Opinion | Scott M. Estill: It’s out of balance
Challenges, Choices, Changes
Never underestimate the value of an education. For today, it is economics and accounting. Seemingly, not a day goes by without another article or account of the current labor shortages in Summit County. But the shortages all boil down to one question that all businesses operating in the county — big and small, national and local — are asking: “Where will our employees live?”
To start, we need a bit of help from Economics 101 and supply and demand. The lessons are straightforward as applied to real estate: When the demand for properties is high but the available inventory, or supply, is low, the prices will increase. And the larger the imbalance between the available (but reduced) supply and increased demand the more out of line with “reality” the prices will go. Welcome to Summit County in 2021!
To suggest there is a reduced supply of available housing is a vast understatement. A quick internet search confirmed this as fact within a few minutes. In looking at rental units available in Breckenridge, I could find two separate places that would set me back $1,650 per month. These units are 295 and 432 square feet respectively. By comparison, the average size of a U.S. hotel room is 325 square feet. Using a rule of thumb that rent should not exceed 30% of gross income, I would need to earn at least $5,500 per month, or $66,000 per year, in order to afford one of these apartments. Unfortunately, finding a roommate to share the cozy space and expenses would likely prove challenging.
But what if the search was extended to include Leadville and Kremmling? Forgetting that the long commute is often in dangerous winter conditions, the results were not much better. There were only three hits for Leadville and two for Kremmling. And with housing prices so high relative to income, there is no way that the average worker can afford the entry points to buy anything within the county.
This all leads me to conclude that a total free market will not work if the goal is to provide more affordable housing for the workers in the shops and restaurants who provide the services for the folks who own the second and third homes.
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While I support raising wages in general, and specifically in a resort community with a higher cost of living, simply raising wages or offering ski passes or other incentives will not solve the problem. You can increase an employee’s wage from $15 to $20 or more per hour, but without available housing the labor shortage will remain. Under the current housing situation in Summit County, an employer would need to keep raising wages until, at some point, workers would be encouraged to travel greater distances for their jobs. While a business owner can likely pass along small wage increases with price increases (yes, the average tourist visiting the Mint would likely not hesitate paying an extra $5 for the filet mignon), at some point the wage increases cannot be passed on to the consumer.
Without a free market to provide the solution, it will be up to the public sector to offer solutions. Many of the proposed solutions (and there are many) deal with prohibitions, including limiting short-term rentals via zoning or town moratoriums. But I typically prefer incentives over prohibitions.
For better or worse, the one thing that still talks loudly is money. Ski area towns will always have a large number of vacation and second homes that will not be on the rental market for any reason. But for those properties that are being rented out, most owners revert back to Accounting 101 and look at the problem as one of simple mathematics: If I lease my condo on a long-term basis versus a short-term basis, which will produce the greatest cash flow, net profit and tax results? And is there a way that any governmental incentives — such as tax credits, rebates, grants and the like — could swing the analysis in favor of long-term leases? The numbers typically speak for themselves.
As the current housing inventory demonstrates, what we are currently doing is not working. And one of the solutions here is really a simple return to the lessons from introductory courses in economics and accounting.
Scott M. Estill’s column “Challenges, Choices, Changes” publishes biweekly on Thursdays in the Summit Daily News. Estill is an attorney, author and public speaker who lives in Dillon when not traveling or attending to legal matters in Denver. Contact him at firstname.lastname@example.org.
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