Airbnb battle brews in Lansing
By Lindsay VanHulle for the Business Bridge
The last time the fire suppression system was updated at the historic hotel Bob Pierce manages not far from The Henry Ford in Dearborn, it cost the owner close to $750,000.
Pierce, general manager of the Dearborn Inn, has employees who monitor the property around the clock. Yet he doesn’t expect homeowners who take on paid guests to install fire sprinklers or employ a 24-hour surveillance crew if they decide to rent their houses to travelers.
That’s what Pierce said bothers him about home-sharing companies like Airbnb and HomeAway, which use digital platforms to connect travelers with individual homeowners who rent out their houses for short stints: They don’t have to play by the same, cost-boosting rules.
An effort brewing in Lansing to prevent cities and townships from using their zoning laws to decide how and where homeowners can rent out their homes ‒ in essence, setting up restrictions on Airbnb rentals ‒ has hotel operators squaring off against real estate agents in a debate over the definition of a hotel.
Pierce, and the lodging industry at large, insists he welcomes the competition. But hoteliers think short-term rentals — particularly those with frequent guest turnover — are essentially commercial properties, not homes, and should be regulated as such.
The hotel industry has company from city and township leaders, who say they know better than Lansing about how to govern their specific communities, and from neighbors who say short-term rentals have created a host of problems in their communities, from parking to noise.
They claim that home-sharing as originally intended — people renting a room in a house occupied by the owner — has been superseded by an increasing and, they say, disturbing trend of people snatching up multiple housing units solely to lease them for short vacation stays. Though a national hotel group commissioned a study on the subject, evidence of that happening in Michigan is mostly anecdotal.
Airbnb in Michigan
San Francisco-based Airbnb, a home-sharing company that matches travelers with homeowners who are renting out space in their homes, says it has 4,900 active hosts in Michigan who earned a combined $25.2 million from listing their properties on Airbnb in 2016. The usual host can earn $4,800 per year. The company says 188,000 guests booked Michigan stays last year, and that 33 percent of listings are unused rooms in a home. The typical listing in the state is rented out through Airbnb for fewer than three days each month.
Real estate agents in Michigan, who are rallying behind a set of bills waiting in the Capitol that would prevent local barriers to Airbnbs and their ilk, say it doesn’t matter why someone buys a house. The practice of renting out second homes to vacationers, notably in tourist or lakefront destinations, is longstanding in the state — even before companies like Airbnb introduced technology to make the process easier.
“Their definition of an illegal hotel is a vacation rental — again, an industry that has existed and thrived in Michigan for decades,” said Ben Breit, a Midwest spokesman for San Francisco-based Airbnb. “Someone’s home is not a hotel.”
Home sharing, as promoted by Airbnb and other startups, evolved to capitalize on traveler preferences for authentic, unique visitor experiences. Millennials in particular want to experience a new place by immersing in its neighborhoods, Breit said, while empty-nesters — especially women — are the fastest-growing host demographic on Airbnb’s platform.
Airbnb has become a disruptive force to hotel chains’ business models, forcing them to evolve if they want to compete for visitor dollars. On one hand, it makes it easier for hotel operators to make the case for renovations to the properties’ owners, Pierce said, and it has led hotel brands to double down on guest service.
But it also could explain hotels’ pushback on short-term home rentals. Homes can be, and often are, cheaper to rent than hotel rooms; the industry argues that owners don’t have to charge the same taxes and fees that drive up hotel room prices.
The hotel industry views the Michigan legislation as part of a national effort “to protect the business model of Airbnb and its counterparts,” said Troy Flanagan, vice president of state and local government affairs for the Washington, D.C.-based American Hotel & Lodging Association.
Breit, of Airbnb, disagrees.
Airbnb spreads the benefits of the tourism industry to people who “maybe can’t afford a hotel or maybe they specifically do not want to stay in a downtown hotel district, they want to blend in the background, they want to live like a local,” Breit said, who also notes that hotel occupancy in Michigan is rising.
“We’ve always said for Airbnb to win, nobody has to lose.”
Republican state legislators have introduced identical bills in the Michigan House and Senate that would define a short-term rental as a single-family home, a multi-family unit that houses up to four families or any number of units in a condominium complex that is rented for less than 28 days at a time.
The bills — sponsored by state Rep. Jason Sheppard, R-Temperance, and Sen. Joe Hune, R-Fowlerville — were introduced in April but have not yet been given a committee hearing.
Senate Majority Leader Arlan Meekhof, of West Olive, backs the legislation because of the impact of short-term rentals on his Ottawa County district, spokeswoman Amber McCann said.
The legislation would define short-term rentals as residential activity allowed in all residential zones, so municipalities couldn’t use zoning ordinances to restrict them from particular districts or neighborhoods. But cities and townships still would be allowed to enforce existing noise and nuisance ordinances if problems arise between tenants and permanent neighbors.
Local government leaders could register short-term rentals if they chose, said Sheppard, who represents parts of Monroe County.
“Creating uniformity in the state is what we’re supposed to do,” he said. “Locals have a lot of leverage, even with these bills. The only thing we don’t want them to do is create arbitrary… zoning.”
Bills addressing regulation or taxation of short-term rentals have been introduced this year in 28 states and the District of Columbia, according to data compiled by Alexandria, Va.-based lobbying firm MultiState Associates and shared with the National Council of State Legislatures. Four states — Idaho, Nevada, Utah and Virginia — have approved legislation, according to the group.
Supporters paint the issue as protecting private property rights.
