By William Brad Blash, Co-founding Principal at Crossbeam Capital
Mountain West resort communities face a significant housing crisis driven by a largely vacant luxury home segment and the disruptive impact of Short-Term Rentals (STRs) like Airbnb and VRBO. Many have not yet “backfilled” the supply of "attainable housing" needed to support their workforce.
Attainable housing refers to housing that middle-income workers can afford without spending more than a third of their income on rent. As STRs continue to remove thousands of units from the long-term rental market, local employers struggle to hire because there simply isn't enough available housing in the community.
The Housing Shortage Impact
Mountain resort towns like those in Colorado have become attractive to affluent families who invest in vacation homes. Meanwhile, thousands of homes have been converted to STR, removing long-term rental units from the market. These older condominiums, once home to local workers, are now rented to tourists, exacerbating the housing shortage in towns where conveniently located housing is scarce.
While luxury residential investment properties comprise a large and important housing segment in these communities, they are more than vacation destinations. These are working towns with diverse economies that rely on hospitality, outdoor recreation, ranching, and farming. The workers who keep these communities running—ranch hands, ski instructors, nurses, and service workers—struggle to live where they work.
Single-family home prices are way out of reach for workers. The high cost of housing for local workers is also driving up the cost of labor associated with new housing construction, making it even more expensive and difficult to build new attainable housing.
A New Approach
While some municipalities consider imposing taxes on STRs and vacant homes, another approach is gaining attention: Using incentives (Carrots) rather than penalties (Sticks). An article in The Colorado Sun, “Colorado Resort Communities Want to Impose a Vacancy Tax on Unoccupied Homes,” published on August 7, 2024, suggests using incentives rather than penalties to spur the development of attainable housing for workers. Engaging local investors with a stake in the community’s well-being may offer a more effective solution than relying on taxation.
One overlooked potential solution lies within these communities' part-time residents who own luxury homes. These part-time residents have substantial investment portfolios and a vested interest in maintaining their communities' value and appeal. Many are experienced investors familiar with private equity and willing to take calculated risks for financial return. When we leverage this embedded investment community, local governments can encourage private investment in middle-income housing, filling the gap between low-income housing and luxury real estate. This gap is known as "attainable housing.”
Developing more attainable housing is crucial for these resort towns, which have lost significant long-term rental units to STR. The solution is not massive, city-scale development but incremental growth—100 to 200 new units annually to meet demand without overwhelming the existing infrastructure.
How to Activate Private Investment
Communities can explore several strategies to leverage private investment effectively. Here are a few ways communities can do this:
Affordable Rental Stock: Local Housing Authorities have done their part by consistently producing 30-50 low-income housing units per year. However, the production of affordable housing is limited by the availability of government subsidies and grants, which often fail to meet the scale of the need. Public policy changes like relaxing cost and income restrictions on federal rural housing loan programs would go a long way. These towns meet the standard of “rural,” but regulatory restrictions on maximum allowable costs and maximum rents hinder new production. Simply put, specific indexing of these programs for the unique characteristics of these high-cost markets would make a significant difference in future production.
Incentivizing Private Investment: Incentivizing private partnerships to build long-term rental units for local workers could help close the housing gap. For example, towns like Jackson, Wyoming, have approved 2x density bonuses for workforce housing, allowing for twice the housing units to be built on any parcel if it is focused on worker housing.
Public-private partnerships can be created in which the local governments provide “carrots” in the form of bonus density and fee reductions to bring down costs, and private development partnerships set aside a portion of the new units to be rented to local workers first in the form of a land use restriction.
Giving absentee owners an option to invest in new housing (vs. paying a tax) will generate more future tax revenue for the locality and direct new resources directly to the problem at hand housing production. Private capital can produce significantly more units faster than relying on a taxation strategy alone.
Tax Incentives: Federal, state, and local governments could encourage private investment by offering tax breaks to investors who build workforce housing, such as eliminating capital gains taxes or providing depreciation benefits, particularly for projects expressly reserving units for local workers with a long-term land use restriction.
Employer Involvement: Local employers, especially those in industries like healthcare and hospitality, face high hiring costs due to the lack of available housing for workers. Some employers have already started investing in housing for their staff. Expanding financing mechanisms that allow employers to develop or acquire housing could help alleviate the workforce housing shortage.
Community Foundation Participation - are integral players in these communities. The same absentee owners are, in many cases, the largest donors to these foundations. Private foundations have the ability to be flexible in approaching problems. While most community foundation participation in the community comes in the form of grant capital, there is an opportunity to utilize creative concessionary debt programs to fill gaps. The last mile of the financial pro forma could be filled with concessionary debt from local community foundations, which may be needed to overcome the exceptional cost burdens in these locations.
Collaborative Path Forward
Collaboration is key to solving the housing crisis in Mountain West resort communities. Instead of relying on taxes and penalties, communities should leverage incentives to engage local investors and developers in creating more attainable housing. By offering benefits like tax breaks, density bonuses, and creative financing options, communities can encourage private investment that meets local needs.
Now is the time for local governments, investors, and employers to work together. Through cooperative efforts, resort towns can address the housing shortage and improve the lives of the people who make these communities thrive.
