Steve Sola first sought out the necessary paperwork to operate a vacation rental property in Duluth about 20 months in advance of the date he actually was able to open his Park Point residence to visitors.
He’s one of many people who found themselves on a long wait list for one of the 60 vacation dwelling permits the city allows under a current ordinance.
But the Duluth City Council is recommending more vacation rental properties be allowed onto the scene, albeit with higher fees.
While 3rd District Councilor Roz Randorf backs the plan and is one of four council sponsors on a resolution in support of the idea, she would prefer to see the vacation rental properties more evenly distributed across the city.
Well over half of the vacation rental properties in the city are located in Randorf’s district, which includes Park Point, downtown Duluth and the Hillside neighborhoods, and she has toyed with the idea of trying to restrict the maximum number of vacation rentals in any particular neighborhood, but that suggestion failed to gain traction with the rest of the council, Randorf said.
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Sola said there’s little mystery involved in the popularity of certain neighborhoods with waterfront or majestic views of Lake Superior.
“It’s all about location, location, location,” he said, noting that summertime demand for his beachfront vacation rental has been strong, with more than half of guests traveling from out of state to stay in the home.
The business can be lucrative, with some properties charging $700 to $1,000 per night.
Sola, who also owns the South Pier Inn, said the clientele booking through VRBO or Airbnb is different than that of a conventional hotel, because a home setting is more likely to attract family gatherings.
A proposed eight-bedroom vacation rental property on West Fifth Street with commanding views of the city and harbor reignited debate about Duluth’s regulation of such operations early this year. Under current rules, the property could have hosted as many as 17 people at a time, with guests coming and going every two days.
Randorf said that creates challenges for the community and for nearby neighbors concerned about potentially large, noisy gatherings. She noted that in some cases, there is little distance separating a vacation rental home from a traditional residence.
A balance can be hard to strike.
“We need to create livable neighborhoods. People should have property rights, but those rights are limited when they start negatively affecting the people next door,” Randorf said.
In the case of the Fifth Street vacation rental, she was able to convince the property owner to make a voluntary compromise and host no more than 13 guests at a time.
A proposed ordinance change would max out occupancy at nine guests for any establishment with four or more bedrooms.
Lisa Kappenman lives next door to the Fifth Street vacation rental, which has yet to open. She credited the owner for taking steps to do everything by the book. But she still worries about the impact the operation will have on her living conditions.
Kappenman said a number of unlicensed vacation rentals continue to operate under the radar.
“I don’t think anybody’s really up to monitoring and enforcing the rules. … It’s too lucrative,” she said.
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At large City Councilor Zack Filipovich said the council has been talking about revisions to the ordinance since February.
“I started having conversations with other councilors and city staff, saying: Let’s rework this ordinance in a big way and try to achieve some efficiencies. Let’s figure out some ways to tighten up the rules and figure out some ways to make these applications a little less controversial when they come up,” he said. “And I think we’re hitting on all those points.”
Filipovich said there has been legitimate concern that offering unlimited permits for vacation rentals could lead to a mass conversion and loss of badly needed traditional housing. The council has proposed the city consider allowing the cap to be increased by an amount equivalent to 10% of new housing constructed each year — up to a maximum 10 units annually for the next six years.
“That’s one of the ways that I think this change could get at balancing out the market demand for more vacation dwelling units and the need for the supply of local housing units to increase or at least remain intact,” he said.
Randorf said the city also is looking to increase fees with a portion of those funds flowing into a housing trust fund that will be used to help develop more affordable housing in the city.
While the city currently charges $800 for a six-year permit, she said the city is considering a proposal to double that fee.
Adam Fulton, Duluth’s deputy director planning and economic development, said it is difficult to accurately assess the amount of pent-up demand for vacation rental licenses. The city last asked interested applicants to enter a drawing to determine their place in line back in spring 2019. It has since worked through roughly 80% of about a 35-party waiting list, through churn and attrition.
As the more than two-year-old list shortens, preparations for a new drawing of applicants begins.
Joe Marty bought a home in the city while enrolled at the University of Minnesota Duluth about eight years ago and has retained ownership of the property despite moving away for work some time ago. He now lives in Richfield, Minnesota, and rents out the property on a long-term basis.
He and his family still enjoy reconnecting with friends and family in the Duluth area, but the high cost of hotels has discouraged them from visiting as often as they want.
“I was like, if people are paying that much to stay there at hotels, I wonder if we could open an Airbnb? So that’s where the idea came from, and then we would be able to go there whenever we wanted to, too,” he said.
When Marty learned of the cap and wait list, he asked about being placed on it, but was told there was no way to get in line until the next permit lottery, which was delayed by the COVID-19 pandemic.
Marty said he was disappointed to learn that for the moment there was zero chance of converting his home to a vacation rental, but he remains hopeful the situation may change.
Shaina Nickila, president of the Lake Superior Area Realtors, said they've had clients interested in purchasing properties for use as VRBO or Airbnb properties, "and I have to direct them to the municipality in charge to find out if there is availability."
“I’ve told them to err on the side of caution, because it’s not a for-sure thing,” Nickila said.
But she agreed the number of homes on the market have been in short supply, so there’s a difficult balance to strike.
“The market is very tight. Our inventory is very low, and we need housing of all kinds in all price brackets for all people. So, that is a concern. But we also want to support our investor clients and customers, as well,” Nickila said.