Housing affordability top priority for Colorado legislature,  will they tax nightly rentals as commercial properties?

“My No. 1 priority this session is to bring down the cost of living in Colorado,” House Speaker Alec Garnett, a Denver Democrat, said in his opening day remarks.  With cost of living primarily being driven by the surge in house prices and in turn increasing rents, what is the Colorado legislature proposing.  How will this impact property owners?

Why is housing affordability a top concern for the Colorado legislature this year?

It is no surprise that affordability is the hot topic in this years Colorado legislative session.  Housing appreciation has been off the charts.  In Denver last year the metro area increased over 22% and over the last 10 years the metro has increased over 150%. The housing appreciation has been passed on to not only new buyers but renters.  As housing prices increased, rents in turn have also skyrocketed as property owners pass on the higher costs.  For example, if a house costs an investor 300,000 the rent might be 2,000 a month, but now to buy the same house is 600,000 in order to make a return, the new rent would be closer to 4,000 a month to cover higher taxes, insurance, mortgage payments, etc…  It is no surprise that housing has become the largest driver of increased costs in Colorado

What is the Colorado legislature proposing to tackle the high cost of housing?

Like in the last session, it seems like the legislature is pinning much of the blame on nightly rentals with their proposes legislation.  Here are a few of the proposals:

  1. Incentive program modeled after Winter Park: Winter Park is piloting a program to provide cash to property owners to rent long term for affordable housing. They are providing 5k for a studio/one bedroom and 10k for a two bedroom.  In theory this is an interesting program at the local level, but I do not think there is the ability to scale it throughout the state and in the end who pays for it and for how long?  Unfortunately this proposal is a very localized expensive option.
  2. Tax nightly rentals as hotel/commercial properties: There was a proposal last year in the legislature that was ultimately killed due to intense lobbying from the nightly rental companies and many realtor associations.  I think there is more appetite this year as a funding source for affordable housing and other projects needs to be identified.  It will be interesting to see if the second time is a charm for increasing taxes on nightly rentals as the nightly rental and real estate lobbying arms are staunchly against this bill.
  3. Require nightly rental firms to share information on listings: Although this will not impact affordable housing directly, it will help local governments identify nightly rentals that are not properly licensed/collecting taxes.  i see this passing with bipartisan support.

When I looked through all the pending bills on the legislature website I didn’t see any other noticeable bills targeting housing affordability, but there were some interesting bills that made me scratch my head in wonder what our legislatures are actually doing.

Will any of these bills impact the affordable housing trajectory in Colorado?

On a local level, the bills above might help incrementally, but none of them will be a game changer in reducing the high cost of housing throughout Colorado.  The root cause of the affordable housing crisis is there is more demand than supply.

Summary

It is interesting that the number one priority in the legislature is to bring down the cost of housing, yet there have been no drastic steps to actually influence the largest driver of cost of living, housing.  Housing prices along with rents continue to accelerate throughout Colorado as demand outstrips supply.  The bills proposed might help some mountain towns in a small way but at the end of the day they do very little to change the supply and demand equation.  Affordable housing, or lack thereof, will remain a priority for voters with no easy solutions.

Additional Reading/Resources:

  1. https://coloradosun.com/2022/01/13/colorado-legislature-2022-republicans/
  2. https://www.steamboatpilot.com/news/short-term-rentals-on-the-table-for-colorado-legislators/
  3. https://www.thedenverchannel.com/news/politics/polis-democrats-outline-top-priorities-for-2022-legislative-session
  4. https://leg.colorado.gov/bills-by-bill-number
  5. Denver home price appreciation hits another record, but gains are slowing (denverpost.com)
  6. https://www.skyhinews.com/news/winter-park-hopes-cash-can-convince-short-term-rentals-to-house-workforce/

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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 MagazineThe 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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