Local communities’ fight over short-term rentals inspires Michigan House bills

Each summer, thousands of visitors flock to Saugatuck, a West Michigan beach town that’s been called one of the best coastal small towns in the country.

As the number of tourists climbs during the warm months, so does the occupancy of short-term rentals such as Airbnbs. Unfortunately for locals, Saugatuck Mayor Pro Tem Helen Baldwin said, so do the public safety issues, overwhelmed infrastructure, excessive noise and parking concerns.

“In some parts of our city, short-term rentals are a natural fit and seamlessly blend in with the neighboring businesses and residences,” Baldwin told a Michigan House of Representatives panel in April. “But in our low-density residential neighborhoods, short-term rental saturation has exploded to a level that is disruptive for the community and creates ongoing nuisance issues.”

These problems are all too common for Saugatuck and similar cities that try to balance the well-being of its residents and a healthy tourism industry, which often includes short-term rentals. According to officials from cities across Michigan who traveled to Lansing to testify in support of House Bills 5437-5442 at a hearing of the House Local Government and Municipal Finance Committee on April 17, state law currently gives local governments little ability to control these rental units.

Democratic lawmakers sponsoring the bill package are aiming to put regulations in place for zoning, funding and enforcement in order to help municipalities protect their communities.

The main bill in the package, HB 5438, also known as the Short-Term Rental Regulation Act, would require owners of short-term rentals to register with the state. It defines short-term rentals as any residence that is not a hotel or motel and is rented for less than 30 days. A short-term rental registry maintained by the Michigan Department of Licensing and Regulatory Affairs would be accessible to local government, local law enforcement agencies and members of the public by request. 

If a short-term rental doesn’t receive approval from LARA, a hosting platform like Airbnb or Vrbo would be prohibited from charging guests for their stay. Under the bill, a local government would be able to revoke a rental permit if property owners or guests violated local ordinances or zoning laws, which would then enable LARA to remove the short-term rentals from its database. 

The bill’s provisions include safeguards that would prevent municipalities from imposing a total ban on short-term rentals.

HB 5438 sponsor Rep. Joey Andrews said he hopes that these provisions will give local governments the ability to zone properly by tracking rental activity in the community.

Andrews sees the legislation as a path to addressing Michigan’s low stock of affordable housing, which has been a major concern for lawmakers in recent years. With some homes only occupied part-time, full-time residents and seasonal workers who support the tourism industry are unable to find housing and are often priced out of the area, further impacting the economy.

“In the housing crisis that we’re already experiencing, houses in residential neighborhoods leaving the market to turn into short-term rentals, those are not houses that are then being used by permanent residents of the state, and it’s a slow attrition,” Andrews said. “As you lose population, you lose tax dollars, and it increasingly makes it difficult to sustain your city, your township.”

To recover the dollars communities have lost to tourism, the legislation stipulates a 6% excise tax would be applied to short-term rentals that are rented out more than 14 days a year.

Those working within the short-term rental industry, however, say that they have concerns that the bills don’t protect an individual’s right to rent and also don’t take into consideration the financial benefits of home-sharing for residents and their families.

Brad Ward of the Michigan Realtors Association called HB 5438 “a heavy-handed state regulation and taxation scheme.” He said that some of the bill supporter’s comments about housing are being misdirected at the short-term rental industry, too.

“While you can’t say that short-term rentals have zero impact on Michigan’s housing crisis, I think they are used quite often as a red herring,” Ward said. “Other areas of the state that don’t have high incidences of short-term rentals are also experiencing the same affordability and availability crisis. Local government, also in many instances, needs to look in the mirror in terms of what they’ve done to welcome in new housing development.”

Dozens of Michigan cities, including Grand Rapids, Traverse City and Detroit, back the bills, but bringing order to the $64 billion vacation rental industry hasn’t been an easy feat in the past. Last term, a similar package of bills failed to make it out of the Legislature. A federal court had to weigh in when a group of property owners sued the city of New Buffalo over zoning and permit rights, although judges eventually ruled in favor of New Buffalo in December.

Additionally, the other bills in the package would add extra tax requirements to short-term rentals. The tax varies from 1% to 8% depending on the number of guests a facility can hold, the facility’s location, and the population of the area the facility is in. The tax revenue would be collected and administered by municipalities, which can use it for tourism marketing, local housing improvements, or child care programs, for example.

Rep. Jenn Hill, a sponsor of HB 5440, said this will help in smaller communities that have difficulty coming up with match funding that’s required to qualify for state grants and other assistance.

“This would be a way of raising that match, using funds from people who are coming to our community and contributing, but also aren’t the long-term residents who are already taxed,” Hill said. “And so this is a way to help support them and reach these goals of increasing housing and increasing child care.”