April 2, 2020

A Cautionary Tale

By Stephen Tuttle | Aug. 31, 2019

The Michigan Legislature is currently contemplating competing bills regarding short-term rentals. One of them might not be such a good idea.

Supported by the real estate industry, companies like Airbnb, and private property rights advocates, the first would prohibit zoning ordinances involving short-term rentals, allow short-term rentals in any residential neighborhood, and classify them as residential, not commercial.


The hotel/resort industry and local governments support competing legislation that essentially keeps control of short-term rentals in the hands of local governments.

The good news is we already have an example from which we can learn. In 2016, Arizona's legislature, not known for thoughtful deliberation, passed a bill prohibiting cities and towns from regulating short-term rentals. At all. The rentals still had to abide by state and local health and safety laws but nothing else. The legislature said it was all about private property rights, but most people called it the “Airbnb Bill.” 


Now we know what happens to an area dependent on tourism when such a law is passed.

Sedona, Arizona, is not a perfect analog to Traverse City, but it's in the ballpark. Located in Oak Creek Canyon, 116 miles north of Phoenix, the area is dominated by spectacular reddish sandstone monoliths with names like Bell Rock and Cathedral Rock. The beautiful and usually benign (there have been some very nasty flash floods), Oak Creek cascades through the region. It is sufficiently unique that it was once considered for a national park, but the patchwork of private land ownership made a coherent park impossible. 

Some New Age advocates and various mystics believe Sedona's red rocks are home to a “harmonic convergence,” a place, they claim, where the planet's energy fields intersect. Stores sell crystals and maps to local purported energy hotspots.


The town's actual residents, about 10,600 of them, mostly value the area's wonders but avoid the crystals and meditating on a giant rock. According to Livability.com, nearly 46 percent of Sedona residents make their living in management, business, science, or the arts. 

There have always been a couple of upscale resorts and less upscale motels and cabins for rent along the creek. But that has now changed. In fact, Sedona has changed, and only a handful of people believe it's a good thing. 

Without the ability to regulate their own housing, Sedona officials could do little as investors, speculators, and developers descended on the town — all of them looking to either convert existing housing to short-term rentals or to build short-term rentals.

According to a recent USA Today article, one investment group attempted to purchase an entire neighborhood. Another is planning several 6000-square-foot McMansions able to accommodate large groups of short-term guests. 

People who have lived in rental property for years and in a few instances decades, are being told their leases will not be renewed; property owners are jumping on the short-term rental gravy train. 


The result? Less than one-half of one percent of Sedona's housing inventory is now available for long-term rental. A staggering 20 percent of the town's 6,500 housing units are available for short-term rentals.   

The real estate industry, which strongly supported the Arizona legislation and supports Michigan's similar effort, was definitely right about one thing: It certainly increased home values — some might even suggest at a bubble-creating pace. 

Sedona has always been a pricey place, especially when it came to home prices. The median home price in 2016, before the Arizona law passed, was about $484,000. By the beginning of 2018, it was $519,000. Now it's $562,000.     

That's where the comparison between Sedona and Traverse City becomes closer. Sedona is losing young people and, especially, young families. They can't afford homes, and long-term rentals have evaporated. Those selling to investor groups move away. 

It's the same demographic group with some of the same struggles facing those in Traverse City. Here, we're on the edge of a problem if we can't retain or attract young families. Sedona was already beyond that edge before the 2016 law passed, but now it's catastrophic. Its school system had 1,300 students in 2009; now now it has 766, has closed two elementary schools, and expects the decline to continue. 

Perhaps even worse is the loss of community cohesion. One woman said she used to walk down her street and knew every neighbor on both sides. She now walks down the same street and knows no one, and next week it will be a new group of people she doesn't know. 

Sedona is a worst-case scenario but a cautionary tale Michigan legislators should take to heart. Local governments don't need Lansing-issued handcuffs while dealing with their housing issues. And local governments should be cautious in their quest for ever more short-term guests. 


It's no longer a neighborhood if people only live there one week at a time.


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