HomeMy WebLinkAbout08-07-23 Public Comment - C. Nitz - STRDear Bozeman City Commission,
As a business owner, employer, and homeowner in the City of Bozeman, I have some concerns
regarding the City’s proposed ban on short-term rentals (STRs) within city limits. May I note
from the outset, that I DO NOT own any STRs in Bozeman.
I think it is important to note that STRs are not responsible for shortages in workforce housing,
as some would claim. Although it is critical that workforce housing be addressed, to burden
STRs with that resolution will be both ineffective and unequitable. I appreciate that there may
need to be some balancing of “equity”, and that that balance is complex, but I urge you to also
consider practical solutions. Your actions on this issue impact far more than either STRs or
workforce housing – to adopt a common phase, your decisions may be existential to Bozeman’s
future prosperity. Are you willing turn Bozeman into another wasteland like Seattle and
Portland, or are you committed to the continued success of Bozeman – a town to which many
from Seattle and Portland have fled?
As set forth below: (i) the existence of STRs is likely completely unrelated to the availability of
workforce housing; (ii) linking workforce housing to STRs is likely to inequitably burden
homeowners who rely on the income from STRs to afford the cost of living in Bozeman; (iii) the
Commission should develop a strategy for workforce housing that focuses on development of
workforce housing rather than the taking private property and the displacing of existing
homeowners; and (iv) requiring employers to pay a living wage rather than interfering with the
property rights of third parties is the appropriate equitable solution.
As noted in your own research, STRs are a significate resource in Bozeman’s tourism ecosystem,
and the disruption of that will likely result in a material, detrimental, impact to Bozeman’s
critical tourist industry. The irony should not be lost on the Commission – as you destroy to
tourism industry, many of the restaurants and other businesses that employ the workforce will
fail and the workers will be terminated – the Commission will be successful in solving the
workforce housing issue because its policies will be responsible for eliminating the need for a
workforce.
This issue is not unique, and Bozeman is not the first economy to need to address the issue of
workforce housing. The Milken Institute’s report on STRs, workforce housing, and a sustainable
tourist economy is but one example of many resources available to the Committee – resources
based on data and not emotions. The Milken report cited a number of potential policy
considerations that didn’t specifically burden a single class of citizens, any of which may identify
a useful path for the Commission: (i) provide incentives for STR owners to rent their property as
workforce housing (e.g., mortgage financing support); (ii) allocate portions of new housing
developments to workforce occupancy; and (iii) provide local incentives to streamline the
workforce housing permitting and approval process.
The Short-Term Rental Background Information for August 8, 2023 Work Session (the “Report”)
contains some interesting data, but I think more detailed data is needed in order to make an
informed decision on how eliminating STR would impact the availability of workforce housing –
this, as with all Committee decisions that impact the tens of thousands of Bozeman residents,
needs to be data- based, not based on emotions:
• The Report notes that approximately 568 STRs are active in Bozeman. However, if
Bozeman were to eliminate those STRs, it is unreasonable to believe that those housing
units would become available for workforce rental housing.
o For example, none of the Type 1 STRs would likely to become effective
workforce housing, because Type 1 is more likely to be used on a periodic, rather
than continuous basis. If this proves to be an accurate assumption, this would
remove 108 of the 568 STRs that would potentially be available for workforce
housing.
o Similarly, certain of the Type 3 STRs are likely to be seasonal rentals while the
homeowner is spending the season outside of Bozeman. For example, a resident
may spend the winter in Arizona and list their Bozeman house as an STR during
the winter. It is unlikely that this class of Type 3 STR would ever enter long term
workforce house; rather, the homeowner would simply not rent the house while
they are away, which does nothing to improve workforce housing, but may
materially, adversely, impact the homeowner without any corresponding benefit
to Bozeman. Type 3 STRs account for 35% of total STRs, if we assume a quarter
for Type 3 STRs are seasonal rentals, then this would remove another 50 units
from the possible pool of workforce housing.
o Certain Type 3 STRs, are owned by investors seeking a return on their
investment. If their investment criteria require that they earn rental income in
excess of the rents that can be paid for workforce housing, then those investors
are likely to sell their units or convert them to market-price medium- or long-
term rentals. If standard workforce rental is $1,700/month, any STR earning
more than $1,700 is not likely to enter into the workforce housing pool. More
data is needed, but if we assume that this class of Type 3 STRs accounts for 50%
of Type 3 STRs, then that would be another 100 units that would fall out of the
pool.
o Thus, without considering which of the Type 2 STRs would not be available for
workforce housing, just the above would mean that the applicable number of
potential housing units is not 568, but is closer to 310.
