Real Estate Q & A … Measure Z: Not as Simple as it Looks

The Column was written for The Sheet at the request The Sheet owner/publisher Ted Carleton

“The past does not equal the future.”  Tony Robbins

Q: We like how you present different sides to a story or topic, so I guess it is the obvious question; we want to know what about think about Measure Z?

A: I really wanted to answer the questions about how to prepare for the upcoming “Godzilla El Nino” winter, but so be it…The Measure Z issue may seem like a simple one for those who are the “most affected,” but it has evolved into a much more complicated matter for our elected officials and the community at large. And many ski towns and other cities are struggling with similar issues.

The Measure Z proponents are taking a pro-property rights position. In my three decades of selling real estate in Mammoth and 20+ years as an appointed public official in real estate related fields, I have always been a pro-property rights advocate. From that position I should be strongly in favor of upholding the longstanding ordinance. Many and most of the property owners in Mammoth’s single-family neighborhoods (zoned RSF) and rural residential neighborhoods (zoned RR) selected these locations for the “quiet enjoyment” and the residential character therein. It seems like a simple right to uphold.

But time has created some fascinating changes and challenges. Back when these ordinances were created the concept of “self renting” was the exclusive territory of firemen trade magazines and their classified ads. But then came the Internet and new models for doing business. It has changed the entire vacation rental industry. And we are always being reminded that we need to “embrace the new economy.”

Mammoth is not alone in needing to address and change with the times. The resort communities in Colorado face a variety challenges based on the composition of their different types of real estate. Included in the mix are hotels, motels, lodges, condominiums and homes. And looking at South Lake Tahoe, they have similar but different issues and challenges, and are threatening to take extreme measures.

The Colorado Association of Ski Towns (CAST) has a new report out on this subject. I haven’t seen the report (you have to pay for it) but I have read numerous articles spun out of the report. Purportedly some of our Town Council has the report and will be using it for some of their “No” argument.

For clarification, these short-term rentals in some communities are referred to as vacation rentals. In Mammoth they are commonly referred to as transient rentals (TR). And in this business the likes of VRBO, and increasingly AirBnB, have become the 800 lb. gorilla in the room. They have dramatically changed the way visitors book their accommodations and owners market their properties. There are over 2 million vacation properties listed on these sites. It is all part of the new “sharing economy.”

The underlying problem is that the typical bed tax, or in Mammoth referred to as transient occupancy tax (TOT), isn’ t being collected in most cases. This is a competitive advantage for owners booking online and skirting TOT; their customers are inherently receiving a 13% discount over traditional “legal” operations. And savvy renters are tuned-in to the discount. The owners are also shaving off higher management fees and expenses to offer further discounts. The end result is municipalities collecting less tax revenue for an equal or greater level of visitor impact. Ultimately, if the Town doesn’t collect enough TOT then we might see more TBID-type taxes. Pick your poison. (Pop quiz; how many Mammoth residents think that property tax pays for the snow removal on their street?)

The cascading problem is the reach by many property owners for more revenue. It is the state of our modern economy. I see it all the time in the real estate business. There is a clear trend of many condo owners not renting their properties at all (and those beds leave the rental and tax generating base). But conversely there is also a trend of owners who want (need) more rental revenue. Some are long-time owners who are now retired or heading there. They aren’t making any return on their “safe” investments (CD’s and T-bills) so they are looking for their Mammoth property to produce something extra or make-up for the shortfall. Many newer owners depend on rental revenues and are hip on how to produce it. And the drought winters haven’t helped. The owners utilizing the online resources are getting increasingly competitive. It has become a compelling mix of renters and property owners. And skirting the TOT can close the sale.

It is only natural that the RSF and RR property owners want to follow these trends. But the end result is still less tax revenue. And now the recent study by CAST reports that the challenges have moved beyond lost revenue and noncompliance. The trend is impacting long-term rental housing, which is already tight in resorts. According to the report, the revenue potential for transient housing is exceeding that of long-term rental and property owners are making the switch. Even worse, the negative impacts like out-of-control parking, trash and noise simply compound.

The CAST report basically states that resort communities are “fighting over the proliferation of private vacation rentals while trying to preserve their tourism and visitor based economies.” And preserving these economies includes generating enough operating capital for the municipality to remain functioning. And the July 27 article in the Vail Daily covering the CAST report also acknowledges that RSF-type renters are “spenders” and that spending trickles down to a wide array of local residents.

So here we are Mammoth. It is time for some adult conversation before we vote yes or no or simply don’t vote at all. And please leave the hysteria at home.