Municipal leaders who use zoning laws to restrict or ban short-term rentals from certain neighborhoods or entire cities or townships — perhaps prompted by neighbors’ complaints about loud parties, or who believe short-term rentals are commercial uses that don’t belong in residential neighborhoods — trample on a homeowner’s ability to decide how to use his or her home, said Brian Westrin, public policy and legal affairs director for Michigan Realtors, an industry trade association.
Buyers of second homes consider whether they might be able to rent out the property when they’re not using it before deciding to purchase, especially if it’s used part time, he said. Uncertainty could lead them not to buy.
The Michigan Realtors’ group has created a couple of radio advertisements meant to drum up support for the legislation. Westrin would not disclose how much the group planned to spend.
But Michigan Realtors is one of the most prolific campaign spenders among Lansing interest groups; it had more than $650,000 in its political action committee as of July, according to state records. The Michigan Campaign Finance Network ranked the Realtors’ political action committee the seventh-largest PAC in the state for fundraising from January to July 20, based on state disclosures.
Sheppard, who works as a commercial real estate agent, received $2,650 from the Realtors’ PAC between May and June, records show. He said the group supports real estate agents and the contributions are not directly tied to his support of the legislation.
Hune received $250 from the Realtors’ group on April 25, the day his bill was introduced in the Senate. Hune did not respond to messages seeking comment.
On a national level, the hotel industry is fighting back. The New York Times reported in April that the American Hotel & Lodging Association has $5.6 million budgeted for regulatory work and plans to invest in research to fight Airbnb’s growth.
“We’re not threatened by anybody who’s competing with us under the same set of rules and taxes that have been foisted upon us,” Flanagan said. “We’re not even competing by the same rules, so it’s hard to say they’re even competition.”
‘The party house’
Pauline Smith’s family has owned lakefront property in Oakland County’s White Lake Township since 1925. She now lives down the street from a house she says changed ownership a few years back and is now a short-term rental.
“It becomes the party house,” she said.
The home has hosted weddings, bachelor and bachelorette parties and graduation parties, Smith said. She said she has doused tenants’ campfires when they were left to burn all night, and had to ask someone to move a car parked across her driveway.
“If people want to run a hotel,” she said, “they should go buy a hotel.”
Data provided by Airbnb, however, suggest homes listed on its site aren’t churning through guests: 48 percent of the company’s listings in Michigan are rented for 30 or fewer days out of the year, according to the company. That figure is 70 percent when expanded to 60 or fewer days.
Hotels have their own data — a March report from CBRE Hotels’ Americas Research, a division of real estate firm CBRE Inc., paid for by the American Hotel & Lodging Association’s nonprofit foundation — that found that homeowners who list two or more homes made up nearly 40 percent of Airbnb revenue in the U.S.
City of Detroit lawyers are reviewing proposed ordinance changes that would clarify that short-term rentals are not allowed in city residential districts.
Marcell Todd, director of Detroit’s planning commission, said planning staff believed short-term rentals already were illegal under city zoning law. But after the proposed changes were presented to City Council, he said, questions came up about the city’s current practice for short-term rentals. A public hearing is set for Nov. 2.
Asia Hamilton has rented her apartment in Detroit’s New Center neighborhood since 2015 as a way to make some extra money. A freelance photographer, Hamilton said she charges $105 per night on Fridays and Saturdays when she’s gone to help take care of her mother, who she said is disabled.
Staying in someone’s home is a completely different experience than staying in a hotel, she said.
“Trust me, you don’t want any crazies at your house,” she said, adding that positive guest reviews are critical to landing future business.
Airbnb has reached more than 350 partnerships with states and cities across the country on regulations ranging from short-term rental registries to remitting taxes, Breit said. Airbnb also has a tool on its website for neighbors to report problems with tenants at its listed homes. The company says it has removed hosts from its website as a result of neighbor complaints.
In June, Airbnb signed a voluntary agreement with the Michigan Department of Treasury to submit 6 percent use tax on bookings in the state starting July 1. A Treasury spokesman would not confirm the amount of tax revenue received so far, citing state law.
“The way we’re approaching this is: Take the bans off the table, wherever they may be, and then we can have a detailed and productive discussion about what fair rules and regulations look like,” Breit said.
Pierce, of the Dearborn Inn, say the tax agreement doesn’t go far enough. Not only is he required to pay use tax on his room bookings, he said, but he also charges 8 percent more than a homeowner would, partly to account for a tax he is required to collect for tourism promotion on behalf of the regional visitors’ bureau.
Airbnb does not collect that hotel tax in Michigan.
Hotels up their game
Home-sharing companies do compete with hotels, particularly in the extended-stay segment, though it’s difficult to determine the extent because Airbnb and other sites don’t track data the same way hotels do, said Jeff Beck, interim associate director and an associate professor in the School of Hospitality Business at Michigan State University.
Hotels have faced pressure on prices from short-term rentals, he said, though they still have a responsibility to generate revenue for the hotel owners and management companies. They also have to consider the types of amenities they offer as home sharing grows.
“It’s kind of like silent competition, if you will. You know it’s there, but you don’t know all the ramifications of it,” Beck said. “It makes hoteliers get to the top of their game.”
The Dearborn Inn will be renovated again in 2018, a cycle that started independently of proliferation in Michigan’s Airbnb listings, Pierce said.
But Airbnb arguably has influenced the amenities, from more walk-in showers, flat-screen TVs and on-demand entertainment options such as Netflix and Hulu.
“That all is very healthy,” Pierce said. “But again, their business model would change, I believe to a certain extent, if they had to comply in the same way that we have to comply.”