What Is Traverse City’s Housing Profile?

Housing (or the lack thereof) is a recurring hot topic in Traverse City – but what is the city’s actual housing profile? How many dwelling units are in the city, how many of those are being used as vacation rentals, and how many more units could be coming online? And, what concrete steps are city leaders taking to address the local housing demand? City Planning Director Shawn Winter will cover all those topics with city commissioners at their 7pm meeting tonight (Monday), where he'll give an in-depth presentation on Traverse City’s housing profile.

According to Winter’s report, there are currently approximately 6,400 total dwelling units in Traverse City. Another 447 new dwelling units were permitted in 2021 – a 319 percent increase over the previous four-year average – but are primarily contained within two projects that are now tied up in lawsuits: the proposed Innovo project on Hall Street and Peninsula Place on State Street. Of the city's existing housing units, nearly four percent – 251 – are legal vacation home rentals, either already licensed or pending. A vacation home rental is defined in Traverse City as a commercial use of a dwelling where the unit is rented out for less than 30 days. The owner is not required to be on-site at vacation home rentals. The city also has 33 licensed and pending tourist homes – 0.52 percent of total dwelling units – which are defined as single-family homes that are the principal residences of the homeowners, who are required to be on-site. Tourist homes have a maximum two-week stay; in “low-intensity” homes, the owner can rent out a maximum of two rooms for a total of 84 guest nights per year, while in “high-intensity” homes, the owner can rent out a maximum of three rooms for 85 or more guest nights per year. There is a 1,000-foot buffer in the city between high-intensity tourist homes.

The true number of vacation rentals operating in Traverse City is likely significantly higher than the legal number registered, however. In February, The Ticker reported that Airbnb hosts in Grand Traverse County netted $20 million between January and September of 2021. No other county in Michigan saw more Airbnb revenue for that nine-month stretch (the second-closest was Wayne County at $12 million; Leelanau County was shortly behind at $11.1 million). The data aligned with a Traverse City Tourism report that found that the Traverse City region accounts for 22 percent of the state’s short-term rentals but only 1.5 percent of its population.

According to Winter, the city tries to tamp down on illegal listings by using Harmari, software that scrubs the web for short-term rental listings in Traverse City. Those listings are cross-referenced with the city’s licensed database, with additional illegal rentals flagged by staff or neighbors. Winter says that the city contacting illegal listings usually results in compliance – the city sent 20 such letters in 2021 – though a handful of tickets have also been issued (six in eight years). Still, the profitability of short-term rentals appears to incentivize at least some property owners to operate illegally. A 2019 study from vacation rental engine search AllTheRooms identified Traverse City as one of the fastest-growing vacation rental markets in the U.S., with 586 listings on sites like Airbnb and VRBO. That now-three-year-old figure is more than double the number of legally registered units in Traverse City today, with the true number of vacation rentals likely growing even higher since then.

The city offers several programs to try and incentivize longer-term housing in the community. One is an ordinance allowing accessory dwelling units (ADUs), or secondary dwellings built on single-family properties. ADUs require a minimum lease of at least three months (they can’t be used for short-term vacation rentals), require a license from the city, require the owner to live on-site, and must meet numerous design standards. The city, which caps the number of new ADUs allowed annually at 15, hit a high mark of ADU licenses in 2018 at 13; since then, 11 licenses were issued in 2019, 11 in 2020, and 8 in 2021.

Meanwhile, a significant number of dwelling units in the city – 940, or 14.7 percent of the housing stock – are covered by PILOT agreements, another program designed to incentivize year-round housing. A PILOT, or payment in lieu of taxes, offers a tax break to developers in exchange for building low-to-moderate income housing. Currently, PILOTs can only be approved by the city if the development is also receiving Michigan State Housing Development Authority (MSHDA) funding. However, Winter notes in his report that legislation is pending in Michigan that would allow communities like Traverse City to approve a PILOT without the project being tied to state or federal funding. If the legislation passed, communities would need to adopt an ordinance or resolution allowing the PILOT program, and the incentive could only be used for workforce housing.

In addition to state legislation, Winter notes that city leaders are taking numerous steps on the local level to address housing. In recent years, the city has eliminated parking requirements for residential uses and combined multi-family districts into one R-3 district that removed density limits and increased allowable height – both moves intended to make it easier to build housing. The city also expanded the D-2 district north of Eighth Street to allow more building mass, height, and density. In 2022, the city planning commission has a list of goals that includes exploring the following housing solutions: allowing up to four total dwelling units in the R-2 district, allowing duplexes and/or triplexes on corner lots in the R-1a/b districts, allowing two principal dwellings on lots that are twice the minimum lot size, and relaxing rules for cluster housing. The city will also explore encouraging more ADUs by potentially eliminating the annual cap, allowing ADUs on lots with duplexes, and eliminating the owner occupancy requirement, according to Winter’s report.

Winter acknowledges that “regulatory changes play but one role in mitigating the housing issue,” but says the planning commission is striving to “remove barriers to provide additional housing opportunities.” Still, more work lies ahead. “The demand for housing in our region remains high, particularly in locations that are convenient and accessible to one’s daily needs,” according to Winter. He adds that the city needs to address both housing and homelessness, saying “we need a community with housing for all.” City commissioners can pursue numerous paths to addressing that goal, including approving more PILOTs, identifying city properties that could be used to build housing, exploring an inclusive housing millage, and continuing to work with partners including the Traverse City Housing Commission, HomeStretch, Housing North, and Traverse Connect, according to Winter.