The city of Santa Fe is losing out on $3.8 million in uncollected taxes from short-term rentals because property owners aren’t following the law, according to a draft of a study on the city’s short-term rental ordinance.
To make matters worse, an increase in property owners renting dwellings to temporary visitors is having a negative effect on the rest of Santa Fe’s housing market, the draft report states. The conversion of houses and apartments into short-term rentals reduces the supply of housing and puts upward pressure on rents and home prices citywide, says the report’s author, economist Kelly O’Donnell,.
“Lack of affordable housing is the single greatest challenge facing Santa Fe in 2019,” says the 11-page document, which The New Mexican obtained Friday under a public records request. “Recent proliferation of short-term rentals (STRs) marketed on platforms like Airbnb has depleted the city’s meager supply of long-term housing and accelerated the rise of home prices and rents.”
Although the draft report says additional regulation of short-term rentals may be necessary in the future, it recommends enforcement of existing regulations and taxes as a “critical first step” to minimize the impact of short-term rentals on affordable housing.
The draft report found the city is collecting only about $34,000 in gross receipts taxes when it should be collecting closer to $1.6 million annually and that “non-compliance” with lodger’s tax is costing the city nearly $2.2 million.
“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,” the draft states.
Though the report doesn’t raise the issue, the recommendation to use lodger’s tax revenue for affordable housing would require a change in state law. The revenue now is restricted to tourism promotion or paying for facilities such as convention centers.
City officials declined to discuss the study and its findings, saying the report is still in draft form.
“It’s not a final document yet,” Mayor Alan Webber said in a telephone interview. “I think talking about the draft is a little bit like discussing the first draft of one of your newspaper stories. It’s not accurate until it’s finished.”
Randy Randall, executive director of the city’s convention and visitors bureau, said he didn’t want to comment on the report until it is released next week.
“It’s still in a draft stage, and it’s my understanding a few revisions will be made to it before it becomes public,” Randall said.
Webber said he didn’t know whether the findings would change but said the report would include additions.
“There are a lot of issues involved with the findings and the context of what’s going on and some of the data that have to be updated and double-checked and then the conclusions will probably be adjusted accordingly,” he said. “It’s still a work in progress.”
The study, which also examined access to affordable housing in Santa Fe, was commissioned by the city, funded by the Thornburg Foundation and sponsored by Homewise Inc., a nonprofit that helps low- and moderate-income people buy homes. Neither the author of the study nor a spokeswoman for Homewise returned messages seeking comment.
Among other findings in the draft report:
• The number of short-term rentals of an entire house or apartment increased by 380 percent between 2014 and 2018.
• Only about 60 percent of the city’s 1,444 “active whole-unit” short-term rentals are registered with the city, suggesting that more than 500 rentals are operating unlicensed.
• Santa Fe’s 646 short-term rental owners earned $54 million from their properties in 2018, an average of more than $80,000 per property owner each year.
• The vast majority of short-term rentals are clustered in the downtown area.
“Downtown and eastside property values and rents are already quite high and thus few low- or moderate-income Santa Fe residents are directly displaced by STR conversions,” the draft states. “However, the loss of long-term housing in affluent neighborhoods increases the demand for housing in other parts of the city, creating a domino effect that ultimately results in higher housing costs citywide.”
Follow Daniel J. Chacón on Twitter @danieljchacon.