Ridgway town councilors have expressed interest in a tax on second homes as one way to raise money for affordable housing, a rare strategy that hasn’t been implemented in Colorado yet.
At a workshop last week, the council discussed finding a dedicated revenue stream for housing efforts, instead of relying on annual allocations from the general fund.
Town staff recommended a short-term rental tax, similar to Ouray’s, and councilors agreed they were interested in that, but pushed for more information about other options, including a tax on homes that aren’t occupied for most of the year.
Councilor Beth Lakin said short-term rental owners include people who are full-time residents of the community and rent out part of their primary residence to make it possible to live here. She questioned the impact of an additional tax on those owners.
She said she’d like to see some way to collect revenue from owners whose homes aren’t occupied at least six months of the year, either by the owners themselves or by a long-term renter.
“I think we should definitely explore what I would call a speculative real estate tax,” Mayor John Clark said, referring to buyers who purchase property and are just “sitting on it,” without living there or renting long-term. That would include short-term rentals that are not owner-occupied. “I see this as a ‘yes, and’ situation,” Councilor Polly Kroger said. She said she is “firmly in support” of a short-term rental tax, and suggested pairing that with a second home tax or an increase in the lodging tax rate “to give ourselves a bigger pot to make more affordable housing for more people.”
Any kind of tax increase or new tax would require voter approval.
Town Manager Preston Neill was tasked with researching vacant home taxes and bringing back more information.
The council also discussed new in-lieu fees that would require developers to either build affordable housing units or pay the town.
Currently, Ridgway aims to put deed restrictions on 10% of new units; however, that isn’t a requirement, and it hasn’t yet resulted in more affordable homes for locals. The sale price of those units is capped at 110% of the construction cost, but due to rising costs of building, projected prices on those units are still out of reach for many locals. The deed-restricted units in the Riverfront Village project, for example, are expected to cost about a half million dollars.
Those are indications that deed restrictions “aren’t working for us,” Councilor Russ Meyer said, and having developers pay the town directly could be more effective.
“So you’re saying, either find a way to build us an affordable unit, or write us a really big check?” Lakin said. Meyer agreed.
Andrea Sokolowski, founder of the Home Trust of Ouray County and one of three members of the public who attended the meeting, said she’s heard anecdotally from some developers that they would prefer to pay the town a fee, rather than trying to build units that meet the town’s criteria.
Councilors also asked for more information on how much money a short-term rental tax could generate. Town staff looked at rates from 2% to 8% and estimated it could generate $15,000 to $60,000 per year, but council members asked for information about higher rates. Neill said those numbers were chosen somewhat arbitrarily, and from looking at other communities, but said they were just starting points.
Councilor J.T. Thomas said he thinks the short-term rental tax should be “high in the priorities,” and would support approaching it “pretty ambitiously,” and Clark said he would support a higher rate.
The Ridgway Area Chamber of Commerce has indicated interest in pursuing an increase to the lodging tax rate, which is currently 3.5%. Under a contract with the town, the chamber receives 70% of that revenue for tourism promotion and economic development services.
Representatives of the chamber had not discussed the topic directly with the town before the workshop, and did not attend the meeting. Council members also asked Neill for more information on what that increase and impact could look like.
Councilor Terry Schuyler questioned how much money is needed for affordable housing, and if the council should be determining how specifically it would be used at this stage of the discussion.
“Is this order of magnitude enough?” he asked, calling the scale of the problem “daunting.”
Clark said it’s obvious that the town needs as much money as possible to put toward the problem.
The town has agreed to waive water and sewer tap fees for affordable housing projects, “but we can’t waive tap fees forever,” Lakin said, without another revenue source to cover those costs.
In addition to covering fee costs, money for housing “can be used in dozens and dozens of ways,” Neill said. That includes land banking, purchasing units that can be rented or sold with deed restrictions, making contributions to organizations like the Home Trust, matching grant money and funding needs assessments.
“I don’t think there’s any doubt up here that we need to find as much money as we possibly can,” Clark said. *** If Ridgway voters approved a vacant home tax, the town would likely be the first in the state to do so.
Colorado Municipal League Executive Director Kevin Bommer said he isn’t aware of any municipalities that have implemented one. The issue has been discussed twice in recent years, he said: once in Avon, and again in Crested Butte, where it made it to the ballot but voters turned it down.
In November 2021, Crested Butte voters rejected a “community housing tax,” which would have charged a $2,500 annual fee on “residential units in town that are not a primary residence,” unless it was rented for at least six consecutive months per year, and also on “undeveloped property that is zoned for residential use.”
That ballot question, which also included a 0.5 percent increase in sales tax to fund housing, failed 57% to 43%.
When the Ouray City Council decided to pursue its excise tax in 2021, they consulted with Denver law firm Butler Snow. Attorney Dee Wisor told the council at the time that while a few clients were interested in some kind of vacant home tax, he wasn’t aware of one anywhere in Colorado. He told the Plaindealer this week that he doesn’t believe that’s changed.
“To my knowledge, except for the fact that Crested Butte tried and couldn’t get voter approval, it has not been tried anywhere else in Colorado,” Wisor said.
In 2016, Vancouver, British Columbia, adopted its Empty Home Tax, becoming the first North American city to do so. The tax applies to residential units that aren’t primary residences and aren’t occupied at least six months out of the year.
The city’s aim was to incentivize owners to rent their properties, rather than pay to keep them empty. The rate has increased from 1% of a property’s assessed taxable value in 2017 to 5% in 2023.
Two California cities have also pursued vacancy taxes: Oakland charges owners of residential units that aren’t in use 50 or more days per year; the cost is $3,000 or $6,000, depending on the unit, with exemptions for low-income seniors, disabled owners, and demonstrated hardships, among others. In November 2022, San Francisco voters approved a vacancy tax for units that have been vacant for more than 182 days per year; but single-family homes and duplexes are exempt. That tax is set to take effect in 2024; the city is currently being sued over the proposition.