Second, there has never been a better moment to invest in vacation home rentals than now. With a fast-growing market and several booking platforms, finding tenants for your short term rental is easier than ever. All you have to do is find a property in a good location and evaluate its performance as a real estate investment…
— Mashvisor.com, “What is a Good Cap Rate for Investing in Vacation Home Rentals?” October 2018.
The world has changed in many ways, since the start of 2020. And the changes appear to be continuing unabated… some painful, some hopeful.
We’ve mentioned before that the national vacation rental website, VACASA, published its list of the top 25 towns in America, where you can buy a residential home and convert it into a small, commercial motel. Pagosa Spring was one of two Colorado towns to make the list, beating out Florissant, Colorado by four rankings. (The rankings were by ‘cap rate’ — a ‘return on investment’ formula. Apparently, the ‘cap rate’ in Pagosa is excellent.)
The Town of Pagosa Springs adopted some new policies last month, that might help knock Pagosa off the chart. By adopting Ordinance 958, the Town Council:
1. Required a property owner to demonstrate that they’ve owned the property for at least two years, before they can be eligible for a vacation rental license.
2. Allowed only one vacation rental license per residential property. A home with an accessory dwelling unit will be able to short-term-rent one unit or the other, but not both.
4. Stipulated that no more than 10% of the single-family residential units in each residential-zoned district will be eligible for vacation rental licenses. At the meeting where Ordinance 958 was approved, Town Planning Director James Dickhoff stated that vacation rental licenses in every residential-zoned district already exceed 10%, which suggests that no new licenses can currently be issued.
5. Stipulated that a vacation rental property may not be located within two-hundred and fifty feet (250 ft.) of, or be adjacent to, another vacation rental property. (This limitation doesn’t apply to multi-family or townhome short-term vacation properties located in the same multi-family or townhome development — and also doesn’t apply to short-term vacation properties which are occupied year-round by the property owner.)
Several members of the community testified for or against the ordinance. Taking that testimony into account, the Council passed Ordinance 958 unanimously in September.
We might get a sense that the vacation rental problem is slowly coming under control, and that next year, or the year after, Pagosa Springs will no longer appear on VACASA’s list of the 25 top places to buy a vacation rental. But unfortunately, about 80% of the licensed vacation rentals in the community are located outside the town limits, and are exempt from the Town Council’s new control measures.
The Archuleta Board of County Commissioners have thus far declined to put a cap on the number of licenses allowed. Nor have the commissioners specified a required distance between vacation rental properties, and have thus allowed attractive neighborhoods to be converted entirely into motel districts. Potentially.
It appears, from the documents shared on the Pagosa Lakes Property Owners Association (PLPOA) website, about half the licensed vacation rentals in the unincorporated county are within the PLPOA subdivisions. About 320 properties, as of August 31, it appears. I heard a rumor that the PLPOA Board was considering increased membership fees for properties operating as STRs. It’s possible that increased fee has already been approved.
The Town has been collecting a licensing fee of $200 per year, for renewing your STR license, with a $200 surcharge that is dedicated to workforce housing. When I calculated the amount of money generated by that surcharge, it came to about $27,000. We will not get much in the way of housing, from a revenue stream of $27,000 per year. After investing in excess of $9 million in tax revenues subsidizing the tourism industry over the past decade, we will need millions of dollars to fix the problem that investment has caused.
We will need to spend the next decade subsidizing a very different industry — the housing industry — if we want to keep this community afloat.
I discussed very briefly, yesterday in Part Four, a proposed excise tax on vacation rentals, that could help the housing industry over the next decade. The proposed excise tax would allow the vacation rental industry to help repair the damage done by that industry.
In its current formula, the excise tax would levy a “per bedroom” annual tax on STR operations, with a discounted tax when the owner is a full-time resident of Archuleta County and lives on the same property as the rental.
Ideally, this excise tax would be adopted by the county voters as well as the town voters.
At this point in time, however, the non-profit known as Pagosa Housing Partners is focused mainly on conversations with Town leaders and staff. The Town Home Rule Charter, which governs the corporation known as the Town of Pagosa Springs, guarantees its corporate members — its voters — the right to petition initiatives and referendums onto the municipal ballot, in much the same way that the State of Colorado allows citizen initiatives on statewide ballots. The Town has a scheduled election slated for April 5, 2022, which makes October, 2021, the perfect time to start a petition process.
Those petitions could put a vacation rental excise tax, and a reallocation of a portion of the Town Lodgers Tax in front of the voters.
Or, alternately, the Town Council itself could decide to put such measures on the April ballot. Such measures, being aimed at helping to generate the millions of dollars it will take to start fixing the social problems that tourism has caused. We will find out more about the Council’s willingness to place such measures on the ballot
If we are going to rely on the tourists to help us address our crisis, however, we would be so much more productive if the Board of County Commissioners were working hand-in-hand with the Town citizens.
Historically, the BOCC has denied its corporate members the right to petition initiatives onto the County ballot. Five years ago, a group of Archuleta County citizens representing themselves as the “Liberty Zone” successfully circulated a series of petitions that had been approved by then-County Clerk June Madrid, but the BOCC refused to honor the petitions, claiming that County voters had no right to the initiative process.
That refusal led to a log and messy lawsuit, that turned out badly for the Liberty Zone members.
But if the Board of County Commissioners were to enter into a cooperative effort with the Town Council? And a new excise tax were to apply throughout the entire county — where 75% of the STRs are located — instead of only within the town limits?
Could we then truly begin to mitigate this ongoing disaster?