Cape Business Trends newsletter March 7, 2007
The summer outlookIt may still be cold outside, but it’s not too early to think about the summer season outlook. It appears to have bullish overtones, according to the experts.
Rachel Roginsky, an analyst at Pinnacle Advisory Group, forecasts a 1 percent to 2 percent increase in room occupancy rates for hotels and motels. Average room rates should rise 4 percent to 6 percent. The revenue per available room is expected to go up 5 percent to 8 percent, she said.Weather always will be the key variable. But assuming benevolent conditions, here are some other trends to consider:
• There will be increased competition for hotels and motels coming from summer home rentals.
• Expect continued improved demand among group tours. Boston is experiencing this upsurge during the fall and winter season.
• There should be a stable, if not slightly decreased, supply of hotel and motel rooms due to lots of renovations – a good story over the long term.
• Some hotel and motel owners are confident the new flyover will improve summer traffic – even if only for its psychological impact.
Whither tourism promotion dollars
State Rep. Eric Turkington, who chairs the Legislature’s Joint Committee on Tourism, Arts and Cultural Development, said not to worry in the wake of Gov. Deval Patrick’s decision to cut in half the earmark for tourism promotion.
By July, the Legislature, working with the governor, will make sure the money is restored. In fact, there should be a serious increase in funds available for promoting tourism in Massachusetts, he told an audience at BizWiz March 6.
Connecting the dots: Should second-home rentals be taxed?
Some things to consider as the debate intensifies over whether to tax summer rentals:
Yes, it would level the playing field. Latest numbers show a waning occupancy rate for hotels and motels in the summer, surely a result of competition from summer home rentals.
But what happens if second-home owners dependent on that income find themselves faced with as much as a 9 percent tax increase? For them, it is seeing their property tax almost double. This on top of rising energy costs, insurance coverage increases and a harder time renting their homes due to an oversupply of rentals. At what point will second-home owners decide to put their home on the market because the economics don’t work – especially since they no longer can expect double-digit price appreciation?
And if those houses go on the market, what impact will that have on all house prices, including those owned by primary-home owners?
Will municipalities worried about waning occupancy taxes find that scenario better?
Now add the fact that second-home owners spend more on average than full-time residents – according to some studies, 1.6 times more. If they bail out in the face of rising overhead costs, what other businesses on the Cape – from furniture stores to restaurants – will suffer?
The reality is that the tax issue transcends tourism and municipal budgets. It is very much a complex macroeconomic issue with many moving parts. Look at it one-dimensionally and we are sure to suffer unintended consequences.
On the housing front
Two months into 2007, the housing market appears to be stabilizing on the Cape. Several big real estate brokers report sales volume increases of 8 percent to 10 percent in January compared with a year earlier. Those numbers are supported by the Barnstable County Registry of Deeds, which shows January single-family home sales up nearly 5 percent year to year.
Remember, January was unusually warm with no snow accumulation. February was frigid, and sales numbers do reflect those temperatures prohibitive for house shopping. Sales declined substantially from a year earlier last month, but Realtors we talk with choose to discount that February performance and focus on the stronger trends registered in December and January.
The inventory of unsold homes remains about 1,000 less than as recently as last fall, despite a recent spike upwards. To see the inventory trends, click here.
One reason for the improved sales performance: sellers finally seem willing to lower their prices. The median single-family home in January sold for nearly 5 percent less than a year ago; in February, prices were about 9 percent lower than the same month in 2006. The median price back then was $370,000 compared with $339,000 last month.
One Realtor, noting the revived market, said, “Buyers still remain in control of the marketplace. Negotiations are harder, and we see offers coming in low – and those deals are not getting together.”
Best places to live
The town of Barnstable has made Money magazine’s latest Best Places to Live list. We’ve culled some of the numbers to place the Cape’s commercial hub in perspective. Here’s a comparison of how it fares compared with the average of all the best places compiled by Money:
• Median household income – Barnstable, $60,979; average, $76,893
• Family purchasing power – Barnstable, $39,830; average, $68,109
• Sales tax, Barnstable, 5 percent; average, 6.55 percent
• State income tax rate (highest bracket) – Barnstable, 5.3 percent; average, 6.46 percent
• State income tax rate (lowest bracket) – Barnstable, 5.3 percent; average, 2.74 percent
• Job growth (2000-20005) – Barnstable, 6.18 percent; average, 10.97 percent
• Median home price – Barnstable, $347,000; average, $259,566
• Home price gain 2004-2005 – Barnstable, 5.2 percent; average, 9.26 percent
Hot topic: Health insurance deductibles
Lawmakers are cautioning the state’s top health and human services officials to help keep deductibles down under new health insurance policies that should feature premiums around $200 a month.
Meanwhile, there is some concern whether the state actually can implement requirements on July 1 that all adults have health insurance.
While premiums may hover at $200 a month, there are strong indications the new program may require up to a $2,000 annual deductible for individuals and $4,000 for families to achieve that “affordable” premium.
Gov. Deval Patrick is "very hopeful" the state could adhere to the current schedule for July 1 implementation of the law’s requirements for businesses, which must provide coverage if they employ at least 11 workers – or face penalties.
Chances are no one will be penalized on July 1, given current confusion and tardiness getting the program under way. Expect penalties to be held up until at least January.
Higher business taxes
Gov. Deval Patrick hopes to provide property tax relief to about 100,000 homeowners. But expect business to pay for the bill.
The "homeowner's circuit breaker" he proposes would qualify those eligible for a state tax credit of up to $870 per year, or nearly 25 percent of the average statewide property tax bill of $3,800. Who qualifies? Individuals who earn up to $46,000 a year who are not heads of a household; individuals earning up to $58,000 a year who are heads of households; and married couples filing jointly who earn up to $70,000 per year.
But he would close business tax loopholes to generate $295 million in revenue in fiscal 2008 and $500 million in fiscal 2009.
There are seven new changes to close the corporate tax loophole. One would generate $136 million in revenue by curbing the business practice of shifting income to out-of-state subsidiaries to avoid Massachusetts taxes. Another, estimated to yield $99 million in new revenues, includes requiring businesses to "check the (same) box" or conform their corporate identity between the state and federal tax returns. He also would require that Internet resellers pay hotel and motel room occupancy taxes ($5.6 million for the state and $4 million for municipalities. And Patrick would ensure that businesses pay the full sales tax on leased equipment, generating about $28 million.
Chatham named one of America's Dozen Distinctive Destinations
Long known for its quaint atmosphere, Chatham has been recognized by the National Trust for Historic Preservation for its historic charm. It was announced today that Chatham and 11 other towns were selected to receive the designation of America's Dozen Distinctive Destinations. This annual list highlights unique and lovingly preserved communities in the United States.
"Chatham is an authentic, old-fashioned town that has never forgotten its sense of place," said Richard Moe, president of the National Trust for Historic Preservation.
Tourism based on historic attractions is encouraged because it can extend the traditional tourist season, and because it is a sustainable, healthy form of tourism.
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