The Minnesota State Legislature’s “high-rise” initiative to resolve the short-term rental puzzle has been put on hold. Senator Rich Draheim (R) District 20 (Mankato) and Senator Mark W. Koran (R) District 32 (North Branch) Introduced legislation the day after normal tax day (April 16th) that proposed a two-year moratorium on reclassifying short-term rental properties.
It’s certainly understandable, given the complexities and confusion that has inundated this contentious topic.
State Senator Tom Bakk (DFL-Cook), had introduced a bill into the Senate at the request of Cook County officials. However, Bakk indicated in an April 22nd interview with BusinessNorth reporter Kitty Mayo, he was “not fully in support of the current version of that bill.”
In the Minnesota House, Representative Rob Ecklund (DFL-International Falls) had introduced a companion bill. Both bills had been scheduled for hearings but were delayed–I’m assuming– casualties of COVID- 19.
Cook County Assessor, Bob Thompson has a hunch, “The Minnesota House is pushing for “residential classification,” the Senate for “commercial.” Thompson referenced a study done in 2006 that involved twenty to thirty people who looked at this issue in depth. “Only one individual was of the opinion short-term rentals should be classified as commercial,” said Thompson.
Would you believe a lot has changed in the past 14 years?
Quoting from a January 27, 2020 post on Forbes by Omer Rabin, Managing Director for a short-term property management platform, “Travelers have widely adopted short-term rentals, such as the vacation homes you see on Airbnb and other booking channels, resulting in one of the hottest arms of the sharing economy. In fact, short-term rentals yield 30 percent more profits for homeowners/investors than long-term leases, with an estimated global market valuation of $169 billion in 2018 alone. The payout is big!”
“There’s no question short-term rentals made a splash around the world this year– mainly from the likes of Airbnb,” reports Travel Industry Data News, “even amidst the backdrop of ongoing regulatory battles …as of March, some 38 of 59 major cities across the country have no legal framework in place for short-term rentals or vacation rentals.”
In 2015 the Minnesota Supreme Court passed on a Winona Minnesota rental restriction case in which homeowners were challenging the city’s 2005 ordinance limiting the number of rental properties to 30 percent per block in some neighborhoods. Writes Pam Louwagie, regional reporter and Duluth Bureau Chief for the Star Tribune, in an August 05, 2015 article, “The rule was meant to ease parking problems and protect the neighborhoods from decline, but property owners who were denied long-term rental licenses sued, arguing the rule infringed on their property rights.
“The case was being watched around the state to see whether governments could limit house rentals in specific areas to preserve neighborhood livability. Both the district court and state court of appeals had ruled in favor of the city. The high court found that the case was moot because each homeowner had already resolved their fight, either by selling their house, letting it go back to the bank or gaining a rental license. The order left the city’s law in place.”
George Hoff, an attorney for the city, said, “The ruling importantly leaves in place the appeals court’s analysis of city power to tackle livability issues.” The cap limitation was “the product of a long process that included several studies,“ concluded Hoff.
At present, Cook County has decided to classify a property’s primary use as commercial if it is rented for 183 or more days out of a year, and as seasonal recreational if rented for 182 days or less in a year. Cook County Assessor Thompson reflected, “Historically, it has been left up to the local jurisdiction to decide classification.”
Therein lies the problem: “all over the place” inconsistencies among the state’s various local jurisdictions.
“What’s going on in this industry is not what the legislature intended,” acknowledged Senator Bakk during his April 22nd interview with BusinessNorth reporter Kitty Mayo. “This is a new business model that needs its own classification.”
Bakk believes there is no clear consensus on how this will all play out, but for some percentage of properties that will ultimately likely be classified as commercial, there is certain to be blowback.
“If there’s one lesson I’ve learned, it’s that life is all about change, and stress comes from avoiding change.” –Brad Thor.
Former Cook County Commissioner Garry Gamble is writing this ongoing column about the various ways government works, as well as other topics. At times the column is editorial in nature.
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