With the growing popularity of websites that allow visitors to book private residences for vacation stays online, many area homeowners have been getting into the tourism business, and now the city of Duluth is looking to step up its regulation of the quickly growing cottage industry.
"Cities all over the country are addressing this issue right now, with the rise of direct-to-consumer websites like VRBO and AirBnB," said Duluth's 2nd District City Councilor Joel Sipress. "This has created sort of a whole new world for short-term rentals, so there are a lot of models we can look at from other cities that have been wrestling with this issue."
Sipress suggested one potential model may be San Francisco, where the city created a list of approved short-term rental properties and then shared that registry with website operators, asking them to not publish any proposed listings for properties in the city that were unlicensed.
Duluth probably has issued just shy of 30 vacation rental licenses in the few years since it began regulating them, according to Keith Hamre, the city's director of planning and construction services. Meanwhile, well in excess of 50 owner-operated vacation property listings in Duluth can regularly be found online.
In other words, a number of property owners are operating vacation rentals below the city's radar.
"We're challenged with determining how we make sure we have the appropriate controls on these. We want to make sure that we've got people operating businesses appropriately and charging sales tax and hotel/motel lodging tax and getting all the permits we require, including getting inspections," Hamre said.
There's a fairness issue to consider, said At Large City Councilor Barb Russ.
"They're supposed to be paying taxes if they are renting out their property, because it's a business. You don't pay a business tax when you have long-term rental but this is something different," she said.
Sipress concurred, saying: "We need make sure people are doing it in a way that's appropriate, that protects the public health and safety, is not damaging to our neighborhoods and that there's a level playing field for everyone who's participating in the lodging industry."
Tim Allen, president of Historic Bed & Breakfast Inns of Duluth, said that equal footing is exactly what he and others in the local hospitality industry seek.
"Before anybody says: We just don't want the competition. That's not our concern," Allen said. "We think they need to be regulated like we are. They need to be licensed and inspected. They need to collect sales and lodging tax. Let's not forget that the city needs the revenue, and they're not getting it, at least with these unlicensed VRBOs (vacation rentals by owner)."
He noted that rentals that operate tax-free enjoy an 11.375 percent advantage over law-abiding hospitality businesses right out of the chute. Plus, many unlicensed operators are able to forgo expensive improvements needed to bring their properties up to snuff.
Russ said she's concerned that some unlicensed vacation rental properties may not meet basic health and safety requirements.
Hamre agreed and pointed out that that the city's reputation for high quality hospitality could be tarnished if subpar operations are allowed to do business.
"They're acting as ambassadors for our community. They're welcoming people to our community. We want to make sure the visitor is having a good, safe experience. So we don't want this to go underground and become something something that's unregulated, where it's seen as not a positive aspect of our community. We want to do it well and make sure that the visitor has a good experience in Duluth," he said.
Even licensed vacation rental properties in the city have been causing some heartburn lately, as evidenced by a contentious application at 2525 E. First St. that will be considered by the Duluth City Council when it meets Monday.
Numerous neighbors have lined up against granting the license for the dwelling which is no longer occupied by its owner, but the city's planning commission determined there were insufficient grounds to deny the license and has recommended its approval.
On Monday, the Duluth City Council will read a proposed ordinance into the public record for the first time, likely setting up a June 15 vote to place a moratorium on the issuance of any more licenses for vacation rental properties for up to one year. The measure was co-authored by Councilors Sipress, Russ and Sharla Gardner.
Given the shifting hospitality landscape, Hamre said he would support a temporary moratorium.
"It's probably good to take a step back and make sure we have all the bases covered," he said.
One possible change Russ hopes to consider would require a homeowner to be living on site in order to obtain a vacation rental property license.
Even if the moratorium wins council support, it won't go into effect until mid-July at the earliest. Russ said there could be a flurry of license applications in the interim, but she considers that unavoidable.
Sipress considers the alternative worse, saying: "I'm more concerned that if we do nothing, these kinds of commercial operations will spread like wildfire without appropriate review."