I’m amazed at the creativity in Denver to tax property owners more. The recent proposal is a “ghost tax” on select rental properties throughout Denver County. This ghost tax could be a game changer for the rental industry in Denver. What is in the new proposal? Will you be impacted? Why is the rental industry up in arms over the proposal?
What is the New Ghost/ Vacant home tax proposal in Denver
Advocates for more affordable housing units in Denver are floating the idea of what’s known as a “Ghost Tax” or VHT- vacant home tax- on Denver landlords as a new way to raise money to create more affordable housing in Denver. The taxes or fees are imposed on landlords whose properties are vacant and not rented for an extended period of time- typically about six months.
Why is a ghost tax even proposed?
Alderman, the communications officer for the homeless Coalition, explained “We want to encourage landlords to lower their rents on units that are sitting vacant while people are living outside. Is there a way to incentivize that lowering of rent so the working-class folks and the people experiencing homelessness in Denver have a chance to get into a rental unit? I think vacancy fees might be a way to think about that,” said Alderman. “This is one potential option of many that we think is worth exploring.”
She said that with an estimated 27,000 empty rental units in the Denver metro area, she believes corporate landlords are refusing to reduce their rents to appropriate levels of affordability.
“I don’t think it’s unreasonable to ask the housing community, when they have empty units for long periods of time, to consider making those units available to lower-income households,” said Alderman.
What did the Colorado Apartment Association say about the ghost tax
The Apartment Association’s Hamrick termed such a tax or fee in Denver a “very bad idea. A high vacancy rate is good for the consumer.” Taxing that or imposing any type of financial penalty moves the market in the wrong direction. All costs, including taxes, ultimately percolate down to the renter,” said Hamrick. “If you raise the fees or taxes on sesame seeds, all of a sudden Whoppers start to cost more.”
Why are there more vacant units in Denver now than in the past
Before getting into the merits of the ghost tax proposal, it is important to understand the policy choices in Denver and the Colorado legislature that led us to this point. Under the new legislation it is difficult and very expensive to get rid of bad tenant and a bad tenant will end up costing a property owner considerably more than they could ever recoup on rent. The legislation that led to this outcome is
- Habitability bill
- Survivors of domestic violence
- Just cause for eviction
- Proposals to allow jury trials for any evictions
Long and short it is extremely expensive to have a bad tenant, so property owners are being selective on who they rent to and intentionally not lowering rents to avoid bad tenants. The situation of high rents and vacancies is fully created by Denver and the Colorado legislature.
Ghost tax/ Vacant home tax is a bad idea
The idea of targeting expensive rentals that are sitting vacant waiting for the right tenant is a very bad idea. On the surface it might have some short term impact on vacancies, but long term it will lead to a huge reduction in inventory which will make Colorado more expensive. Developers will go to much more business-friendly venues like Salt Lake City to build new apartment buildings.
This is basic economics, and we can see this in every single city that tries to artificially alter the rental market. For example, look at NY, they have tried the same tactics and rents have surged. Trying to place the blame of high rents on corporate landlords is absurd. I wish our legislature would take a basic economics class to understand there is a cost for each action and money does not go on trees. All renters will ultimately pay for the legislation and will lead to much less supply and higher costs for every renter in Denver.
Additional Reading/Resources
https://www.cbsnews.com/colorado/news/affordable-housing-advocates-new-ghost-tax-denver-landlords/
https://coloradohardmoney.com/colorado-habitability-bill-impact-on-owners/
https://coloradohardmoney.com/category/colorado-affordable-housing-proposals/
https://coloradohardmoney.com/colorado-just-cause-for-eviction/
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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.
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