Study: Denver Missing Out On Millions By Not Taxing Short-Term Rentals

Photo: City Park, Denver (Flickr/CC)
The Denver skyline is visible from City Park.

Denver is missing out on least $2 million in tax revenue annually from short-term rentals, according to a new study.

Researchers at the University of Denver’s Fritz Knoebel School of Hospitality Management published that conclusion as part of a white paper for the Denver City Council.

“We're talking about big, big numbers here,” said study co-author David Corsun, an associate professor at the university.

And those numbers are almost certainly bigger than $2 million, Corsun said. His research only studied a sample of the approximately 400 short-term rentals listed on VRBO. The authors didn’t analyze Airbnb -- by far the biggest player in the sector with about 1,700 listings.

“Given those numbers, I think it's crazy to not regulate. It's crazy to not tax,” he added.

The City Council is indeed moving toward regulation and taxation, with a eye toward collecting that now-forfeited revenue. A draft of legislation calls for short-term rentals to be taxed at the same 10.75 percent rate currently levied on hotels.

The city’s VRBO listings have an occupancy rate of about 40 percent and collect rents of $13.6 million annually, the study estimated. Visitors who stayed in those rentals spend $21.28 million annually in the city, not counting transportation or lodging costs. That’s slightly less than the average hotel guest, Corsun said.

While the numbers don’t include other platforms, most notably Airbnb, Corsun said his data could be used to draw conclusions about whole-home rentals listed elsewhere. When CPR News scraped data from Airbnb last fall, there were about 1,000 whole-home listings. That could increase the inventory of whole-home short-term rentals on the two biggest platforms to about 1,400. However, it’s likely that some units are listed on both sites. And it’s possible that trends differ between the two services.

The study also is the first to examine the type of traveler that chooses to stay in a VRBO rental over a hotel in Denver. The findings suggest customers are mostly leisure travelers and not business professionals, Corsun said.

“They are well-educated, pretty affluent group,” Corsun said.

There’s room in the market for both types of companies, said Amie Mayhew, president and CEO of the Colorado Hotel and Lodging Association.

“Everyone has sort of found a niche in the market,” she said. “And people who want full-service hotels with valet parking and room service and those kinds of things will choose hotels because those are things that Airbnb can't offer.”

While short-term rentals have exploded in popularity in Denver in recent years, they are still dwarfed by traditional hotels. There are currently 22,000-23,000 hotel rooms in Denver alone. Chart: Hotel Rooms Vs STR Units

And as more companies move to regulate gig economy companies like Airbnb, Corsun thinks their days of skirting rules and taxation will be over.

‘The writing is on the wall,” he said.