As short-term rental (STR) managers, my wife Kate and I work closely with second-home owners in the Mad River Valley.
We have been watching the debate around H.955 and the new “non-homestead, non-residential” tax classification and feel the duty to warn about unintended consequences in jacking up property taxes on second homeowners.
To be clear: We’re down with “tax the rich” if we’re talking about the 1% playing footsie with a wannabe dictator so they can afford a private space program. These folks own second (and third and fourth) homes that they do not rent to the riffraff. They may object to being singled out, but in most cases , they will absorb additional taxes as we are seeing in NYC and CA right now.
But those are not the taxpayers who will be hit by this new classification. The second homeowners we work with chose to invest here because their ROI is time spent in Vermont. I’m sure most of our clients would love to be wealthy enough that they don’t need to rent their place to strangers, but they aren’t – and property taxes are the expense they cite most often as the reason they rent out their homes.
This group is both much more sensitive to changes in cost and policy and much larger than the “I use my McMansion two weeks a year” folks.
Tourism represents roughly 10% of Vermont’s GDP, and in much of the state, short-term rentals are not supplemental lodging—they are the lodging. The majority of census tracts in Vermont have no commercial lodging and rely on second-home owners making properties available as STRs.
The Valley has some commercial lodging, but has always been a ski house destination. There just are not nearly enough beds at Sugarbush or at the inns and BnBs we do to support two ski areas.
If their property taxes increase significantly, the owners we work with will feel pressure to make more peak days available to rent to cover that cost, meaning fewer days using their property themselves. That would actually be good for us – more availability means we sell more nights, but that will be a deal breaker for some of our clients. How many is impossible to know — it depends on the macro environment, which is looking precarious at best these days — but pressuring them into selling introduces three risks:
- A reduction in lodging availability in regions with no or inadequate commercial alternatives since many of the potential buyers for these properties can likely afford not to rent them.
- A decrease in supply will drive up rates – again, that might be good for STR managers like us in the short term – but the middle class has been getting priced out of winter sports for decades. More expensive lodging will lead to fewer visitors.
- Greater uncertainty in a segment of the economy that already contributes meaningfully to the tax base.
Act 73 and H.955 are themselves attempts to overcome the unintended consequences of Act 250. Having shot themselves in the foot with Act 250, then again with Act 181, the legislature is reloading so they can shoot the state’s economy in its remaining foot by taxing an unpopular constituency that can’t vote here.
What could go wrong? Opening the door for private equity: The likely outcome is a change in second home ownership, not a change in use that would help address the housing affordability crisis. Most of these properties are priced well beyond what local households can support. In other markets, similar pressures have led to consolidation by even higher-capital buyers, particularly private equity, rather than increased local ownership.
Vermonters will sorely miss second homeowners who use their properties and spend money here when they wake up one day and have a private equity fund for a “neighbor” — a real risk if this new classification is established.
While I appreciate and understand the need and the difficulty of reforming education funding and policy in Vermont, trying to stick second homeowners with the bill – while emotionally satisfying for some – is not a smart way to go about it.
Rowles is the co-owner of Kate Alexander Accommodations Inc. in Fayston.