• Given the above, we would next need the data on how many of the 310 would be
affordable as workforce housing rental.
o We first need the data on the number of bedrooms in the remaining 310 sample
set to determine the applicable workforce housing rental rate. For example, if
we have a one-bedroom Type 2 ADU, we can assume that that will be rented to a
family of two not a family of four, so we need to understand whether the owner
would rent that ADU for $1700/month as opposed to $2,000/month, (assuming
that is affordable workforce housing for families of two and four, respectively).
o Once we have the data from the bullet point above, we can compare the STR
rental rates and the workforce housing rental for the remaining Type 1 and Type
2 STRs. Many owners of STRs may determine that rental rates paid for
workforce housing is not sufficient to justify renting their units. Thus, we can
expect to see a large number of the 310 units becoming unavailable.
o As some of the public comments have noted, many of the homeowners need the
supplemental income from the STRs to afford to live in Bozeman, so the City’s
elimination of STRs may have a material, negative, impact on the City’s existing
homeowners.
• The ability to generate income from STRs is meaningful to the homeowners and the
investors. If that income is eliminated or substantially reduced, then many investors
may elect to sell their units, and many homeowners may be forced to sell their homes.
o Since Type 2 STRs are comprised largely of ADUs, and ADUs cannot be sold
separately from the main house, we can reasonably assume that Type 2 STRs will
not be available for purchase. Type 2 STRs constitute 261 STRs, almost one-half
of all STRs.
o Given Bozeman’s current average home price of $750,000, many, if not most of
these units would be unaffordable as workforce housing.
o If we assume a member of the workforce has saved the $150,000, 20% down
payment, for an average Bozeman house, and they could secure a 7% mortgage,
the monthly payment of $3,500, plus insurance, taxes, and HOAs dues, it is likely
out of the reach of most people seeking workforce housing.
o Bozeman continues to be an active real estate market. So, even if members of
the workforce could afford to buy a former STR unit, they will be competing with
other potential purchasers, some of whom may be in substantially better
financial positions. Even in the unlikely event housing prices are suppressed as
the STR units come on the market, members of the workforce are likely to be in
a weak bargaining position.
The Report also contains some interesting data about the relationship between STRs and
lodging in Bozeman. I think more detailed data is needed in order to make an informed
decision on how eliminating STR would impact Bozeman’s economy:
• A large portion of Bozeman’s economic activity is tied to tourism. The Report finds that
43% of available “beds” are provided by STRs. If the City were to eliminate such a large
part of the “bed base” it is reasonable to assume that that would have a material, and
highly negative, impact on the Bozeman economy.
• Since many members of the workforce work in industries dependent on tourism, we can
reasonably assume that we will see a substantial number of employers failing, and
employees terminated, if the City eliminates STRs.
As the Report noted, fewer than one-half of the STRs have registered with the City. Given the
City’s lack of enforcement of its existing permitting requirements, there is little reason to
believe that the elimination of permitted STRs will result in much, if any, additional units of
workforce housing. Rather, the 305 unpermitted STRs will likely continue to operate, and some
percentage of the permitted operators may continue to operate on a non-permitted basis. It
would be a better use of the City’s time and resources to enforce the regulations it has already
adopted.
While I believe that we need to address the issue of workforce housing, focusing on STRs is an
inappropriate and ineffective distraction. I support sensible restrictions on STRs, which I think
are generally reflected in Ordinance 2131; extreme restrictions (such as bans) do nothing to
promote workforce housing and also jeopardize the sustainability of Bozeman’s critical tourism
industry.
I believe that the City and its citizens would be better served if the Commission stopped trying
to burden a single class of homeowners with the City’s inability to provide workforce housing.
Providing necessary workforce housing it extremely important, but it is an issue for all
residents, and needs to be decoupled from STRs.
Thank you for your consideration.
Daren Nitz
Free Vector Advisors
Bozeman, Montana
(206)-409-3178
daren@freevetoradvisors.com