Updated on January 30, 2023
Originally posted on VRM Intel
More stringent short-term rental (STR) regulations have been gaining momentum at city councils and legislatures all over the country.
“It’s like a short-term rental regulation pandemic,” said Tracy Sutton, president of Aspen Signature Vacation Rentals and leader of the newly formed Aspen and Pitkin County Short-Term Rental Alliance (APCSTRA). “It has swept across the country just about as fast as the Covid pandemic, and it’s affecting everyone from coast to coast.”
Once thought relatively immune from regulatory threat, Colorado has seen the gamut of local ordinances and state bills this legislative season. The Mountain State has become a hotbed of this regulatory activity even since Covid lockdowns ended, a bellwether of trends unfolding across the United States.
Affordable housing as the rallying cry against short-term rentals
Across the country—and especially in Colorado—the shortage of affordable and workforce housing has been cited as the catalyst for proposed bans, caps, or other policies that restrict STRs.
Housing is a priority policy issue for most local governments, according to Commissioners & Counties Acting Together (CCAT), which advocates for local governments in Colorado.
In February, Ruth Aponte, the group’s head lobbyist, told state lawmakers that CCAT recognizes the critical role that STRs play across the state. However, local officials want to limit STRs to prevent housing shortages from getting worse.
City officials across the country, including Park City, Utah, and municipalities in Charleston County, SC, have expressed similar sentiments, according to Rent Responsibly’s 2022 State of the STR Community Report.
Breckenridge and other towns in Summit County, Colorado—as well as the county’s board of commissioners—have considered reducing the number of STRs with the hope that those homes will convert into affordable, long-term housing, and their proposals range from caps or bans to higher licensing fees.
However, this approach is oversimplified.
In vacation destinations where property values are high and people own homes that they visit regularly, simply capping and reducing the number of STRs will not generate more affordable housing.
In Summit County, for example, most of the STRs are multimillion-dollar homes where owners periodically stay to ski or hike. The average house price in Summit County is over $1.5 million.
“The reality is we are in the middle of a nationwide housing crunch due to skyrocketing real estate values, inflation, and pandemic work flexibility,” said Philip Minardi, director of public affairs for Expedia Group. “In fact, markets like Colorado were a more desirable destination than many during the pandemic for second homeowners because of the abundance of outdoor recreation, which was perfectly suited for remote workers during a pandemic.”
Combine that with increased demand by travelers for STRs over hotels for pandemic-related concerns, Minardi continued, and you have got a lot more homeowners temporarily or permanently relocating to areas that previously saw less activity and a lot more people choosing Colorado STRs to escape the cities.
“The only way through the forest is with fair and effective policies,” he said.
“The vacation rental industry seems to just be an easy target,” said Julia Koster, executive director of the Summit Alliance of Vacation Rental Managers (SAVRM). “Local officials see houses or condos occupied by visitors and assume that it would be an easy transition to convert those into workforce housing. The problem is, these officials do not realize that the homeowners are simply not interested. Why would someone convert a ski-in-ski-out condo in Breckenridge into workforce housing?”
“Increasing restrictions or raising taxes and licensing fees will not have any lasting impact on the workforce housing challenges we face; instead, we’ll have a different problem due to a reduced capacity for overnight visitors, which our community relies on to support our local businesses,” Koster continued. “To solve the workforce housing challenges in Summit County, we need to find creative solutions to develop new parcels of land. We often hear that ‘building our way out of this’ is not an option, but truly, that is our only option.”
Pros and cons of moratoria on new short-term rental permits
“Moratorium” was a word of the year last year, and that has continued into 2022 with no signs of slowing down. Moratoria, or temporary pauses on approving new STR permits, are popping up in destinations across the country. These can last from a few months up to a year, in some cases, and councils can extend them multiple times.
Sutton said a moratorium comes with pros and cons. While it freezes the growth in the number of STRs, it also can enable city officials to slow down their ordinance drafting and public engagement process to be more thoughtful and measured in crafting regulations. This gives STR operators more opportunities to engage with the community and elected decision-makers on how to move forward with more permanent rules. Sutton said she appreciates the city council’s time to do their research before passing more restrictive STR regulations.
