Building off a series of priorities they established this fall to start implementing the city’s new master plan, Traverse City planning commissioners are gearing up to explore possible changes to vacation rentals heading into 2025.

At their final meeting of the year, planning commissioners reviewed a series of questions they previously raised about short-term rentals (STRs) and staff’s responses to their inquiries, as well as data points that paint a picture of the current vacation rental scene in Traverse City. There are two types of allowable STRs in Traverse City: tourist homes, or hosted owner-occupied rentals, and vacation home rentals, which do not need to be owner-occupied. While tourist homes are allowed in residential districts, vacation home rentals are not. The city has maps on its website showing where licensed vacation homes (now over 500) and tourist homes (nearly 40) are located.

One change planning commissioners discussed is eliminating a categorical distinction between “low intensity” and “high intensity” tourist homes, with the main difference being the number of guest rooms (two max for low intensity, three max for high intensity) and number of guest stay nights per year (84 maximum for low intensity, 85 or greater for high intensity). High-intensity tourist homes must be at least 1,000 feet apart, which has limited some homeowners from being able to participate in the program. The original thinking was that high-intensity homes would have more guest traffic throughout the year and thus be more impactful to neighborhoods and should be more spread out.

However, City Planning Director Shawn Winter said the city hasn’t seen complaints directed at tourist homes – primarily because having hosts on the property cuts down on the number of issues compared to unhosted Airbnbs. “I think having the owner on-site makes a huge difference, which again is why we do allow them in the neighborhoods,” he said. Winter noted it’s difficult for staff to track and enforce how many guest stays are happening annually and thus whether a home is truly low or high intensity. Since it’s not ideal to have unenforceable ordinances on the books – and since tourist homes only number a few dozen in the city compared to the hundreds of vacation rentals in commercial districts – Winter said one option could be to eliminate the two tiers and just have one category of tourist home going forward.

Planning commissioners also discussed making changes to “hospitality houses,” or short-term accommodations that are allowed only in the H-1 and H-2 hospital districts. These units – which are not required to be licensed – are intended to host patients, family members, or medical workers who have hospital-related business. However, Winter said there’s “clear evidence” in online reviews that such units are being used as vacation rentals. Staff shared examples from listings where guests praised the units as a “great place to stay while we were in town for the Cherry Festival” or a “perfect location for day trips to Sleeping Bear Dunes.” Planning Commission Vice Chair AnnaMarie Dituri said there seems to be “clear misuse in that district” and suggested adding licensing or other regulations for hospitality houses, rather than “allowing this to continue knowing that it's not an allowed use.”

Enforcement across all STRs was another issue discussed by the board. Winter said the city pursued 44 STR violations in 2024, with six tickets issued. He outlined the challenges and costs involved in enforcing violations, starting with the city paying $23,000 annually for software that scrapes websites and helps identify illegal SRTs. The city must notify a property owner that they’re suspected of violating the STR ordinance and give them a chance to come into compliance, Winter said; if the city goes directly to issuing a ticket, the magistrate usually throws out the case. After sending a letter, the city must continue to monitor the property for additional violations, after which time it can issue a ticket.

Violators can be charged up to $1,000 a day – $500 separately for violating the zoning ordinance and police power ordinance – with a seven-day illegal rental theoretically subject to a $7,000 fine. Existing license holders can also have their STR licenses revoked or suspended for noncompliance with the ordinance. “However, the city has no say in the fine applied to a violation,” according to a staff memo. “Fines are set by the magistrate and are almost always reduced. Whatever the fine ends up being, the city only receives one-third of it. In other words, code enforcement is an expense to the city, not a revenue source, but is important nonetheless.” Planning commissioners discussed exploring the legality of implementing an escalating fee system that would set harsher financial penalties after multiple violations.

Planning commissioners also discussed how many STRs have come online in recent years and how much competition is posed by hotel rooms. Between 2018 and 2021 in Traverse City, permits were issued for 572 new multi-family units, with 172 – or just over 30 percent – becoming licensed STRs. Another 708 multi-family units received permits between 2022 and 2024. However, those projects are still under construction, so it remains to be seen how many will become STRs. Competing for visitors are 1,071 hotel rooms within the city limits, with another 110 planned to come online in the new Marriott hotel planned for Garland Street (a proposed boutique hotel next to J&S Hamburg could add another 140).

Vacation rentals are capped at 25 percent of a building’s units in the C-1 and C-2 districts, as well as in the D-2 (development), HR hotel/resort, and I (industrial) districts. However, several other districts – including C-3 (community center), C-4 (regional center), D-1 (development), and D-3 (development) – allow unlimited vacation rentals in buildings. Planning commissioners have discussed introducing or expanding caps in those districts, as well as looking at either an overall citywide cap or a cap that represents a percentage of the total housing stock.

Winter said various statewide measures have also been discussed, including a lodging tax that would help fund affordable housing or city infrastructure instead of just tourism promotion, or changes to the principal residence exemption that would help incentivize homeowners to rent to long-term tenants instead of short-term vacationers. However, Winter acknowledged it can take years for those kinds of proposals to work through the legislature, if they materialize at all. Planning commissioners agreed to continue exploring options on the local level – including the above potential changes, but also options like tie-barring construction of STRs to a certain number of income-qualified rental units – or bringing existing state tools online in Traverse City, like an attainable housing tax break.

Planning commissioners are expected to continue the STR discussion at their January 22 study session, with the goal of potentially putting together a package of recommended changes in 2025 that could go to city commissioners for consideration.