Stakes Get Higher For Short-Term Rental Debate

A way to protect private property rights, or a death blow to Traverse City’s neighborhoods and local economy? Such is the debate over pending legislation that would limit the ability of local municipalities to regulate short-term rentals (STRs). Proponents say it would return important private property rights to the hands of Michigan residential property owners. Dissenters say it would create a domino effect that would decimate Traverse City’s housing stock, skyrocket property values, destroy local neighborhoods, and put even greater strain on local employers looking to fill jobs.

The two bills in question – House Bill 4722 and Senate Bill 0446 – would effectively bar Michigan communities from regulating STRs by way of zoning. Specifically, the legislation would classify STRs as a “residential use of property and a permitted use in all residential zones,” which would preclude all local regulations that have banned STRs by classifying them as a commercial use. The bills also proclaim that STRs are “not subject to a special use or conditional use permit or procedure different from those required for other dwellings in the same zone,” which would supersede the licensing and inspection rules that some communities have in place for STRs.

Especially in desirable tourism communities like Traverse City, public officials and local residents have fretted that a new status quo for STRs in Michigan could bring about a rash of unintended consequences. One common concern is that an STR free-for-all would compromise the character of local neighborhoods. Another worry is that investors would buy up residential properties en masse in hopes of using them as Airbnbs – in turn exacerbating Traverse City’s housing problem and rendering affordable housing a pipe dream. Other issues – such as Traverse City’s labor shortage – could worsen as a result.

“If [this legislation] was passed, it would have a huge effect on the city,” says City of Traverse City Planning Director Shawn Winter. “We are seeing quite a bit of that impact already, where people are buying houses and wanting to convert them to STRs – and then finding out that they can’t. We’re seeing multifamily buildings go up solely for STRs. We're seeing potential first-floor retail space that could be converted into rental units. We’re seeing long-term rental units being converted into STRs. And I get it: It's the greatest return on investment you can have out there. And there is a role for STRs here. They’ve always been part of our culture, in terms of vacation cottages and things like that. We've just seen that, as of late, it's really escalated.”

Winter continues: “I think where [the legislation] would impact us greatly, where we're not feeling it now, is that it would open up our residential neighborhoods, where we currently don't allow STRs. That would really add to the pressure on the housing market, because those with means would be able to purchase those properties and use them as these high return-on-investment properties…I was reading about a [Sedona, Ariz.] developer that bought all the houses on a block and tore them down to build newer, extravagant STRs; it just drastically changed that neighborhood.”

Claire Karner, director of planning and zoning for East Bay Charter Township, shares Winter’s concerns. East Bay’s STR rules are less restrictive than the city’s. The City of Traverse City limits STR permits in most zones to “tourist homes” – which only allow for hosted stays and limit the number of guest nights per year, among other restrictions. The East Bay ordinance allows any single-family homeowner in the township to apply for an STR license, so long as they aren’t prevented from doing so by deed restrictions, subdivision rules, or other factors. Those lighter restrictions have led to what Karner sees as a substantial growth of STR activity in the East Bay – to the point where the township is considering tightening its ordinance.

“We’re seeing an uptick in properties that are being listed [for sale] in the township that are advertising that they could be used for STRs,” Karner says.

Karner adds that there will be “joint work session between the planning commission and township board” on October 19, where both bodies will explore “a possible cap on the number of STRs.”

One wrinkle to the story is that two of the proponents behind the current legislation are lawmakers from Grand Traverse County. State Representative John Roth (R) is listed as a co-sponsor on House Bill 4277, while State Senator Wayne Schmidt (R) is a co-sponsor on Senate Bill 0446. Both tell The Ticker that they’re not necessarily in favor of scrapping all local STR regulations, but that they want more of a balance between the rights of local governments and the rights of property owners.

Schmidt says he co-sponsored the senate bill for two reasons: “One, to make sure that I was included in the negotiation process; and two, because I think there can be a balance struck between local control and property rights.” While Schmidt acknowledges the potential consequences of “corporations coming in and buying up properties” for STR purposes, he also notes that some homeowners – especially in expensive areas like Traverse City – might rent their homes out through Airbnb to earn extra income that will help them afford tax or mortgage payments.

“It’s a balancing act,” Schmidt concludes. “It’s about property rights, but it’s also about making sure that neighbors and neighborhoods are respected. So, I wanted to be a part of the conversation. The bill wasn't 100 percent of how I liked it, but if you're not involved, you can't make changes.”

Roth concurs: “I don't have a problem with municipalities or townships putting down regulations that make sense for them,” he explains. Common-sense ordinances, he says – pertaining to anything from noise regulations to limits on the number of nights a property can be rented out – should be the purview of local units of government. “I'm very supportive of a local community having those. It's just the fact that we do have townships or municipalities in the state that don't allow [STRs] at all. And that seems to be a violation of property rights, to me.”

Though Michigan’s STR legislation hasn’t moved forward in months -- and both Schmidt and Roth say both bills are likely dead for the current legislative session -- Roth says the conversation about STRs is far from over.

Already he has introduced a separate bill that would require STR properties to adhere to the same convention and visitors bureau assessment rates that hotels pay. In northern Michigan, that money would help fund Traverse City Tourism.

As for legislation aimed at cutting back on local regulation of STRs, that’s already cropped up in a few past legislative sessions – and will likely be back again in the future.

“We know it's not going away,” Roth says. “[STRs] are going to continue to be in our area and be an issue. And it would be wonderful to be able to solve the differences between local control and making sure property rights are looked at or considered.”