A study of the economic impacts of short-term rentals on Santa Fe’s housing market found an uptick in overall short-term rentals and millions of dollars of lost tax revenue.
The report, compiled by Kelly O’Donnell of O’Donnell Economics and Strategy and sponsored by Homewise, a home-ownership nonprofit, has been in the works since February of this year.
Short-term rentals—typically facilitated through smartphone apps like Airbnb, allowing visitors to rent a home rather than staying in a hotel or motel—are a model that has taken off in Santa Fe due to the heavy tourist traffic the city attracts.
O’Donnell’s study found a significant increase in short-term rentals since 2014. But a leveling-off effect has taken place, indicating that the market may be becoming saturated. The study found that 1,444 short-term rentals exist within the city limits, but that only 60% are registered with the city, and non-compliance with the taxes required of short-term rental property owners means the city is missing out on $3.8 million a year. The proliferation of short-term rentals also limits the housing supply and causes rent increases as more homes and apartments are converted into short-term rental properties, it argues.
Mayor Alan Webber recognizes the enforcement issue, and says that the city is taking steps to fix the problem.
"Unfortunately short-term rentals don't have big signs in front of them that say 'We're a short-term rental!'" Webber tells SFR. He adds that money has been set aside to hire a firm that will scrape data from websites like Airbnb to identify users operating short-term rentals without a license, and that the Land Use Department is currently reorganizing to include staff that will enforce regulations on those rentals.
The report comes at a time when concerns about the availability and cost of housing are on the minds of city officials and the broader population, and many point to short-term rentals as a principal cause.
“Lack of affordable housing is one of the greatest challenges facing Santa Fe in 2019,” the report reads. “Recent proliferation of short term rentals (STRs) marketed on platforms like Airbnb has contributed to the rapid escalation of home prices and rents. Although additional regulation of STRs may be called for at some point, enforcement of existing regulations and taxes is a critical first step toward minimizing the impact of STRs on access to affordable housing. More vigorous enforcement of STR registration requirements and increased gross receipts and lodger’s tax compliance by STR hosts could generate as much as $3.8 million in annual revenue that the City could and should put toward affordable housing.”
Accessory dwelling units, typically referred to as casitas, have been another hot topic among Santa Feans concerned about housing, with some worried that more casitas would mean more short-term rentals, and others arguing that casita construction and utilization should be encouraged to add to the overall housing stock. The report recommends encouraging casita ownership, but finds that it would be insufficient in solving the broader housing crisis.
“Incentives to construct new accessory dwelling units (ADUs) or use ADUs as long term rentals can help to increase Santa Fe’s housing supply, but such policies, even if very successful, can make only a small dent in Santa Fe’s profound shortage of affordable housing and must therefore be part of a larger package of housing reforms and investments,” the report says.
City Council was expected to vote on whether to overturn a controversial rule that prohibits renting out accessory dwelling units unless the owner lives on the property last month, but that public hearing was postponed until the end of June, in part to allow this report to be published and considered. The proposed rule change includes a clause prohibiting rentals of under 30 days unless the property owner lives on the property.
O'Donnell tells SFR that, while significant, short-term rentals are not the culprit in the housing shortage in Santa Fe.
"I hate to see short-term rentals be the poster child," O'Donnell says. "As if we just got rid of short-term rentals our housing issue would go away. The problem is so much bigger. Short term rentals do have a role to play in Santa Fe's hospitality industry, and I don't think eliminating them would be a benefit to the city. In fact it would probably hurt it."
What's more important, she says, is enforcing the rules already on the books, getting lost tax revenue and using it to encourage more affordable housing.
But the ultimate problem, in O'Donnell's view, is simply that demand for Santa Fe real estate outpaces supply. The solution to that problem goes beyond a single conversation or a single newspaper article, but she gave SFR a brief summary of the necessary solution.
"We need bigger public incentives for private development of housing," O'Donnell says.
You can read the full report here.