What is the main culprit for increasing prices in ski towns? The list is endless but typically at the top is the huge increase in nightly rentals and the big bad mega passes bringing more people to the ski towns. Unfortunately, this answer is incorrect, it is a symptom not the root cause. It is like saying a headache is why you don’t feel good, but what caused the headache? What is the real root cause of surging prices in ski towns? What simple step can every ski town take?
An example from Steamboat Springs of root cause of affordable housing “crisis”
A new extended stay hotel was recently announced in Steamboat Springs, CO a four-story, 57,971-square-foot property to open in the second half of 2027 which will have about 114 rooms. The property will feature guest amenities, with each room having a well equipped kitchen that includes a full-size refrigerator, a built-in cooktop, a dishwasher and a multi-function convection microwave.
On the surface, this sounds great. But will this extended stay hotel actually be a benefit to Steamboat Springs?
- Not a single employee can afford to buy in Steamboat: Running a 114-unit extended stay hotel typically requires between 25 to 35 total employees (according to various ratios for an extended stay hotel). The median home price in Steamboat is 1.5m which means the min income would be 350k/year. I’m highly doubtful any employee at the hotel would be paid 350k/year
- Extended stay model produces less sales tax revenue: the whole model for the extended stay is to provide kitchens so that visitors can cook and not eat out which will greatly reduce sales tax revenue for the City of Steamboat Springs.
- Traffic/congestion impacts: This hotel is on the West side of Steamboat, so every morning between 8 and 9 there will be an additional 114 cars on the road to get to the ski resort through the middle of downtown
- City services costs: It is a numbers game, assuming 2 people on average per room that is an 228 people that could require city services from police to fire to medical. For example, you can look at search and rescue calls, they surge during high visitation periods. It is a numbers game.
I’m not against hotels or extended stay properties; the issue is that Steamboat residents are subsidizing a business that will not bring in enough tax revenue to offset the expenses that are driven by the business.
Basic economics changing every ski town’s housing model
In many cities like Steamboat 70% of the general fund budget comes from sales tax. The overwhelming majority of the sales tax revenue comes from visitation. In every ski town, the theory has been to increase visitation, and you get higher sales tax revenue and then a bigger general fund budget. Unfortunately, this does not work. Even with rising sales tax revenue costs are far exceeding any increases in revenue. Essentially the increased tourism is leading to more costs for the cities that are leading to budget shortfalls.
This is where the concept of the Ponzi scheme comes in. The theory is to use new increased tourism to fund existing tourism that is not fully paying for itself creating the “Ponzi” effect where new tourists are required to keep the scheme going. Even though every city council in every ski town should recognize the theory above, none of them do. The answer to the budget shortfall is almost always to just increase tourism
A good example is in Breckenridge. Budget shortfalls have council members “wondering if more events could help solve the problem.” In essence increase a money losing proposition in order to help sustain the status quo.
Although nobody has technically been defrauded by using the next guy to pay for the first guy that is not profitable, it is in essence the same as a more traditional Ponzi scheme except in politics it is perfectly legal as we as taxpayers continue to allow it and pay for it!
Basic economics show that real estate prices are increasing due to increased demand
The act of merely providing more affordable housing is creating the housing crisis in every mountain town. Look at the chart above, demand is increasing from D1 to D2 while supply is staying about constant which leads to increasing prices. This is basic economics 101.
Let’s take the example in Steamboat above. Based on this new hotel Steamboat will need 35 additional affordable housing units which will increase housing demand in Steamboat. Unfortunately supply can’t keep up with demand (and never will in a ski town) which is leading to the jump in prices. This same scenario is playing out in every ski town throughout the country.
Affordable housing causing the increasing in demand and ultimately prices
Affordable housing is the root cause of increasing prices. I know, it is a bit ironic, but essentially by each ski town continuing to build affordable housing it is subsidizing business like the extended stay hotel by providing housing for their workers at below market rates. Unfortunately, by subsidizing labor costs for businesses, it is encouraging more businesses to have the same business model as we see with the new hotel in Steamboat.
This is a bad policy that every single Colorado ski town is guilty of. Unfortunately, with the current model of continuing to build affordable housing which subsidize more demand the issue of affordable housing is actually getting worse as there is no way you can ever increase supply enough without addressing demand.
What is the real solution for affordable housing in Colorado ski towns
The only way to get a handle on the affordable housing crisis in every ski town is to quit subsidizing businesses. For example, in Steamboat, the hotel should be required to provide housing for every new worker they are creating by either providing rooms for their employees, buying properties, or paying a fee to the housing authority to fully cover the cost of the 35 new units. For example, let’s assume they buy condos for their employees, this would cost around 600k/unit multiplied by 35 would be a cost of 21 million… this is the actual cost to the community for the extended stay hotel in steamboat. I doubt the model would work if the impact fee were 21m!
Ski towns must change the affordable housing model
As we can see above, although the city happily approved a new extended stay hotel, it actually is costing the city over 21 million for the housing impacts so not the best deal for the city and its residents. This leads us to the million-dollar question of what every Colorado ski town should do:
- Get out of the housing business to subsidize businesses: every ski town has demonstrated that the idea of the government subsidizing businesses labor costs does not work as every ski town continues to have a self-created affordable housing crisis
- Focus on critical workers: Affordable housing in every ski town should only focus on critical workers like police, firefighters, county workers, etc…
- Any affordable housing must replace increased tourism: The only way to reduce the crisis is to slow the demand side. Supply must be taken offline in order to reduce demand. For example instead of spending 2 million/unit to build affordable housing, instead use grants for critical workers to buy existing properties and place deed restrictions on the property.
- Stop Building huge affordable housing complexes: End the building of affordable housing complexes/developments that are not solely focused on critical workers.
Affordable housing is not a crisis, it is a self-induced train wreck
The housing “crisis” started in the late 80’s and early 90’s and yet we are still in a crisis 40 years later. Clearly the solution of just building affordable housing for everyone is not working! It should be no surprise as nothing has been done to slow down the demand side and it is impossible to keep up with supply with the high costs of building.
To really address the affordable housing issues, every ski town needs to recognize that the decisions they continue to make regarding affordable housing are the root cause on the self induced train wreck around housing. Every Colorado ski town continues to subsidize businesses labor costs which is the root cause of the issue. By subsidizing business models like a hotel in Steamboat every ski town is creating continuous pressure on housing demand that can and will never be filled.
Long and short the “affordable housing crisis” is not a crisis. It is a series of bad decisions by local governments that continue to create the “crisis” for the last 40 years. Until changes are made by local ski town governments nothing will change and we will be talking about the housing crisis another 40 years from now.
Additional Reading/Resources
- https://www.steamboatpilot.com/news/developers-break-ground-on-new-hotel-project-on-steamboat-springs-west-end/
- https://coloradohardmoney.com/is-affordable-housing-worth-2-million-a-unit/
- https://coloradohardmoney.com/socialist-wins-in-colorado-impact-on-colorado-real-estate-remote-workers/
- https://coloradohardmoney.com/vail-in-big-trouble-will-they-sell-breckenridge-and-park-city/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. He is the owner of 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.
Glen resides in Colorado, lends in Colorado, owns property in Colorado, and services loans in Colorado which provides a unique real estate prospective of what is actually happening on the ground both in Denver and throughout Colorado. My goal of this real estate blog is to provide an honest assessment of what I see happening in Colorado real estate and how it will impact real estate owners, buyers, realtors, mortgage professionals, etc…
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