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Housing in Grand Haven. Housing in Grand Haven. COURTESY PHOTO

STALEMATE: Local governments, realtors at odds over short-term rental legislation

BY Sunday, July 17, 2022 06:33pm

For more than a year, advocates representing local governments and realtors have failed to reach common ground on proposed regulations for short-term rental properties — and compromise between the two sides appears far from certain.

The debate in Lansing over how to regulate homes listed on popular sites like Airbnb and Vrbo comes as Michigan property owners, particularly in lakeshore communities, bring in revenue as alternatives to hotels, motels and bed and breakfast sites. In 2021, Michigan owners of Airbnbs made more than $250 million off of stays.

Grand Haven, Frankenmuth, Traverse City, Petoskey and Mackinac Island — all heavy tourism areas — have opposed legislation restricting options for local short-term rental regulation. These proposals are centered around House Bill 4722, which seeks to designate short-term rentals as residential properties exempt from special or conditional use permitting, essentially stripping local control over the properties as commercial entities. H.B. 4722 passed the House last October and is now in the Senate Committee on Regulatory Reform. 

The bill is popular with realtors, but adamantly opposed by more than a dozen state associations and organizations, including the Michigan Municipal League

The Grand Haven-based West Michigan Lakeshore Association of Realtors (WMLAR) supports the bill, following the lead of the Michigan Association of Realtors

WMLAR CEO Dale Zahn maintains that short-term rentals are more appealing to tourists than traditional lodging options. 

“This area has historically been a place that many come to visit and prefer a house to a hotel or motel,” he said. “There’s always been a market for that in West Michigan.” 

Divisions on legislation

Meanwhile, local governments have taken a patchwork approach to short-term rentals.

In Grand Haven, for example, a short-term rental is defined as a dwelling unit providing transient accommodations for less than one month, at least four times a year. The city’s zoning ordinance allows short-term rental certifications only in specific zoning districts, concentrated along the Grand River and Lake Michigan waterfronts near the city’s key attractions. The Grand Haven area has about 300 vacation rental units, with more than 250 listed on Airbnb and about the same number listed on Vrbo.

The Michigan Municipal League has been outspoken against H.B. 4722, instead supporting more moderate options that don’t designate all short-term rentals as a residential use. Lost revenue for visitors and convention bureaus, local governments’ right to regulate and the state’s ongoing housing crisis are the group’s key concerns with the legislation.

The opposition coalition also includes the Michigan Townships Association, Michigan Restaurant and Lodging Association, Michigan Association of Police Chiefs, Michigan Association of Fire Chiefs, Community Economic Development Association of Michigan, Housing North, Michigan Association of Planning, Michigan Bed and Breakfast Association, Michigan Historic Preservation Network, Michigan Lakes and Streams Association, Urban Core Mayors and the AFL-CIO. 

Housing shortages for people in tourism-heavy service industries are a key concern for some of these groups, said Jennifer Rigterink, assistant director for state and federal affairs at the Michigan Municipal League.

“I think what you’re seeing especially in our high-destination areas is that there’s starting to be a more intense amount of housing that’s being taken off the market for vacation rentals, leaving less for individuals looking to buy a home or rent a home where they’re going to live, or even an apartment,” Rigterink said. 

Granting short-term rentals a universal designation as a residential use via H.B. 4722 could also create obstacles for Michigan’s Statewide Housing Plan, Rigterink added. 

“I think anyone — the administration or legislators — talking about this issue needs to answer the question of: Do we have a housing issue in Michigan? Does that bill [H.B. 4722] help our housing issue or hinder it?” Rigterink said. 

The Statewide Housing Plan’s goals for new units, new owners and rentals couldn’t be achieved while competing with vacation rentals for housing stock, Rigterink argues. 

“There’s no way we’re going to be able to come close to any of those goals by also passing unfettered vacation rentals,” she said. “All locals are asking for is the ability to balance housing stock for their residents and businesses as well as visitors.”

The Michigan Association of Realtors counters that a variety of factors are contributing to a lack of housing availability and affordability, including a lack of new builds, high construction costs and construction labor shortages. 

Zahn said the housing stock shift is “a founded concern to people who get caught up in the drama. We don’t view it quite the same,” adding that short-term rentals have little effect on the market.

The WMLAR argues that most efforts to crack down on short-term rentals are mainly an overreaction to misleading information.

“Somehow, people take the position that a person occupying a property as a rental, or as a short-term rental, is somehow bad. We just don’t buy that. People are people, they go on vacations. I go on a vacation,” Zahn said. “Those are the type of people that can afford $4,000 a week. They’re solid people, and they take care of (the property).” 

Finding middle ground

The Michigan Municipal League and others responded last year with their own legislation. House Bills 5465 and 5466 — which the League has dubbed the “Good Neighbor Policy” — would amend the Michigan Zoning Enabling Act to allow all property owners to rent their property for up to 30 days a year in residential areas, create a statewide short-term rental database, establish safety standards and ensure municipalities’ right to regulate for health, safety and nuisance issues. 

As introduced, H.B. 5465 would also establish a 5 percent tax on short-term rentals that would split revenue between local governments and Michigan’s tourism promotion program, which more traditional lodging options already contribute to.

“We see that these really help balance those needs of the community as well as the rights of property owners,” Rigterink said. 

Despite the bipartisan effort of the 20 organizations behind the bills, the legislation has sat in a House committee for eight months without a hearing.

Rigterink said it’s been difficult to engage in negotiations with the realtors and other backers of H.B. 4772. 

“We just have not been able to get the other side to play ball on that. … I feel like we have been negotiating against ourselves,” she said.

Regulation loopholes, revenue loss

At the center of the dispute is whether short-term rentals are residential or commercial. 

“The properties are clearly residential in nature, meant for people to occupy. We do not view them as commercial enterprises or businesses,” Zahn said.

The MML disagrees. 

“We’re not saying that every single short-term rental is a commercial use. But there’s a difference between someone renting out their home or their second home a few times a year to pay their property taxes, upkeep and maintenance or just wanting to make some money when they’re not using their property (versus) individuals and LLCs who are out there buying up properties to run vacation rental businesses out of them — that is a commercial use,” Rigterink said.

H.B. 4722 would institute a cap of no more than two commonly owned short-term rental properties in one municipality, but the Michigan Municipal League fears that cap “has a loophole big enough to drive a semi through it,” because most real estate investors create separate LLCs for each property, Rigterink said.

Short-term rentals like Airbnb also have thus far dodged contributing to lodging taxes that fund local visitors and convention bureaus across Michigan, which is one reason the traditional lodging industries oppose legislation like 4722.

Zahn said he suspects most hotels and motels simply oppose competition. 

“I go by hotels and motels all the time, I see the parking lots full,” Zahn said. “It doesn’t look to me like they’re hurting.” 

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