Going Long on Short-Term Rentals

City's short-term rental ordinance racks up lodger's tax payments as downtown apartments disappear

Mayor Pro Tem Signe Lindell was pleased.

"It's not perfection, but it's progress," she told her fellow city councilors last month. "This report looks a lot better than other short-term rental reports I've seen."

When the City Council voted in May 2016 to change the rules governing short-term rentals (those less than 30 days in length), it asked city staff to track changes and report back in 18 months. In part, the council wanted to gauge the impact.

The changes to the ordinance raised the cap on short-term rental permits from 350 to 1,000 and required owners to get one. The council eliminated the old limit on the number of stays per year, replacing 17 with what is effectively a maximum of 52. The goal was to legitimize what the city suspected was a largely illegal market for short-term rentals on websites like Airbnb and VRBO. The council also wanted to collect a lodger's tax of 7 percent on those stays.

While compliance among owners has increased and the city's take for the lodger's tax has more than doubled to $1.3 million, a map of the permitted short-term rentals shows what the changes have done to the long-term leasing market close to the heart of Santa Fe: Every neighborhood from the Guadalupe District to South Capitol to Canyon Road is packed with red house icons. Many, if not most, represent a home that is no longer available to a local. This is the domain of the tourist.

With a 2,500-unit shortage well documented among the developers, realtors and advocates who pay attention to the city's rental market, the effects of the booming short-term rental business are easy to work through. In addition to forcing Santa Fe residents out of the downtown area, it creates a crunch in other rental neighborhoods further from the center of the city. That scarcity drives up lease costs.

The city has successfully created a tax base among short-term renters, but that $1.3 million in lodger's tax money comes at a cost.

"We've lost rental stock for our workforce," Lindell tells SFR this week. "It's a two-sided coin."

Councilors have kicked around ideas for how to address the paucity of housing, and there are some solutions in the works, but 2,500 units is a huge gap. The city has tried to goose development by creating the Midtown LINC overlay district along St. Michael's Drive, but has yet to see the kind of impact it wants.

Lindell is supportive, but also says it's not time to give up on downtown housing. "We need development in every area of the city. I'm not trying to push it to Southside," she says.

Councilors have talked about promoting developments that allow accessory dwelling units and Lindell has mulled the idea of restricting their use to long-term leases for the first 10 years if the owner chooses to rent them. But ADUs, as they're known, aren't cheap, and are often found in neighborhoods or developments where covenants among homeowners prohibit either their construction or rental.

"Personally, I'm glad I don't have short-term rentals up and down my street," Councilor Mike Harris tells SFR, acknowledging their impact on housing. "You'd have to say it takes housing stock off the market."

Harris represents District 4, where he says he counted just five short-term rentals using the city's map. Not that he's knocking property owners in and around downtown for maximizing their profit.

"If you have a few apartments in a desirable location," he says, "you can make much more off of short-term rentals than you can with long-term leases."

"My gut feeling is that people are going to start doing short-term rentals because it's easier … and you make more money," says Alexandra Ladd of the city's affordable housing office, though Santa Fe hasn't collected data on which properties have been converted from use as a long-term rental for residents.

The housing stock that's disappearing is desirable, Ladd points out, but it wasn't necessarily affordable. The city defines affordable housing as that which costs about 30 percent of the median income. That translates to roughly $625 a month.

On an individual basis, anything above the 30-percent threshold for housing is considered a cost burden.

"We know that we have a huge percentage of renters who are cost-burdened. And it's called extremely cost-burdened if it's about 50 percent," Ladd tells SFR.

As housing eats up income, it saps spending on clothing, dining and other goods and services that are taxed by the city. As city leaders are fond of saying, people who live in Santa Fe spend in Santa Fe.

The city's vacancy rate for rental housing, affordable or not, is what Ladd calls "functional zero." Almost every unit that is vacant is empty because it's transitioning from one renter to another. That's bound to affect affordability across the spectrum of rentals.

Ladd says the answer has to be, at least in part, increasing inventory and putting a dent in the 2,500-unit deficit. Without more housing, prices will continue to rise, and the squeeze on Santa Feans looking for a place to live will push them further and further away from the place they once called home.

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