms available to rent in any given big holiday time period and the town is basically sold out. To increase revenue, the only alternative would be to increase prices. We have seen that there is a limit to price increases that the consumer would be willing to pay. With many resorts basically at “capacity” the ability to increase sales tax revenue substantially higher will be difficult.
Where do we head from here?
Front Range tourism: We are already seeing the population growth rates in Denver start to slow down from a high of over 3% to around 1% currently. With the population growth slowing, the available pool of prospective visitors will also slow.
National/International tourism: With the economy starting to peak/stagnate (depending on which side of the fence you are on) destination tourism will also be flat to declining. Consumer and business confidence are the largest drivers of disposable income spending. We have seen business confidence start to stutter in the recent jobs report that came in well below expectations.
Depending on how the economy reacts will determine whether revenues stay flat or decline, but I don’t see a scenario where revenues will increase much more.
How will record sales tax revenues impact real estate in the various Colorado mountain communities?
If you look at the appreciation in real estate since 2008 it has trended up with sales tax revenue. This leads to the question if sales tax revenue falls off what happens to real estate? If 2008 is any indication real estate could be in for a rough patch. In 2008 sales tax revenues declined substantially along with values in the various resort communities. Will this same cycle repeat again in the next recession?
I’m not sure in this recession we will see the same impacts as in the 2008 cycle. Before 2008 there was considerable building going on in the various mountain tows. Today, there is basically zero supply which should limit the downside risk to real estate.
Although the headline is catchy that Colorado ski resorts hit record sales tax revenues there are dark clouds on the horizon. We are at or very near a peak in sales tax revenues which translates into real estate also being somewhere near the peak in this cycle. Unfortunately, there are now only two choices left on the table, will sales tax revenues remain flat or decline? The same question can be asked of mountain real estate.
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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 the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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