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SANTA FE, N.M. — Near the end of a recent public forum on short-term rentals, Karen Heldmeyer, a former city councilor, summed up what has exacerbated the problem of an over-saturation of temporary housing in Santa Fe – a situation documented in a recently released study on access to housing in Santa Fe.
“It all comes back to enforcement,” said Heldmeyer, an active member of the League of Women Voters of Santa Fe, sponsor of the forum last weekend at the downtown library.
No one denies that enforcement of the city’s short-term rental ordinance has been lacking in recent years. The proliferation of STRs, due largely to the popularity and impact of online services like Airbnb and Vrbo, overwhelmed the Land Use Department, which lacked the personnel and resources to keep up in tourism-heavy Santa Fe.
But the city now is getting ready to step up enforcement efforts by reorganizing and doubling its enforcement staff, and soliciting the help of a firm specializing in scrubbing online websites that advertise STRs, in an effort to ferret out the many STR hosts operating illegally under the city’s ordinance.
The stepped-up effort begins informally July 1, when the city begins operating under a new budget and after an agreement with Seattle-based Host Compliance goes into effect on June 30.
Enforcement, or lack of it, on the city’s part came up again and again during the June 15 League of Women Voters’ forum, whose speakers also included Kurt Hill, former president of the Santa Fe Association of Realtors, Land Use Director Carol Johnson and Kelly O’Donnell, a University of New Mexico economist and author of the recent housing study.
The study, commissioned by Homewise, a nonprofit group that assists people of all income levels buy homes or stay in them, concluded that noncompliance by STR hosts is costing the city about $3.8 million annually in lodger and gross receipts taxes. The first of the six recommendations made in the study is for the city to step up enforcement of its ordinance by seeking out unregistered properties and punishing hosts for noncompliance, the report says.
“Although additional regulation of STRs may be called for at some point, enforcement of existing regulations and taxes is a critical first step toward minimizing the impact of STRs on access to affordable housing,” the report says.
Hill noted that other studies suggest that Santa Fe has a shortage of about 6,500 housing units and is 2,400 units short in supply of “affordable” homes or apartments.
The city’s technical definition of “affordable housing” is “a dwelling unit whose monthly cost does not exceed 30% of a family’s gross monthly income” and applies to all households earning up to 120% of the area median income.
The Homewise report says that the proliferation of STRs, especially in the downtown area, has cut into the housing inventory, which through a domino effect results in higher rents and higher home costs throughout Santa Fe, and adds to the housing crunch. The report says that during a four-year period from 2015 to 2018, the number of whole-unit STRs (either entire houses or apartments) rose from roughly 300 to 1,444 – a 380% increase – due largely to the popularity of the popular online services.
One of the biggest revelations in the report was that just 15 STR hosts operate 381 active STRs, or more than one-quarter of the entire STR market. City Councilor Signe Lindell, who attended the forum, said that kind of discrepancy isn’t in the “spirit” of the ordinance. There are things the City Council can do to address that problem, like pass an amendment to the ordinance that would limit SRT permits to just one per person, she said.
“Our ordinance does need changing, but initially what we need to do is step up enforcement,” she said.
New enforcement contract
Johnson, the Land Use director, said the city had used an online firm, Harmari Search, to track online classified ads to discover which STR hosts were not complying with the city ordinance requiring registration and payment of taxes, but the contract expired last September. And it provided only what Johnson described as a dense spreadsheet that required staff to perform analysis.
She said Seattle’s Host Compliance, the company that won a bid to provide new STR enforcement services, can produce more user-friendly dashboard reports and reports on demand, and capture information that can be archived.
“So when we find someone in violation of the ordinance, we can refer back to the archive and that can be a part of our compliance case,” she said.
A city spokeswoman said the contract with Host Compliance is worth $59,995, with renewal options up to four years, to monitor 54 websites to find listings for STRs that aren’t registered with the city. The amount of the agreement is $5 less than what is required for City Council approval. City Manager Erik Litzenberg has the authority to sign contracts for less than $60,000 on his own.
The city also has the option of adding an additional service that would provide a 24-hour hotline to field complaints at a cost of $22,500 per year, which would require a budget amendment and approval of the City Council, according to Johnson.
Johnson, who has been in her position as Land Use director for about a year, reorganized her staff to create a new compliance division.”It’s a merging of the code enforcement staff and Short-Term Rental staff,” she said. “Now, we’ll have six inspectors covering six zones in the city.”
That’s opposed to one supervisor and three code enforcement officers in years past. And Johnson described that team as a “mishmash in terms of type of staff, job classification and structure.”
The Compliance Division will be headed by long-time city employee Greg Smith.
“He has the institutional knowledge, and understands the intent of our ordinance and how it has been applied over time,” Johnson said. “And he has a good relationship with the City Attorney’s Office.”
Ultimately, it’s the city’s prosecuting attorney who will carry out the city’s enforcement efforts in municipal court.
Unenforced STR cap
The city initially put a cap of 350 on the number of STRs permitted by the city. When the number of STRs in the city exploded, the City Council in 2016 raised the cap to 1,000.
The problem from the city’s point of view is that many more are still operating without a permit. The Homewise report says that there are 1,444 STRs operating in the city. Only 871 hosts paid the $325 fee to register with the city, meaning that 40% of STR units are operating illegally. As a result, the city is missing out on $2.8 million in lodger’s taxes and $1.6 million in gross receipts taxes.
The city signed an agreement with Airbnb in 2016 to remit lodger’s taxes to the city, but Airbnb is just one of dozens of platforms that advertise STRs online. And the city has no way to collect GRT from hosts, as those taxes are due to the state, which then returns a portion to the municipality from which the taxable transaction originated.
Some people may not even be aware that they owe taxes when they rent out a STR, according to the Homewise report. The second recommendation behind enforcement is to educate.
“Educate STR hosts about their obligation to pay both the lodger’s tax and the gross receipts tax, even if the platform(s) on which they list their properties cannot, or will not, automatically collect and remit one or both taxes,” it says, adding that the city can improve compliance by requiring hosts to provide a tax ID number and educate them about where to report their GRT.
It doesn’t appear the city really has made much of an attempt to enforce it in the past.
“I haven’t been aware of any enforcement since I’ve been here,” said Assistant City Attorney Mike Prinz, who has been with the city for only about a year. The city’s prosecuting attorney, Chad Chittum, would have a better idea, Prinz said, but Chittum did not return messages from the Journal this week.
Prinz said that, when a violation is reported, the alleged offender is issued a notice of violation. They then have 15 days to remedy the problem.
If there is no progress on compliance within that time, the city code states that the Land Use director shall pursue enforcement, which takes the case to municipal court.
Under the city’s ordinance, offenders are subject to revocation of their permit, a $500 fine, plus up to $250 per day for each day they are in violation. Prinz said violators could also be subject to 90 days in jail.
So, will a beefed-up enforcement staff, a new online monitoring service and a more aggressive approach to prosecuting violators make a difference?
Only time will tell.
“We won’t know until we actually see how it works for a month or two,” Land Use Director Johnson said.