Colorado Homeowners’ Mass Exodus Sparks Fears of Housing Market Collapse

Colorado rental homeowners may be getting hit with heavier taxes if a state bill passes in the next few months, and it could leave a lasting mark on the housing market.

The legislation would classify short term rental properties as ‘commercial’ and therefore institute a higher tax rate on the homeowners, bringing in hundreds of millions in additional revenue for the state each year.

The bill, if passed, would see short-term rental home owners pay property tax at four times the rate they do currently. The bill has been voted to advance to the full legislature in January, but many rental homeowners are concerned about its potential impact.

“Supporters of the tax argue that it is necessary to address the state’s affordable housing crisis,” Teddi Schill, a realtor in the Portland area, told Newsweek. “They point out that short-term rentals are often taken off the long-term rental market, driving up prices for residents.”

Still, in terms of the tourism industry and the profits made from rental platforms like Airbnb, the tax law could become a heavy burden.

“The increased taxes might result in higher costs for short-term rental owners, which could ultimately be passed on to Airbnb users in the form of higher rental prices,” Joshua Martin, the owner of Wisconsin-based Atticus Home Buyers, told Newsweek. “This could potentially deter some tourists from choosing Colorado as their vacation destination.”

The Rundown of the Law

If approved, the law would classify all properties that are rented for more than 90 days a year on a short-term basis as commercial lodging properties. That would set the property tax assessment for these houses at 27.9 percent, compared to the typical 6.76 percent rate for residential units.

Those who rent their properties off platforms like Airbnb would be considerably impacted, paying a much higher tax rate than they have in the past.

At a hearing for the proposed law this week, 75 speakers expressed their disapproval, according to The Colorado Sun.

Governor Jared Polis previously showed his support for the law as a way to put short term rentals on the same playing ground with hotels and motels. The change would also help the state bring in more money for schools and local districts, which are funded via property tax revenue.

Colorado is also in the middle of voting over Proposition HH, a 10-year property tax relief plan that would increase taxes on those with more than one home.

Many of the chief complaints from homeowners is that short-term rental revenue is what allows them to afford property in the first place.

“Hosts are regular people who share their home to earn supplemental income and cannot afford to pay the 400 percent property tax increase,” Dana Luber, a Colorado Airbnb host and founder of the Colorado Lodging and Resort Alliance, told Newsweek.

“Hosts statewide contribute millions of dollars in lodging taxes each year and support small businesses in our communities by bringing in guests who spend money locally. If this passes next year, Coloradans across the state will be priced out of their homes and communities.”

At the meeting this week, tens of people showed up to express their fears around the tax hike.

“We need to have this home available to short-term rental guests to pass this legacy onto our kids,” said resident Eric Richards, as reported by The Colorado Sun.

If the extra tax becomes law, many say they will have to sell their properties.

“We cannot live with all these types of restrictions … this will, in my humble opinion, kill the short-term rental economy in Colorado,” said property management company owner Hillary Skye at this week’s hearing.

Home values are rising already, and many fear the new tax would mean fewer Coloradans could actually afford to rent out properties, driving national companies to take over properties and flip them for profit.

CJ Willey, a property management company that employs hundreds in Denver, estimated that raising tax rates on short term rentals would also cost the state’s tourism economy around $500 million in visitor spending.

As the state faces backlash from rental homeowners on the legislation, it’s unclear how exactly the tourism and housing markets would adapt.

“It is still too early to say what the full impact of Colorado’s new short-term rental tax will be,” Schill said. “The tax is a sign of the growing tension between short-term rentals and traditional housing markets.”

Andy Kolodgie, a real estate specialist within the Colorado market, said ultimately residents could see lower prices on homes as fewer people buy short-term rental property. But the blow to the tourism industry could also be severe.

“Colorado’s decision to impose this tax seems like a valid compromise between making money and answering the issues of rental markets and housing,” Kolodgie told Newsweek. “It’s a controversial issue that may have both pros and cons, and only time will show its real outcome.”