One of the interesting things about the CAST report is that the Colorado towns all have different problems based on their real estate composition––the percentage of hotel/motel, condo, and homes, etc. and the percentages of sales tax generated from overnight (transient) visitors, permanent residents, second homeowners, day visitors, etc. They vary greatly.  So each town has to solve their problem in their own unique way.

The really good news is that based on Mammoth’s composition, we should be prime for a viable solution. But does the solution include opening up the RSF and RR zones to transient rentals?  The “Yes” crowd will simply say enforce the ordinance and make visitors stay in the plentiful “legal” rentals. They contend that changing the ordinance will change the character of their neighborhoods. The underlying problem is that Mammoth has ongoing SFR/RR rentals. And AirBnB “room” rentals. It may be illegal but it is happening. And it is not going to go away. The demand is there from both renters and owners. The owners just know they have to stay under the radar. The Internet services only enable it. Does it make sense to continue with no taxation and no regulation? The lack of taxation and regulation is the strongest argument for the “No” crowd which could potentially allow the Town Council to overturn the ordinance.

Regardless, the Council needs to deal with this bigger issue of escaped TOT whether it pertains to the RSF/RR neighborhoods or not. The CAST report makes that clear. The most successful Colorado town dealing with it at this point is Breckenridge. And they have taken the “early and aggressive approach.”  They are strong on regulation and education.

Now this is where I get so confused. Just like I am pro-property rights, I am also anti big/more government. But all of the studies are pointing to more regulation (and appropriate taxation) as the solution. That includes more code enforcement, and Mammoth can’t even enforce a simple thing like the sign ordinance.

Like I said, I haven’t seen the new CAST report. But there is a 2012 report called “The New Cottage Industry” from the Rocky Mountain Land Use Institute and Denver University Sturm College of Law that studied and addressed these issues. The cities of Aspen and Durango were heavily involved (they obviously saw the problem coming). The subtitle of the report is “The Relationship of the Sharing Economy’s Rental Markets to Land Use and Tax Regulation.” There is the exact description of Mammoth’s problem.

Here are some of the highlights of the report;

Why regulate vacation rentals? To preserve residential character, to collect sales and lodging tax, to create a “level playing field” between rentals-by-owner and property management companies, to ensure adequate lodging options for visitors, to ensure adequate housing options for residents, AND ensure vacation rentals meet existing health and life safety regulations.

The proposed vacation rental regulations would include; limited rental areas, minimum required parking spaces, bear proof trash containers, an association with local property management company or other local representative, HOA notifications, special notices to neighbors, special signage, business licenses and annual revocable vacations rental permits.

The trends in mountain communities in regards to rentals are this; require licensing, aggressive lodging taxes (TOT) and pursuit of delinquent taxes, some specific zoning regulations on rentals-by-owner, enforcement of zoning restrictions, the monitoring of rentals-by-owner through the Internet, preserve the community neighborhood character, and encourage diverse lodging.

Ultimately, the report’s summarizes that there are many options, but no uniform solutions amongst the resort communities. It also states that transient rental regulation needs to be based on the community’s unique social and economic needs. And are the regulations consistent with the community goals?

I like the highlights of this report but the real answer is that Mammoth needs to find it’s unique solution. It will be new and change, and we know everybody hates that. The consistent answer is that communities are forced to do something or revenue will diminish and mayhem will occur. Some level of greater regulation is in order. Mammoth needs to figure it out.

The Measure Z vote will be quite fascinating. The ultimate decision will probably come down to a small number of votes. The fanatic “Yes” and “No” voters could negate each other. And the RSF/RR second homeowners aren’t registered to vote. So what is going to push the rest of the voters to even show up? And if they do, why will they vote one way or the other?

I’ve already heard lots of angles; some think the “Yes” crowd is elitist and will vote against them on those grounds alone. Some posture that there are local voters who own or live in RSF and have rentals going on around them and know it will continue regardless of the Measure Z outcome. And they want to see the activity regulated and taxed for the benefit of the community (they want the roof on the ice rink).

Some think the number of RSF/RR permits could be limited to fill the demand but preserve the quality of the neighborhoods (in Durango they limit permits to 3% of the total RSF inventory). Some think the local reservation businesses or those involved in some adjunct business like housekeeping or maintenance could be an important faction for the “No” vote in hopes of generating more quality business. Some seem to think that local resident condo owners will think their condos could be worth more in the future because of the rentability and will vote “Yes” on that premise. And on and on.

How do I intend to vote? I have to hear the Council’s bigger plan and hear the arguments for and against. Hopefully then I can make an (intelligent) decision.

And Happy 100th Birthday to Dave McCoy!!!

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