The Minneapolis City Council wants another shot at reining in short-term rentals

As the presence of short-term, Airbnb-style rental companies in Minneapolis grows, City Council members are discussing if — or to what extent — they should limit the number of such rental accommodations in the city and enforce new taxes on them. 

Council Member Steve Fletcher, whose Ward 3 covers downtown and parts of northeast Minneapolis, is spearheading an effort to update the city’s regulations on short-term rental platforms such as Airbnb, Sonder, HomeAway, Vrbo and Expedia in order to limit their presence and require certain operators to pay fees that are similar to what hotel owners pay in lodging taxes. 

He introduced an ordinance to the City Council last week, and the council’s Economic Development and Regulatory Services Committee on Tuesday referred the idea to city staff, who will write specific language for the council to consider in coming weeks.

The push, in part, is an answer to how the market has evolved to include more tech companies that partner with property owners to reserve huge chunks of new housing developments for short-term guests. That is a departure from the original home-sharing model, which advertised itself as a peer-to-peer option for anyone ⁠— any resident ⁠— to earn a little extra income by renting out spaces in their house, condo or apartment. 

In Minneapolis, Fletcher said the changing trend goes against Minneapolis’ efforts to alleviate a lack of housing — which the city is concurrently trying to address with zoning changes to add residential density — since the developer-company partnerships reserve dozens of new apartments for short-term visitors or tourists, rather than permanent residents.

“These business models are threatening the housing supply,” Fletcher said in an interview Tuesday. “We’re going to take action.”

Big-time complaints about short-term rentals

Fletcher has had the issue on his radar since his election to the council in fall 2017. Since then, he said, more and more residents have complained to his office about customers of short-term rental companies disrupting neighborhoods with parties and crime. Eventually, he heard of a condo building marketing itself as an “investment opportunity” for the tech companies, and that gave him pause.

“That was a big red flag because we have a shortage of housing for people,” he said. “To have condos get built finally and to have them marketed to people who don’t live in the city was a very frustrating outcome.”

But the matter gained urgency this spring, Fletcher said, when the Twin Cities-based developer Sherman Associates announced plans to lease most of the units in a 122-unit complex the company is currently building at 205 Park Ave. S. to a tech company that partners with property owners to lease housing to short-term guests. The San-Francisco-based startup, called Sonder, already operates 15 apartments across the street, in Sherman’s East End apartments on Chicago Avenue, as well as 18 units in a 75-unit building in south Minneapolis and a handful of other spaces. Other companies are running the same type of business in Minneapolis, too, and some hotels are listing their spaces on the web-based platforms to increase exposure.

Neighbors of the new complex, dubbed The Vicinity, packed meetings and contacted Fletcher’s office to criticize the plans. In response to the pushback, Fletcher said the Sherman and Sonder have indicated they are willing to change plans for the complex, though nothing has been finalized yet. (Neither Sherman Associates nor Sonder could be reached for comment.)

Regulatory challenges

Fletcher’s ordinance would update existing regulations on short-term rentals in Minneapolis, which the city adopted in October 2017. Those guidelines established a framework to help officials track the popularity of the web-based platforms; make operators comply with safety codes, and level the playing field with hotels and other traditional hospitality services by implementing fees and taxes on the new companies. 

The law requires the companies to pay annual registration fees (up to $5,000 if they have more than 150 active listings). It also mandates licensing fees for individual residents who rent out their homes, except for those who remain living in their homes while guests stay there. That means hosts who live off-site but operate short-term rental spaces must obtain a standard rental license (the cost of which varies depending on the property), while those who live somewhere else only while accommodating guests must pay an annual licensing fee of $46. (St. Paul has similar rules.)

But not every host follows the rules, of course. According to city data, Minneapolis has 302 active licenses or registrations for short-term rental properties of all kinds. Meanwhile, HostCompliance, a data collection company that monitors short-term rentals and contracts with Minneapolis, estimates about 1,400 active listings for Airbnb-style rentals across multiple platforms in the city as of last week. (Hosts often have multiple listings for one property by using a variety of websites.)

The companies add to the regulatory challenges, too. They do not share data on users and have been uncooperative with the city in the past, said Fletcher, making it nearly impossible to measure the short-term rental market’s impact on the housing supply. Other cities, such as Chicago, have had different luck engaging with the companies, he said, and some have even implemented a system that uses permit numbers for each rental that both the companies and government officials can monitor.

“Our instinct is to regulate tightly, but with access to more information, we might have a different conversation on regulation,” he said.

An emerging consensus? 

Nationally, about two thirds of all Airbnb bookings are in multifamily housing buildings, as opposed to single-family homes, according to the latest data by Pillow, a short-term rental research company. 

And as consumer trends change, so too is the earning potential for the market. In Minneapolis, homeowners who host four guests on their property can earn up to $1,691 monthly by using Airbnb, which is roughly 14 percent higher than they could earn less than two years ago, according to the site. 

David Wachsmuth, an urban governance professor at McGill University in Montreal who researches the platforms’ economic impact, said there’s emerging consensus in cities across the U.S. and Canada to permit home-sharing operations in houses but not permit big-scale commercial operations, like what Sherman announced for The Vicinity in Minneapolis. Many metro areas are in a similar position as Minneapolis, he said, scrambling to write regulatory frameworks as the tech startups grow in prominence.

“In cities with tons of available housing, rental prices that are low … live and let live — there’s no really strong reason to restrict short-term rentals,” he said. But that is not usually the case for metro areas that have strong commercial and tourist demand, Wachsmuth said. “Where things are growing, also end up being the places that want to regulate short-term rentals.”

As Fletcher writes the Minneapolis ordinance in coming weeks, he said he is seeking feedback from residents on how they use Airbnb-style rentals, since so many of the transactions are “under the radar, unpermitted” or for uses the city hasn’t yet considered. Meanwhile, he’s talking with colleagues about his plans; he said there is broad consensus among council members that the city needs to update its regulations, but they haven’t nailed down specifics.

“It’s the government’s job to look at new business models as they emerge,” Fletcher added. “It’s not our goal to regulate out of existence, but it is our goal to regulate the scale of it.”