One mountain town just proposed a fee of 5,064/room; the fee for a 4-bedroom house annually for a short-term rental license would be 20k. According to the study, after looking at local economic data on the workforce, the affordability gap and occupancy rates, the market could support fees this high. What town proposed this fee? How realistic is this study that the market could absorb a fee on short term rentals this high? Will other ski towns follow suit.
What Colorado ski town is proposing the huge short term rental fee increase?
The Basalt council originally considered a fee of 5,064/bedroom for short term rentals within Basalt.
The fee and its suggested amount is the product of a STR Regulatory Fee Study from Denver-based Economic and Planning Systems. The study analyzed the effect of STRs on cost of living and affordable housing demand.
Using local economic data on the workforce, affordability gap and occupancy rates, the study concluded that the town could levy a fee as high as $5,064 per bedroom per year.
After churning through the Basalt Affordable Community Housing group and the Basalt Planning and Zoning Commission, the proposed fee was reduced and the council is now considering levying a $2,532-per-bedroom annual fee on STR licenses, with exceptions for those who rent for 60 or fewer days each year or those who use the unit as their primary residence. The issue returns to the council’s agenda on Tuesday evening.
After hours of discussions that go back to January, the parameters and exceptions to the fee are subject to change. The proposal now alternatives of $750 or $1,670 per bedroom, and council members have discussed widening the criteria for exceptions.
How accurate is the study on increasing fees to 5k/room for Colorado nightly rentals?
I’m not convinced that 5k/room would be able to be absorbed by the market as the study notes. I haven’s seen the details of the study but can guess how they came to the conclusion. Here are three issues with the 5k/room.
- Single family homes are much more expensive to operate than commercial properties: I assume part of the study looked at commercial property rates of hotels and made and assumption that similar fees could be absorbed by short term rental users. If I assume a 4 bedroom house is rented for 175 days a year, the increased cost/night is 114 dollars, if I look at the chart above, rental rates are basically flat at best so assuming the average rate is 500/night, this would be a 20% jump. I don’t think the market could absorb a fee like this. Add this fee on top of huge increases in ski passes and there will be a huge reduction in demand.
- Other cities will not implement a fee schedule this high: I’ve written before that ski real estate is similar to a bathtub where it will ultimately level itself. If Basalt implements a fee this high, then people will rent more frequently in Snowmass or drive further and rent in Carbondale.
- Already a softening in travel which will make the fee impossible to pass on: Although the chart above shows a linear increase in nightly rentals, I would strongly disagree with these predictions. The US travel market is already starting to soften as airfares increase and international travel ebbs. Long and short destination travel is what will drive high room rates as opposed to drive up traffic from cities like Denver. This will make it difficult/impossible to pass on 20% plus increases.
Did Basalt actually implement 5k/room?
Although the discussion started at 5k/room, Basalt now seems to be coalescing around a much lower number of 800-1700/room which would be much more manageable for the industry to absorb.
What impact does the proposed fee have on short term rental fees in other Colorado ski towns?
Although Basalt is making decisions regarding room rates in a silo, we have seen time and time again that this is a bad idea. There needs to be regional planning to ensure any issues with short term rentals is not just moved to a different city. A good example is what occurred in Breckenridge when they substantially tightened STR rules, more STRs were recorded throughout the county and in places like Leadville. The same will happen around Basalt where Carbondale and other down valley cities will feel the impact.
Summary of huge increases in STR taxes in Colorado ski towns.
I’m not convinced that implementing a 5k/room charge could be absorbed in a market like Basalt compared to a market like Aspen which has much higher average room rates. The city council was correct to lower the fee to a more reasonable number, but this still leaves the fundamental economic issue that decisions are being made at the city level that ultimately impact and entire region. If Basalt implements a 2k/room fee either cities like Carbondale will need to match the fee or they will be overrun with nightly rentals. We saw how this played out in Breckenridge with huge increases in nightly rentals throughout the county due to stricter regulations in Breckenridge.
Furthermore, there is a dichotomy occurring in every resort town where cities rely on sales tax revenue to fund budgets and expand government services while at the same time there is considerable impact from over tourism in these same cities and residents are pushing back against more tourism. The fundamental question is how to balance these two forces and it is not just nightly rentals. For example, in Steamboat there are over 1k new units coming online with two large scale hotels and various projects at the base of Steamboat resort which will greatly alter the town including tourism, tax dollars, etc…
Look for the residents to continue to exert more control over tourism in the upcoming years as they seek to achieve a better balance. I’ve said this before, but regulations on tourism are just getting started in many mountain towns as full-time residents are the only ones that get to vote.
Additional Reading/Resources:
- https://www.aspendailynews.com/news/basalt-officials-expected-to-vote-on-short-term-rental-fee/article_250867a3-8707-4025-be1f-800111fdfa8c.html
- https://coloradohardmoney.com/airbnb-growth-slows-what-does-this-mean-for-colorado-ski-real-estate/
- https://coloradohardmoney.com/one-ski-town-bans-second-home-owners/
- https://coloradohardmoney.com/ski-passes-rise-impact-on-real-estate/
- https://www.airdna.co/outlook-report
