With much fanfare, CO legislators met in a special session to focus on…
Joining Denver and some of Colorado’s biggest ski towns, which have created strict rules for STRs in recent years, residents across Jefferson County (suburb of Denver) say they have fallen victim to an issue that has long plagued other parts of the state. Why are the suburbs so late on short term rentals? Is this a trend or just a blip? Are short term rentals really a problem in the suburbs? How will this end up?
Why are suburbs now noticing an influx of short term rentals?
Real estate is like a bathtub. As restrictions have been put in place in the metro area it is natural that areas with no regulation now become more desirable. We see the same thing occurring in Summit county. When Breckenridge put in strict regulations on nightly rentals all of the sudden Copper Mountain and Keystone became very desirable markets as they allow unlimited rentals.
The same situation is occurring in Jefferson county. As Boulder County and Denver county have addressed the short term rental issues with increased regulation, the new desirable area is Jefferson County (Evergreen, Morrison, etc…) that basically have zero regulations but are still close in to the metro with a “mountain” feel.
What is happening in Jefferson county (a suburb west of Denver)
Residents say investors have come to Jefferson County in droves to take advantage of the area’s beauty and attractiveness for tourists, as well as its lax STR regulations. According to O’Keefe ( Jefferson County’s director of planning and zoning) Jefferson County does have a licensing requirement for STR operators, but the county’s ability to enforce that requirement is extremely limited.
O’Keefe estimates that there are “probably seven or eight hundred short-term rentals operating in Jefferson County illegally.” However, he explains, because STR vendors have not complied with the county’s requests for data regarding the number and location of STRs in the area, that estimate is rough.
“Only 28 short-term rentals have gone through the process and been approved [for a license],” he adds.
What is Jefferson county proposing on short term rentals:
O’Keefe says that the Jefferson County Planning and Zoning department is actively “in a process right now to update our regulations.” He says the county will be conducting multiple community meetings to gather feedback on the future of STR rules — though dates have not yet been set. He adds that they will be conducting research on STR rules in neighboring municipalities, and they plan to hire third-party contractors to assist in their enforcement of the regulations.
Denver is one road map on short term rentals
The City of Denver defines a short-term rental as the provision of lodging accommodations to guests for less than 30 consecutive days, in exchange for remuneration. Importantly, only primary residences can operate as Denver short-term rentals. A primary residence refers to the place where an owner’s habitation is fixed and to the owner’s usual place of return. A person can have only one primary residence. The Denver short-term rental laws make it one of the most restrictive Colorado markets for investing in vacation rentals. The law prohibits non-owner occupied Airbnb rentals, so full-time and remote investors cannot invest there.
Douglas County is another prospective template:
Currently renting out properties or parts of properties for less than 30 days is virtually illegal in Douglas County. While there are rare exceptions, Douglas County short-term rentals are not a viable option for investors. Regardless of which one is chosen, there will be considerably more regulation and less nightly rentals.
What happens to property values when short term rentals are restricted in the Suburbs?
I can guarantee that the wild west of short-term rentals will come to a crashing halt just as it has in every other city/county in Colorado. As regulation is greatly increased most, if not all, short-term rentals will be eliminated. What does this mean for property values?
We have seen a similar story play out in every Colorado ski town. As regulations eliminated short term rentals in certain zones, some properties declined in value. A good example is in Breckenridge where it could take 8-10 years to get a new license in some areas. When properties are sold, the license does not transfer to the new owner so there is a reset in prices on the higher end as the houses no longer produce revenue. Although I haven’t seen any formal statistics that can clearly break out the impact, there are price declines in certain areas/price points in the market.
Fortunately, a place like Evergreen is not a one-to-one comparison to the ski towns. It is not a typical “resort” market and therefore not bound by the same economics. I suspect overall restricting/banning short rentals will not have much impact on prices in Jefferson County Colorado. But, on particular properties there will be huge price resets. For example, there are multiple properties in Morrison, close to Red Rocks amphitheater, that make a lot on nightly rentals. As rental regulations are increased, many of these properties will experience a huge decrease in value.
I find it interesting that the director of planning emphasizes how his department is “overwhelmed” by short term rental issues. This statement is definitely perplexing as every ski town and Denver has figured this out over the last two or three years so there is a readily available template along with 3rd party vendors that can resolve this issue quickly. This is why residents are so disappointed as short-term rentals in neighborhoods is not a novel concept.
We have seen in every single ski town an aggressive push to highly regulate/limit/eliminate short term rentals dependent on the area. The same will occur in Jefferson County with strict regulation, enforcement, and in many cases elimination of short-term rentals in certain areas.
It will be interesting to see if Jefferson County follows Denver or Douglas County as a model for regulation. Fortunately, in a suburban area, I do not foresee a big impact on pricing on the whole, but particular properties that have “priced in” the rental income will face a major reset in prices.
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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 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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