Friday, February 23

The Crestone Eagle is a nonprofit monthly newspaper serving Crestone and the San Luis Valley

Huge tax increase looms over short terms

By Anya Kaats.

Crestone and Baca Grande short-term rental owners could see their property taxes quadruple as a result of newly proposed legislation endorsed by Governor Jared Polis.

Brought by a six-lawmaker committee in a 4-2 vote, the bill would classify properties rented out for more than 90 days per year on a short-term basis as “commercial lodging properties,” thereby increasing property tax from 6.765% to 27.9%, on par with tax rates for hotels and motels. 

The Colorado Legislative Oversight Committee Concerning Tax Policy held a public hearing concerning the proposed bill in October, and 75 property owners from across the state showed up in opposition. While similar measures have failed in the past, Proposition HH, which appeared on the November ballot, was seen as a precursor to stricter legislation regarding short-term rentals. Proposition HH, which was rejected by Colorado voters, would have reduced residential property tax so long as homeowners submit applications to their assessor’s offices designating their homes as primary residences starting in 2025. Any second or subsequent home, many of which are used for short-term rentals, would be taxed at a higher rate.

According to AirDNA, a platform with data for press and short-term rental businesses, there are 165 active short-term rental listings in the 81131 zip code, most available for rent through Airbnb and VRBO. Locally, the short-term rental market has grown at an average of 35% each year since 2020, with a current occupancy rate of 55% and an average nightly rate of $167. 

There is widespread disagreement in Crestone if the short-term rental business is beneficial for the community. Beyond the income generated by property owners, some of whom live here, locals are also employed in the short-term rental business as house cleaners and property managers. While some cite local employment, increased tax revenue generated by tourism, and income opportunities as beneficial to the community, others blame the short-term rental market for noise and artificial light disturbances, mishandling of trash and outdoor fires, a lack of community cohesion, and for eliminating affordable long-term housing for residents.

Crestone resident and single mother Rachel Slack has worked in the Airbnb industry since 2016 as both a short-term rental owner and a house cleaner and believes the short-term rental business is a positive for the community. “Many local single mothers have been able to create a thriving housekeeping business because the hours align with when their children are in school,” she said. Another local single mother, Christina Lakish, disagrees, claiming that short term rentals are making the cost and availability of housing very difficult. “A lot of single mothers don’t have decent places to live because all the homes that aren’t people’s permanent residences are Airbnbs,” she said.

The advantages for owners can be significant. A study by McGill University shows that homeowners who rent their properties year-round on a short-term basis can earn two to three times what they would by renting long-term. Airbnb also provides protections and insurance for short-term renters that landlords aren’t entitled to. How does this affect prices for rent or purchase of homes? In a 2017 study published by The Social Science Research Network, a 1% increase in Airbnb listings was found to increase the cost of long-term rentals by 0.018%, and home prices by 0.026%. Boiling down these numbers, the Harvard Business Review concluded that, “The growth in home-sharing through Airbnb contributes to about one-fifth of the average annual increase in U.S. rents and about one-seventh of the average annual increase in U.S. housing prices.” Clearly, in communities with a limited number of dwellings, short-term rentals affect both the cost of long-term housing and its overall availability.

Local resident and short-term rental owner Jason Anderson lamented the “blanket villainization” of short-term rental owners. “People Airbnb because it’s one of the only choices they have to make ends meet. I don’t think people really understand the demographic of those renting here, he said. “We tried long-term renting, but you don’t want me to go into the horror stories. Colorado is really skewed toward the renter. It’s much more difficult to be a landlord than a short-term renter.” Despite his resistance to regulation, Anderson believes that if property tax rates were to increase, local residents’ tax rates should be calculated differently than they are for “folks who are strictly profiteers.”

