By Anya Kaats.
Crestone and Baca 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 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 last Tuesday, and 75 property owners from across the state showed up in opposition. While similar measures have failed in the past, Proposition HH, which appears on this year’s ballot, is seen as a precursor to stricter legislation regarding short-term rentals.
If Proposition HH passes, it would reduce 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. These potential changes, coupled with the Governor’s endorsement of the new short-term rental bill, bode well for its success in 2024, but the lack of public support presents challenges.
According to AirDNA, a platform that provides data for press and those in the short-term rental business, there are currently 165 active short-term rental listings in the 81131 zip code, most of which are available for rent through Airbnb and VRBO. Locally, the short term rental market has grown steadily at an average rate of 35% every year since 2020, with a current occupancy rate of 55%, and an average nightly rate of $167.
Short terms locally
There is widespread disagreement in Crestone about whether or not the short-term rental business is beneficial for the community. Beyond the income generated by property owners, some of whom live here, local residents are also employed in the short-term rental business as house cleaners and property managers. While some cite increased tax revenue generated by tourism, local employment, 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 local 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 net 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.” But another local single mother, Christina Lakish, disagrees, claiming that short term rentals are making the cost and availability of housing for locals 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 explained.
The advantages for owners can be significant. A study out of 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. But 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 local 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.” Anderson built a straw bale house in Crestone many years ago, and he and his wife raised their two sons in town. When the boys became teenagers, they decided to send them to school in Salida. While the family currently splits time between Salida and Crestone, Anderson considers Crestone their primary residence. “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 in order 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.”
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.
More in-depth research would need to be conducted in order to assess what percentage of local short-term rentals are owned by local residents compared to those owned by people and companies based elsewhere.
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.
Local property taxes
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 recent 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. In a letter written by Leslie Klusmire, former Interim Crestone Town Administrator concerning the 2022 Crestone budget, she asserted that “Strengthening property tax revenue would provide a more stable revenue stream to the Town to better provide services to all its residents during economic downturns.”
For Jason 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, Ryan 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.”
Short terms far-reaching impacts
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 such as New York City, Paris, London, Barcelona, Santa Monica, Amsterdam and Florence have also imposed short-term rental regulations.
According to a recent article in the Grimes Report, the Town of Crestone currently requires short-term renters to get a business license and pay an annual fee of $150.00. Saguache County, which presides over the Baca Grande subdivision in these matters, also requires short-term renters to apply for a permit and pay an annual fee of $50.00. 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’s yet to be seen whether or not they would result in tangible change.
Whether or not Prop HH or next year’s proposal are successful, the merits of the short-term rental industry remain a topic of debate locally, and around the world. It’s likely only a matter of time before proposals for increased short-term rental regulation will infiltrate the local market, affecting local residents and homeowners.
Image: Uma Jolicoeur