Short-term rental advocates, foes work toward a deal on laws in Michigan

Michigan policymakers are again working to regulate short-term rentals such as those on sites like Airbnb, as they try to balance neighborhood concerns with private property rights. 

But unlike previous attempts in Lansing, legislators are enlisting the help of groups that have fought on opposite sides of the issue.

Since the spring, a group of local government advocates, hotel representatives and real estate agents -‒ all with strong, often conflicting stances on how to manage the growing short-term rental industry -‒ has met to find middle ground. 

It’s not yet clear if they will be successful, but both sides report progress. How cities and townships use zoning rules to determine where rentals are allowed remains a sticking point. They do, however, seem to have found consensus that local governments should not be allowed to enact outright bans on short-term rentals.

On one side is the real estate industry, which supports giving homeowners expansive leeway to rent out their properties and views local restrictions as potentially dampening sales in Michigan’s second home market. 

On the other side are municipal government leaders, who want to maintain control over zoning practices and preserve neighborhood stability. Aligning with local governments is the hotel industry, which has its own stake in short-term rental policy. Hotels see Airbnb and sites like it as direct competition for hospitality dollars, and argue that people who routinely rent out their homes are engaged in a commercial enterprise and should have to pay the same industry fees hotels are saddled with.

Despite the potential for conflict, those engaged in negotiations told Bridge Magazine they feel like early talks have unfolded in a spirit of good faith, perhaps another example of an effort to seek common ground in a new era of divided government in Lansing.

“There’s been ideas we’re throwing out on the table,” said Jennifer Rigterink, a legislative associate for the Michigan Municipal League, which represents the interests of cities. “I think there’s a path, but all the different stakeholders around the table have to be willing to give something up.”

Whether they reach an agreement or not, the short-term rental industry isn’t going away. More than 7,000 Michigan residents listed their homes on Airbnb as of August 2018, per the company. Another site, Vrbo, says it has more than 10,000 vacation listings in Michigan in 2019.

In 2018, an estimated 640,000 guests booked stays through Airbnb in Michigan, and homeowners in the state who used the service earned roughly $78 million from the rentals, Allison Schraub, Airbnb’s deputy policy director, said in House committee testimony earlier this year.

Competing laws introduced

The debate over regulating short-term rentals is playing out in two competing sets of legislation in Lansing.

The first, introduced in January by Rep. Jason Sheppard, a commercial real estate agent, would forbid outright zoning bans and is supported by Airbnb. It defines a short-term rental as housing leased for fewer than 28 days at one time and, crucially, classifies it as a residential property use, not a commercial one, and would allow them in all residential zones.

Sheppard’s bill would not preclude local governments from enforcing ordinances on noise, traffic or nuisances to deal with nightmare renters, nor would it prevent towns from setting rules about occupancy or allowing local fees, such as for inspections or permits.

Sheppard, R-Temperance, did not respond to messages left with his office seeking comment.

In testimony on his bill at a House committee hearing in May, Sheppard argued that homeowners have rented second vacation homes long before sites like Airbnb were created to offset more expensive non-homestead taxes and costs incurred for a house they don’t use the entire year.

People who book short-term homestays contribute to the local economies they visit, notably in resort communities popular with tourists, Sheppard said.

“Many local units of government have shut down this practice by zoning out the use of short-term rentals completely,” he testified. “We are looking to reverse those bans today with this bill, because I believe that’s a clear violation of a personal property right.”

Airbnb declined to comment to Bridge on Sheppard’s legislation, citing the ongoing work group discussions, which it said it is not participating in.

The company paid more than $4.2 million in state use taxes to the Michigan Department of Treasury in the first year of a voluntary agreement it reached with the state, starting in July 2017, according to Airbnb. Treasury does not release information about individual taxpayers, but said in general a 6 percent use tax is applied to each nightly rental.

Sheppard’s effort is backed by Michigan Realtors, a trade association representing real estate agents in the state. The group worked with Sheppard on crafting the bill.

Prospective buyers ask real estate agents if they’re allowed to rent out the property when they’re not using it, Brian Westrin, the association’s public policy and legal affairs director, told Bridge. If the home is located in a neighborhood that a municipality has closed off to short-term rentals, he said, it creates uncertainty for potential buyers and may lead them not to buy the home.

