As Traverse City planning commissioners work to finalize proposed zoning changes that would reduce the number of short-term rentals (STRs) in Traverse City, city commissioners are simultaneously looking at non-zoning rules for the same topic. Commissioners – who will also have the final say on zoning when that proposal reaches their desk – said they want to better understand the city’s legal options for everything from fees and penalties to offering incentives that could encourage owners to convert vacation units to year-round rentals.

Commissioner Jackie Anderson, who sits on the planning commission, asked commissioners Monday to consider forming an ad hoc committee to “evaluate approaches to further regulate short-term rentals within our community.” According to data shared by city staff, Traverse City had 539 active STR licenses at the end of 2024 – 101 of which were new licenses last year and 438 of which were renewals. That represents about 6.4 percent of the city’s housing stock of 8,400 units, Anderson said. Those figures do not include tourist homes – a separate category of owner-occupied vacation rentals in Traverse City – nor illegal rentals operating on the market.

By contrast, only 373 new dwelling units were permitted in Traverse City in 2024. Anderson said she was “struck” by the degree to which STR licenses are outpacing new dwelling unit permits. While there appears to be some slowing in the STR market, possibly due to saturation – the number of licenses grew 19 percent from 2023 to 2024, but had been averaging a growth rate of nearly 40 percent the previous four years – the impact on the city remains “significant,” Anderson said.

Current city STR rules require owners to maintain an annual $200 license and liability insurance, be located in an approved city zoning district for STRs, and meet fire inspection and notice posting requirements. Anderson said that other communities across the country have a range of additional rules for STRs beyond that. Most of those rules either regulate ownership in some way – such as requiring owners to live locally or limiting the number of units that can be owned by one party – or regulate operations, Anderson said. Operational regulations can range from “more aggressive fee structures” to setting minimum durations of stay – anywhere from two nights to four weeks, which can help reduce turnover – to limiting the maximum number of occupants in an STR, she noted.

In the city of Sedona, Arizona – where more than 16 percent of the city’s housing inventory has been converted to STRs – the city has launched a program incentivizing homeowners to convert STRs to year-round rentals by reimbursing them up to $10,000 annually, depending on the size of the property. Anderson said a city ad hoc committee could study all those various ownership, operational, and incentive options from other communities and determine if any might work in Traverse City.

Other possibilities – like proposed state legislation that could introduce an excise tax on STRs that goes back to local municipalities to offset the tourism impact – could offer more opportunities in the future if realized, Anderson said. She asked commissioners to explore “how we might be able to generate some revenue from the fact that we host almost 600 short-term rentals within our eight square miles and how that revenue might be used,” whether on infrastructure or public services or affordable housing.

Commissioners were generally supportive of exploring options, though Mayor Amy Shamroe thought that rather than form an ad hoc committee right off the bat, it’d help for the entire commission to first get a clearer sense of what they’re allowed to do under Michigan law. For example, City Attorney Lauren Trible-Laucht said there’d be a limit on what the city can charge for fees. “If you push too far as a municipality into the idea of just raising funds with permit fees, you run the risk of having that challenged as a hidden tax and that can be clawed back in the courts,” she said. “There’s a balance to be struck there.”

Trible-Laucht said she’d have to also do more research into whether Traverse City can offer a program similar to Sedona, but said that with new housing incentives available in Michigan “there may be ways of structuring tax types of incentives” to encourage property owners to move away from STRs toward long-term rentals. Commissioners also wanted to look more closely at the last several years of STR data and see whether other changes they previously made – like capping the number of units that can become STRs in a building in certain zoning districts – have been effective in meeting the city’s goals. 

“Maybe it’s time to just take a look at it now that we understand a bit more about how the STR market in Traverse City evolved, and look at whether there are ways to encourage long-term rentals out of this,” said Anderson.

In the meantime, planning commissioners are preparing to hold a public hearing May 6 on the proposed package of STR zoning changes – and could vote that same night to send them on to the city commission for final approval. The planning commission discussed those changes again Tuesday, which would alter the maximum number of STRs allowed in a given building in different zoning districts. In some districts, the number of allowable units would remain the same – including 25 percent in the C-1 (Office Service), C-2 (Neighborhood Center), and D-2 (Development) districts. The level would also stay the same at 100 percent in the HR (Hotel Resort) district, because that district is specifically designed for hospitality units.

But other districts could see significant reductions in the number of STRs allowed. That includes going from 100 percent to 0 percent in I (Industrial) and 100 percent to 25 percent in the D-3 (Development), D-1 (Development), and C-4c (Regional Center) districts. Both the C-4a and C-4b (Regional Center) districts would be reduced from 100 percent to 50 percent, while C-3 (Community Center) would be reduced from 100 percent to 35 percent. City Planning Director Shawn Winter previously noted that percentages are higher in some districts in the heart of downtown because those areas seem more appropriate for commercial tourist activity. But in other areas – particularly where many new residential developments are going up – the goal is that long-term tenants are not “outnumbered” by short-term visitors in those neighborhoods, Winter said.