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December 22, 2008

Great Article on the Economics of Aspen

Interesting read and thanks for the great link from a reader:

To me it has always posed the classic development problem: how do you both improve and preserve what you've got, without setting forces in motion that undermine what you were trying to protect?

Before the housing and economic meltdown Aspen’s future was considered in State of the Aspen Area 2008, a report commissioned by the Aspen City Council and Pitkin County Board of Commissioners to provide guidance for future decisions on issues ranging from housing to growth management to transportation. The goal was to generate a 10-year community vision for the future, but that future may have to be put on hold.

The report highlighted several trends that seemed to pose serious challenges for Aspen. Most prominently, it suggested that the Aspen economy was becoming dangerously dependent on real estate and construction, as opposed to the original drivers of skiing, lodging and retail/restaurants. There were many new jobs, but a decrease in available housing for workers.

Aspen backs up to the Continental divide (closed all winter)! The Roaring Fork Valley is steep and narrow. Low- and middle-income workers must all live and commute “down valley.” But down-valley communities, where one used to be able to find cheap housing, have themselves become too crowded and expensive.

On top of this the Roaring Fork Valley has moved within sight of being "built out." Traffic congestion is expanding up and down the valley (there is only one road – Route 82 – to get in or out of town), reaching intolerable levels during rush hours which start earlier and end later. A population of primary and second homeowners increasingly "aging in place" (with large percentages intending to retire in place), taking both their labor and residences off the market, exacerbate existing housing/lodging/worker imbalances.

The only reason the town "works" now is massive cross-subsidization. The fabulously wealthy subsidize the town budget with high property taxes on their mansions (even though some are in residence only a few weeks a year). They also subsidize the many arts, cultural attractions and charities so ubiquitous to Aspen as well as a range of services for year-round residents, from child care to education, health services, senior services, and police and fire departments.

Revenues from the rich and ultra-rich also pay for a town government that has a budget of $100 million plus for a town of 6000 permanent residents. In other words, Aspen could not afford itself if it had to rely on itself. Yet it was assumed the system would continue to work indefinitely because of the belief that "there will always be [a need for] an Aspen," a playground for the ultra wealthy who spent freely and gave generously."

This is the ski industry in a nutshell. No locals anymore. Locals live down valley. Locals live like illegal immigrants do in Phoenix--working the jobs the rest of the folks will not and living in hovels packed 10 deep, sleeping on floors and thankful for their jobs that allow them to live in what to them is Utopia. The only difference between an illegal and a ski industry worker is that most ski industry workers do not send money home to their families in Mexico--except for the increasingly large percentage of ski locals that are indeed from places like Argentina.

It is an industry, not just a town, on the verge of collapse under the weight of high real estate prices combined with no real workforce to build the houses and staff the restaurants that cater to the rich.

Posted by Justin at December 22, 2008 05:55 PM

Comments

Colorado hasn't always been the model of sustainability in the skiing industry. I heard people complaining about this stuff at Vail 30 years ago. If you compare the success or failure of the "purpose-built" French resorts to some of their Italian counterparts you get 2 types of economies evolving. The French condo model in their purpose-built resorts provided very little benefit long term to the local population and a lot of car traffic. Four season resort towns in Italy that existed a long time before there was skiing were always better served when patrons arrived by bus or train and were housed and fed in hotels in adjacent towns. Thank-you for visiting, please come back but always remember you are a guest. I think a good rule is that any slope-side accommodation should be short term "guest" oriented. Condos, cabins or sub-divisions should be far enough away from the actual hills that they don't present any threat to the sustainable long-term interests of the hill, its future expansion or local sustained employment. If there was no ski hill people wouldn't come. If you crowd it with so much "investing" the hill loses its cache as a primary focus and attraction. Once an investor knows they are in a beautiful spot yet away from the hill (at least 5 miles)they will accept it. Ski municipalities who merely collect taxes from second or third urban homeowners will not build a diverse enough tourist economy and will likely at some point hit a wall.

Posted by: Away visitor at December 25, 2008 10:09 PM

I'd like to add a few more thoughts. When you look at how resorts (towns) are developed a lot depends on what protections there are for these unique environments. Banff and Jasper in Canada are national parks. The towns of Banff and Jasper have somewhat limited development because they are inside the park gates. Many would argue there should never have been development inside those parks. But there is an economy for tourism there that has many benefits. Outside of these gates are towns like Canmore that are quite disappointing in that they sit in an incredible setting yet they look like up market gasoline alleys with depressing fast food chains. Also the billboard advertising outside these parks are completely insensitive to the natural heritage that are the Rocky mountains. I cannot help but conclude whether I want to or not that left unchecked urban style development would completely destroy the Rocky Mountains if there were no protections against irresponsible development. Aspen is a gold rush town pure and simple where outsider values have run wild oblivious to the fact that these locales didn't need to become playground meccas but rather an environment to experience and then to get the heck out of so the next person can enjoy them. The minute transplanted urbanites planted stakes in the ground is the moment these places lost their way. Personally I would like to see supported more Powderhorns and Wolf Creeks and far fewer dinosaur Whistlers, Mammoths, Vails or Aspens.

Posted by: Away visitor at December 26, 2008 10:46 AM

Interesting article. I'm not sure I share your extreme view of this being a problem for all of the industry, as there are several resorts doing well with none of this big money being poured in. Look at places like Mad River Glen in Vermont, Banff is a great example, and Schweitzer. All seem to be very well at sustaining a mixing of growth and local joy.

Posted by: Oft-Piste at December 29, 2008 09:48 AM

Maybe "all" is a little dire indeed, but the majority of resorts do not pay for themselves with operating money. They do not support investment in infrastructure without the potential for rising real estate prices in the surrounding resort owned areas. Basically, given the way that resorts are valuated, the only resorts that are worth investing in are those that have large real estate holdings otherwise, operating income from a ski resort does not justify putting in a new lift or new snowmaking, etc.

I just watch every time a resort invests in new cats or new snowmaking or new lifts, they plan to make their money off of an increase in the value of their real estate portfolio, not on additional skier visits. Does a new lift usually result in increased visits or justify a huge increase in ticket prices? Not really, but sometimes it is necessary just to keep pace. Then it is upkeep, not investment. Maintenance more than improvements.

And that is part of the issue with a place like Wolf Creek (that I absolutely love BTW). They put in a brand new high speed Raven Quad, but short of more skier visits or more money per visit, it is merely upkeep to replace an outdated lift, and does not yield any return on investment. The resort does not own any developable land and will more or less maintain a stasis as long as the snow is good enough to keep attracting folks. But that is not the long term plan. Red McColms wants to develop the Village which turns the area into a community, not just a ski resort and changes the dynamic.

I will leave the debate over the Village to another post, but the net is that every time a resort invests in improvements, it should drive the up demand for property. That is why they do it. And demographics naturally mean an increase in skier visits as long as the industry stays affordable.

My argument is that only rising prices will lessen the demand to ski and or live in these towns. And short of major expansion, these resorts can only support so many visits. So you have to decrease demand or increase supply somehow and the rising prices are driving folks away from these towns and the industry in general.

Posted by: Justin B. at December 29, 2008 04:40 PM