“This idea that Realtors would want to support the second-home market, yes, absolutely, that makes good sense because that’s good for Michigan,” Westrin said. “Also, Realtors want to support people’s rights to maximize the value of their property.”

Private property rights also get invoked by opponents of Sheppard’s bill ‒ namely, the right of exasperated neighbors to be free from loud partying and trash produced by a revolving cast of renters.

Local government leaders say they’re concerned about what they view as a proliferation of people buying homes not as a secondary residence, but as an investment for the sole purpose of renting it out. Absentee owners, they argue, are less invested in renting out to responsible guests and less attuned to neighbors’ concerns. Evidence of an uptick in investment purchases is mostly anecdotal, but municipal leaders say it already has had the effect of changing the character of primarily owner-occupied neighborhoods.

In Grand Haven, city leaders surveyed property owners and occupants about short-term rentals and found that, in general, residents supported the positive impact they have on the local economy. But they also wanted them thoughtfully placed in neighborhoods, City Manager Pat McGinnis told Bridge.

In late 2016, the city released a report that led to an overhaul of a city ordinance related to short-term rentals. It allowed short-term rentals in some neighborhoods, prohibited them in another and required special use permits in still others, McGinnis said. The changes were developed with input from property owners based on the share of short-term rentals they believed their neighborhoods could support.

Local leaders like McGinnis say Sheppard’s bill is more overreach from Lansing and infringes on the ability of communities to make their own land-use decisions based on what their residents want.

“The proponents of these bills are saying, ‘You’re trying to tell people what to do with their properties.’ Well, that’s what zoning is,” McGinnis said. “It’s what supports and stabilizes property values.”

If every individual property was developed however someone wanted, with no guiding principles or rules, “you’d have a real patchwork and hodgepodge of uses in every town,” he said.

Legislators seek compromise

A bipartisan group of legislators, led by Rep. Jim Lilly, a Republican from Ottawa County’s Park Township, responded to Sheppard’s measure by introducing a separate package of bills that places specific restrictions on such rentals. It would create a statewide short-term rental registry and require operators of short-term rentals to pay the kind of state excise taxes also required of hotels, which support such things as tourism promotion and convention facilities.

The legislation would exempt homes or apartments from the regulations if they’re rented for no more than 14 days out of the year. This is intended to exclude homeowners who only sporadically rent out their homes from having to comply with the proposed rules.

Like the Sheppard package, these bills would also prevent local governments from completely banning short-term rentals from their communities.

Lilly did not respond to messages seeking comment about the bill. But Rep. Julie Brixie, a Democrat from Ingham County’s Meridian Township who cosponsored the legislation, told Bridge that short-term rentals are essentially commercial properties and should be treated as such.

“I am a big fan of local control,” said Brixie, a former township elected official, “and every community is different.”

The lobbying arm for Michigan’s hotel industry, the Michigan Restaurant and Lodging Association, said it was involved in crafting the bills Lilly and Brixie sponsored.

Homeowners who open their homes to vacationers have disrupted the traditional hotel industry, offering travelers vacation experiences without charging the same fees hotels are legally required to pass on to guests. That’s a sore point for the lodging industry, which argues short-term rentals are essentially hotels, and so their operators should have to play by similar rules.

Last term, when Sheppard introduced a similar bill to the one this year that challenges local zoning rules, the hotel industry “was only on defense,” said Justin Winslow, the association’s president and CEO. “We got a lot more aggressive this year.”

Why? Because, Winslow said, short-term rental operators and hosts like Airbnb benefit from regional tourism marketing efforts, but don’t pay the taxes hotels do to support the larger system, Winslow said.

“I think the Airbnbs or any of these short-term rentals would benefit just as much as the hotels would on that return on investment,” he said, since the purpose of the fees is to help drive tourism and visitors to a region.

Lilly’s legislation has not been debated in a House committee hearing; Sheppard and Lilly convened the work group to find a compromise, several participants told Bridge.

Representatives of the three industries involved in the discussions say the groups remain far apart on local zoning rules.

But they are finding other areas of compromise. Westrin, of Michigan Realtors, said his association hasn’t necessarily opposed the idea of a statewide registry of short-term rentals. Rigterink, of the Michigan Municipal League, said it has compromised on language that exempts rentals of 14 days or less from regulation, even though some city leaders aren’t happy about that.

While differences remain, “we’re not going to leave the conversation,” Westrin said. “We still think it’s an important discussion to have.”