The object of this study is to quantify the relationship between the operation of homes in the Town as short-term rentals (STRs) and the supply and demand of workforce housing. The study is founded on a rigorous methodology such that the Town could base a fee on the results if desired.
— from the ‘Short Term Rental Fee Study’ by Denver-based Root Policy Research, dated November 28, 2022 and provided to the Pagosa Springs Town Council on December 2, 2022.
About 18 months ago, the seven members of the Pagosa Springs Planning Commission were discussing the housing crisis in Archuleta County. The discussion led to a unanimous recommendation, by the commissioners, that the fees charged for a Short-term Rental (STR) license within the town limits ought to be greatly increased, and the increased revenues ought to be used to support workforce housing.
The cost for a new license, at the time, was $500, of which $250 was a ‘surcharge’ to be used to promote workforce housing. The Planning Commission recommended that the fee be increased to $6,000 a year, for STRs owned by an absentee landlord.
The Pagosa Springs Town Council — the body responsible for setting municipal fees — did not choose to increase the fees as recommended.
Subsequently, a group of Pagosa Springs voters circulated a petition to amend the Town Home Rule Charter, and in April 2022, the town voters approved a new ‘Workforce Housing Fee’ to be collected from all STRs within the town limits, establishing a fee of $150 per bedroom per month. The amendment exempted STRs whenever the rental was also the permanent home of the property owner. For a three-bedroom STR, then, the fee amounts to $5,400 annually… a little less than the fee recommended by the Town Planning Commission. For a one-bedroom STR, the fee is $1,800 per year.
The revenues must be used to promote housing for households earning less than 100% of the Area Median Income.
A group of STR owners then engaged a Durango law firm to challenge the voter-approved fee. While the lawsuit is in litigation, the Town staff is not requiring payment of the ‘Workforce Housing Fee’.
All this background may be of interest, because tomorrow evening, Tuesday, December 6 at their 5pm regular meeting, the Town Council will be reviewing the “Town of Pagosa Springs Short Term Rental Fee Study” created by Denver-based Root Policy Research, at a cost of about $56,000.
The primary goal of the Root Policy Research study was to determine whether the growth of the STR industry has had an impact on the availability of housing for full-time residents, and if so, what type of fee — charged to STR operators within the town limits — can be justified.
As mentioned, the volunteer Town Planning Commission had already determined an appropriate STR fee, in July 2021. At no cost whatsoever to the taxpayers.
In April 2022, the town voters had also decided on an appropriate STR fee, also at no cost to the taxpayers. (The election was already scheduled, for the election of Mayor and Council members, so no additional expense was involved for including Ballot Question A.)
Nevertheless, the Town Council, in its wisdom, hired a Denver consulting group to assign some carefully calculated numbers to the problem, and to the fee amount. This process is known as ‘establishing a nexus’ between STR growth and the housing crisis. Normally, this kind of process requires hiring a Denver-based firm. The decisions made by the community’s Planning Commission and by the town voters did not involve carefully calculated numbers.
Actually, that’s not entirely true. The fee proposed by the Planning Commission was based upon what the Commission felt was the maximum fee that could be justified. The fee approved by the town voters was based on the so-called “STR Tax Loophole” that allows STRs to operate a commercial business without paying Colorado’s commercial property tax rate.
To establish a fee that can survive a legal challenge by STR owners, the Town Council felt, would require hiring a Denver-based consulting firm.
The 31-page report from Root Policy Research begins with a discussion about population changes in Pagosa Springs. Here is one of the first of many graphs included in the report:
As we see, the age distribution in Pagosa underwent some changes between 2010 and 2020, during a period when more and more homes were being converted to Short-Term Rentals. As we can see, families with children were disappearing from the town, with the percentage of children dropping to half its 2010 level, and seniors increasing by about 65%.
Root Policy explains the importance of these changes:
The growth of seniors, decline of children, and stagnation of the middle and older adult population may present a concern for the development of the future workforce. As the population ages, it may be harder to fill essential jobs in the community. The next subsection will detail employment trends in Pagosa Springs.
Figure 1-4 illustrates one of the employment trends:
Root Policy explains:
Figure 1-4 shows the net inflow of workers to Pagosa Springs from 2002 to 2019. This is calculated by subtracting the number of workers living in Pagosa Springs from the number of workers employed in Pagosa Springs, a positive number indicates that more workers are commuting into Pagosa Springs than commuting out. The figure shows that overtime, the number of resident workers is not keeping up with the increase in jobs, which has led to an increase in in-commuting.
During that same period, the number of STRs advertising their operations within the town limits increased from “2” to “124”. Currently, the average town STR has two bedrooms, and gets rented about 130 nights per year, bringing in an annual income of about $31,500. According to Root Policy.
Between 2017 and 2022, the average rental rate (for long-term renters) has more than doubled.
We have to wonder whether the growth of the STR industry is partly responsible for these changes?
Or largely responsible?
And if so, what kind of fee would help address the negative impacts?
Root Policy has some thoughts about those questions.
Bill Hudson began sharing his opinions in the Pagosa Daily Post in 2004 and can’t seem to break the habit. He claims that, in Pagosa Springs, opinions are like pickup trucks: everybody has one.