💼 Last Resort

briefcase | invest smarter | Issue #136

Today’s issue comes to you from a friend of briefcase Logan Nigel.

⛱️ Resorting Problems

If you open a restaurant near Lake Tahoe, you’ll have plenty of patrons fresh off their jet skis, but good luck finding staff to work the kitchen and wait tables. That’s what’s happening to Alex Brambila, owner of the 40-year-old Las Panchitas.

This popular dinner spot nonetheless had to close its doors on Mondays due to difficulties staying staffed in the face of a meteoric rise in local housing prices. From 2010 to 2020, the number of housing units available around the lake grew by 1.35%, while the population surged by 5.6% between 2019 and 2020 alone. That’s not exactly balanced growth.

Participants of the 2022 Tahoe Opinion survey pointed to the lack of worker housing options as the greatest threat to the quality of life in the region. Add in all the people complaining about traffic and vacation rentals and…you get the picture.

Other towns have it even harder than Tahoe, where populations gradually declined until the pandemic. From Sedona to Martha’s Vineyard, housing is a front-burner challenge for communities with huge natural draws but limited ability to support rapidly-growing populations.

So why are resort towns getting so expensive, what’re these cities trying to do about it, and are there angles for investors to plug in and provide some value? Here’s what you need to know before your next trip to Sun Valley.

😟 Didn’t Want To Resort To This

Resort towns make the ramifications of the housing crisis particularly hard to miss because they’re small and reliant on cheap service labor. People come to these communities for their slopes and spas. Without homes for lift attendants and housekeeping staff, the resorts can’t bring in the parka-clad tourists that keep these towns going. Workers wind up making massive commutes to their jobs, and everyone ends up worse off.

There are a couple of big culprits for the housing price crisis in resort towns. Much of it comes down to how great these places are to live, at least on paper. Who doesn’t want to live next to a national park or steps away from a world-class ski run?

Unfortunately, these communities only have so many homes to go around. In the last decade or so, two big changes have put tremendous strain on resort town housing markets. First, remote work became a viable option for knowledge sector employees seeking to escape big cities. Census Bureau data shows mobility declined during COVID, except for the highest income quartile.

Service workers in resort towns would be hard-pressed to beat bids submitted by out-of-town tech workers and accountants.

Thanks, Zoom.

Second, Short-Term Rental (STR) platforms ate into the volume of homes that might otherwise have been put on the market for conventional sale or long-term rental. In Sedona, a classic southwestern destination, 17% of all homes are used as STRs.

Adding onto those challenges, these mountain communities sometimes have less raw land to make use of than in flatter areas. This is the case in Rabun County, GA, where 70% of local land is owned by the Forest Service or the power company. On the land that is available, there is often an extra need to build with wildfire resilience in mind, too.

🐚 Shelling Out Solutions

Resort communities are taking various approaches to make more housing available. Some are directly limiting STR use, and others set aside part of existing affordable housing for crucial workers like teachers. There are those towns that try to limit the development of high-priced homes with the (terribly misguided) tactic of limiting building permits. Eek.

Other towns are taking more innovative approaches. Summit County, CO, which includes Breckenridge and Keystone, runs a “Lease to Locals” program where landlords who rent to employees of local businesses at relatively low rates can receive up to $22,000 per year in incentives.

Aspen has its own affordable housing credit market, which developers can buy and sell instead of building their own affordable units or making cash-in-lieu payments directly to the city. Vail buys and deed-restricts homes before selling or renting them to local workers.

Plenty of resorts have their own housing, which offers some opportunity for employees of these companies, if not the municipal employee that keeps the roads clear each snowfall. Vail Resorts has almost 2,000 units throughout Summit County, and other resorts are building housing on site to avoid the challenges of long travel times and mountain pass congestion.

Alterra Mountain Company, which owns Steamboat and Winter Park among others, earmarked $50 million for employee housing this year, much of which is going to a modular-built complex with over 330 beds. Residents of the property will have the enviable opportunity to commute to work by gondola lift.

Now that’s transit-oriented development!

💸 Investors: Sand Up For Yourselves

There are a few big takeaways for investors interested in remote and resort communities.

First, change is on the horizon in many of these communities. Even beyond housing specifically, tourism-oriented communities are often aware of the risks of deriving too much of their tax income from one sector. Calistoga, CA, deep in wine country, is running a pilot program to give support to entrepreneurs for the purpose of economic diversification. Elsewhere, there is recognition that zoning may need to change to deliver satisfactory growth outcomes. Could savvy real estate investors find themselves on the right side of those trade winds?

Second, resort communities provide housing investment opportunities across a wide range of property types. At a national level, things like tiny homes and modular construction might be considered a bit of an oddity, but in the supply-limited and space-constrained acres of resort towns, this kind of thing can be very viable. For their part, tiny homes occupied a specific part of recent Colorado state legislation that, while failing to become law, illustrates the breadth of creative solutions communities are considering.

Third, keep in mind that these communities are far smaller than typical investment markets, providing opportunities for locals and investors who take the time to become part of the community in a meaningful way.

This can be empowering in some cases, as in Aspen, where the affordable housing credit program was actually proposed by a single developer who has since become the program’s biggest user. It might not be worth it to take a side trip into mountain investing if your bread and butter is Sun Belt growth markets, but if you’re the kind of person salivating at the first snowflakes of the year, it might be worth the effort.

So What? Resort communities are facing huge issues with housing, largely due to the impacts of remote work and STRs. Investors looking to build a business in these communities should search for areas where zoning codes are changing to allow for greater density, or local communities seem willing to partner for innovative solutions that might not work elsewhere.

Creative methods like converting timeshares into housing, new credit programs, and modular or tiny home strategies offer many benefits for these places where space is at a premium. Just be sure you know how those projects work before you get in too deep.

Heck, treat it like a ski run: Pick your route, be willing to get a little off the beaten path, but know when you’re about to carelessly wander onto a black diamond.