Another local resident of Crestone and short-term rental owner, Ryan Graham, feels similarly. Graham converted his home into a duplex in 2020 to rent half of it short-term. “We needed extra money and figured a short-term rental would help,” he explained. Despite owning a short-term rental, Graham believes that some degree of regulation could be helpful, especially since he is aware that many short-term renters in Crestone live out of town. “The lack of regulation of short-term rentals in Crestone has obviously caused a long-term affordable rental shortage. There should be a rule that you must live in the area in order to host, or a cap on how many Airbnbs are allowed in a community, or maybe an annual lottery system,” he said.

According to Nick Nevares, owner and broker of Mountainside Realty, “A fair number of buyers are purchasing property in Crestone in order to Airbnb it at least part time.” In a 2021 article in The Crestone Eagle, Vivia Lawson, broker/owner of Sangre de Cristo Real Estate, said she noticed “an increase in clients who want to buy properties for short-term rentals,” adding that she felt this was understandable given how profitable Airbnbs can be for creating financial security and paying off mortgages.

Changes in property tax revenue affect local districts in Colorado. The majority of property tax revenue is allocated to public schools, counties, special districts, and municipalities. According to a 2016 study released by the National Association of Counties, in Colorado, schools receive 49.8% of property tax revenue, counties receive 25%, special districts 18.7%, and municipalities 4.8%. According to Nonpartisan Legislative Council Staff, if approved, the proposed short-term rental bill would increase property tax revenues statewide by $371.2 million starting in 2026, eliminating the need for $78.2 million in additional state aid for local school districts.

A percentage of property tax revenue collected in the Baca Grande Subdivision and Town of Crestone gets reallocated for use locally through the County in addition to the Town of Crestone, which is considered a municipality. According to Crestone POA Community Membership Services Manager Shelley Saunders, some of Saguache County’s property tax revenue is spent within the Baca Grande subdivision, citing the 2023 county-funded spring cleanup. But it’s unclear exactly how much property tax revenue collected in the Baca gets redistributed for use within the POA’s jurisdiction. Within the Town of Crestone, property tax revenue accounts for only about 2% of general fund revenue sources.

For Anderson, the passage of this short-term rental bill wouldn’t affect his business, nor would it cause him to sell his house. Anderson explained that if a bill like this were to pass, he would simply ensure his house isn’t rented for more than 90 days per year through conventional channels.

On the other hand, Graham feels increased regulation would make a difference. “If the property tax rate were to increase on Airbnbs, it would decrease the amount of short-term rentals in the area, and the long-term rental problem here would be fixed.”

Whether or not Saguache County assessors would support a residential-to-commercial short-term rental proposal is unclear, but they did provide details on their opposition to this year’s ballot measure, Proposition HH, citing its proposed reduction in property tax revenue. “Proposition HH would greatly impact the next 10 years of budgets for county governments as they rely largely and sometimes solely on property taxes as their revenue source. Property taxes are crucial for county governments to provide services, facilities, and infrastructure needed and desired by their communities for public health, welfare and safety.”

The growth of the short-term rental industry has had a far-reaching impact worldwide. Many cities, counties, and towns are now working to prevent homeowners from renting their properties short-term by increasing taxes, imposing limits on the total number of short-term rentals allowed, issuing nights per year restrictions, and enforcing license requirements. In 2021, Summit County approved regulations that require homeowners to acquire a license in order to rent their property legally and limits the number of nights they can rent their home to 60 or 135 per year depending on the type of license they apply for. Denver, Boulder, and Aurora have already introduced higher tax rates for short-term rentals, and major cities across the world including New York City, Paris, London, Barcelona, Santa Monica, Amsterdam, and Florence have also imposed short-term rental regulations. 

Crestone currently requires short-term renters to obtain a business license and pay an annual fee of $150. Saguache County requires a permit and annual fee of $50. Despite these requirements, out of 165 active short-term rental listings, only five homeowners have applied for “home occupation” permits, according to Saguache County records. If stricter regulations on short-term rentals are imposed locally, it is yet to be seen if they would result in tangible change.

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