The City Council in Steamboat Springs, a city of nearly 13,000 in Colorado’s Yampa Valley, first imposed a moratorium on STRs in June 2021. Council members said they wanted to take the time to research how STRs are impacting long-term rental housing, neighborhood character, sales and lodging tax collection, safety, and enforcement.
The moratorium has since been extended three times and will remain in effect until at least June of 2022.
In December 2021, Aspen—also known as the most expensive ski town in America—placed a nine-month moratorium on new STR permits, citing an effort to stop the loss of long-term housing.
The moratorium’s flip side is the uncertainty injected into a marketplace that requires significant planning. Any homeowner who had an STR permit in 2021 could renew it for 2022, but after September 2022, there are no guarantees. The city has discussed requiring a 30-day minimum stay and other restrictions. STR operators are hamstrung from booking reservations past September, said Sutton.
“If we take a booking for next Christmas (a popular time to visit Aspen), and the city extends the moratorium or prevents STRs, then we can’t release the money for the booking to the owners, and we can’t guarantee those guests would have a place to stay,” she said. “Christmas is our busiest time of year.”
Commercial property tax bills and other tax hikes target short-term rentals
While responsible STR owners already pay property taxes, income taxes, and lodging taxes, they now may face a commercial property tax rate.
Lawmakers of both political stripes in Colorado and Arizona have proposed allowing jurisdictions to tax STRs at the commercial property tax rate.
HB 2321 in Arizona would allow STRs to be assessed at the commercial rate if they’ve been rented out short-term for more than 120 days per year. Homeowners who short-term rent part of their primary residence or live more than 60 days at their STR could be exempt from the commercial rate.
SB 1108, also in Arizona, would cause STRs to be assessed at a commercial property tax rate, exempting only STRs that are the owner’s primary residence.
At the time of this article’s writing, no legislators had introduced bills in Colorado, but some legislators are meeting with stakeholders to discuss potential options, said Christine Staberg, founding partner of The Capstone Group, a public affairs firm based in Denver.
Approaches they are considering include:
- a pro-rata system to assess a commercial rate for the nights a property is short-term rented and a residential rate for non-rental nights;
- establishment of a new property tax rate (perhaps 20 to 22 percent) for lodging properties, including hotels and short-term rentals;
- a statutory restriction to allow a homeowner to pay the residential rate on a primary and secondary residence and a commercial rate on any additional owned properties.
Before the current legislative session, the state’s Legislative Oversight Committee Concerning Tax Policy declined to endorse a commercial tax bill for the 2022 session and instead directed the Task Force Concerning Tax Policy to assemble a report for the committee.
As noted in the February 2022 report, “many states have preferential tax treatment for residential property. However, Colorado’s preference is among the most extreme. The assessment rate differential between residential and most non-residential property of 7.15 percent and 29 percent results in an effective tax rate on value of more than 4X for most non-residential property relative to residential property.”
“The discrepancy in taxation rates helps explain why commercial vs. residential tax rate has become such a hot topic in Colorado,” Staberg said.
While a commercial property tax rate would yield more revenue for local governments, it could make it infeasible for some operators to continue short-term renting their property. That would have a trickle-down effect on STR service providers, like housekeepers, suppliers, and other businesses that rely on tourism, said Dana Lubner, head of leadership development at Rent Responsibly and president of Denver’s Mile High Hosts. If there are fewer operators, travelers might choose a different destination than Colorado, risking important tourism revenue, she said.
If legislators pass commercial tax rates in Arizona or Colorado—this session or in the years ahead—they could set a precedent for the rest of the country. Increases in lodging tax or the creation of new excise taxes are on the table as well, all of which have to go to a public vote in Colorado. (More on this in the fall outlook section later in this article.)
+ The issue that won’t go away: actual party houses and the party house bogeyman
Despite representing single percentages of properties and booked nights, party houses continue to draw unwanted attention to the industry and have become a prime trigger for more stringent regulations on all STRs.
“The neighbors living next to a party house have a big voice because it’s an issue they’re dealing with and are passionate about,” said Linda Curry, a Mesa STR owner and president of Arizonans for Responsible Tourism (AZRT).
“For the people who are hosting responsibly, a lot of their neighbors don’t even know it’s happening, and of course, they are not going to speak out about it if nothing bad is happening.”
