In just about every destination or gateway town, not only are short-term rentals squeezing the last drops out of the affordable housing supply, but more profoundly, they are threatening the very character that drew in locals—and tourists. For example, in Crested Butte in 1997, short term rentals were a mere 6%, by 2016, they were almost 30% of the housing stock. Similar scenarios are playing out throughout the country in almost every city. How does this impact affordable housing? What have cities done to address short term/nightly rentals?
Short term rentals have ballooned.
The total number of houses in places like Crested Butte, a Colorado mountain resort town, have barely budged while the demand for housing has increased (from both second homeowners and residents). This has driven up the prices exponentially as housing stock has been removed due to short term rentals. Don’t get me wrong, short term rentals are not the only issue leading to higher prices in many resort communities and lack of affordable housing, but they are a significant contributor of a decrease in supply of available units.
Why is this important? Tourism in many areas continues to grow. To keep up with the influx of visitors, businesses must hire employees. No surprise, these employees have a shortage of places to live and therefore it is harder for businesses to even find employees. This is playing out in “destination” cities throughout the country.
There is a way to help alleviate this problem and provide balance.
Colorado seems to be on the forefront since there are so many communities heavily dependent on tourism. Here are three solutions that have been implemented.
- Denver: They passed very strict ordinances. The property must be your primary residence & written permission must be maintained from any HOAs, owners, landlords, etc… This eliminates most nightly rentals in the city.
- Salida: They were innovative in their approach. Changes short term rental zoning to commercial therefore increasing the taxes substantially; the tax rate increases from 7 to 29%.
- Durango: They went a different route and placed strict limits on short term rentals. They barred short term rentals in certain areas and capped the number in each neighborhood block.
Will regulating short term rentals cause values to plunge?
There is talk that by limiting short term rentals property values would plummet. This is clearly not the case as values in all three cities above have continued to climb well above the national average. So how can cities solve the affordable housing crisis? By utilizing one of the three methods above or a hybrid would help alleviate the housing crisis.
What is the best approach?
The optimal approach would be a combination of what Salida has done and what Durango has done. There are certain neighborhoods where short term rentals should not be allowed. For example, in Steamboat Springs there are neighborhoods where the HOA bars short term rentals. To be fair to all businesses, people renting their house short term should also be taxed as other businesses that focus on short term rentals (like hotels) and therefore should pay similar tax rates.
Cities need to find a balance.
There is no way to completely eliminate short term rentals, but cities should take back control of their housing situation to help local businesses and residents “cope” with the affordable housing crisis that will only get worse with no action.
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Written by Glen Weinberg, COO/ VP 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 the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).