AZRT leaders refer to irresponsible operators who allow parties as the 1 percent minority.
They analyzed police reports in Paradise Valley, Arizona, a suburb of Phoenix, and found that only six properties made up 51 percent of the 679 noise complaints in that town between October 2019 and October 2021. Four of those properties made up 43 percent of complaints, and two properties had more than 30 violations each.
“Careless hosts and disrespectful guests reflect poorly on all of us (we call them the 1 percent),” AZRT wrote to Arizona lawmakers as part of their support for Arizona House Bill 2234, which would discourage irresponsible operators.
The bill would authorize stiff fines against vacation rentals that break the law, and repeat violators would have their license suspended after three violations.
“In the case of Paradise Valley, our data analysis showed that noise violations would have been cut in half if a three-strikes rule had been in effect like HB 2234,” Curry said. (A bill that included a three-strike rule was struck down in the legislature last year.)
But meanwhile, in January, Paradise Valley passed the state’s strictest local ordinance yet, a significant stress test on the state’s preemption law. While the Arizona law keeps local jurisdictions from outright banning STRs or treating them differently from long-term rentals, the ordinance includes measures not yet seen elsewhere, including the requirement to background-check every guest and submit reservation information to the city, all within 24 hours of the booking. The ordinance is likely to face litigation.
Looking ahead to fall 2022
At the time this article was written, most local and state spring legislative sessions were still underway, with final votes yet to come. In both Arizona and Colorado and dozens of other destinations, Expedia Group, the parent company of Vrbo, has worked alongside local hosts and managers to help find solutions.
Minardi considers it half-time in the national discourse around regulations.
“Pandemics have a way of changing people and communities in ways we didn’t foresee,” he said. “Not only has the pandemic shifted travelers towards vacation rentals as a preferred travel option, but it has also motivated governments and industry to find common ground.”
Over 2020 and 2021, Expedia Group reached multiple memoranda of understanding (MOUs) with critical jurisdictions like San Diego, Maui, and Honolulu County. The company also partnered with NoiseAware to head off noise nuisance issues and launched the Community Integrity Program, an information-sharing partnership with Airbnb to remove recurring nuisance properties from their platforms.
“In short, we’re coming out of the proverbial locker room in 2022 with a playbook to move our industry forward,” he said. “There are still challenges ahead—the game isn’t over. Addressing the dual issues of nuisance and housing will be critical.”
While industry-wide collaboration and programs to address community concerns are emerging and essential, local STR stakeholder engagement is equally important, said Alexa Nota, COO and co-founder of Rent Responsibly. “At the end of the day, councilmembers listen to their constituents and voters above all, so property managers and homeowners must engage in their local discussions. This is no longer optional—it’s a critical business function.”
Speaking of voters, 2022 is an election year in many destinations and states, and the industry is eyeing both the candidates and measures that will appear on ballots. In Colorado, some municipal ballots may include questions on increased or new taxes on STRs or other citizen-led initiatives.
Telluride has provided early case studies of both. In 2019, voters approved a 2.5 percent tax on STRs to drive funds for affordable housing. Yet in 2021, a citizen ballot initiative, Measure 300, further proposed a 43 percent reduction in the vacation rental bed base under the premise that some of the units would consequently convert into long-term workforce housing.
Telluride advocacy group Community Alliance for Effective Housing Solutions (CAEHS) put forth a more proactive countermeasure, Question 2D, which would instead impose a two-year moratorium on new licenses but not shut down any existing rentals to protect the jobs associated with them. The measure also raised the fees for vacation rental business licenses by 100 percent to increase the supply of affordable housing in the area.
CAEHS was successful in both approving Question 2D and defeating Measure 300—an unprecedented ballot victory but one that other markets around the country can learn from.
Engagement in the political process is increasingly necessary to help elected officials produce data-driven, thought-out regulations, Nota said. Her advice to property managers: “Get organized and get involved in the election process right now—today,” she said. “Work with your current elected leaders as much and as proactively as possible, and look ahead to every future election. Councils and other elected bodies are constantly turning over, and each election is a new opportunity to educate candidates and get informed leaders into seats of power.”
