Airbnb Struggles Impacting Michigan Tourism Industry

Airbnb stock recently crashed 14 percent (Yahoo! Finance) in response to lower than expected third-quarter earnings. The company seems to be struggling for the first time in response to new highly variable regional short-term rental laws created to lessen the U.S. housing crisis. What is happening here on the level of tech, business, and what does it mean for Michigan entrepreneurs in real estate or tourism?

According to Bridge Michigan, Airbnb's proposed excise tax on short-term rentals of 6 percent plus a database to track rentals for safety reasons has gone nowhere, coupled with a national slump in vacation rentals due to a struggling economy.

The Michigan State Legislature has negotiated possible legislation blocking an Airbnb ban in Michigan for the last few years. While the state is motivated to protect its lucrative tourism business, a tax on short-term rentals (STRs) could bring in $35-75 million in annual revenue for the state. The proposed safety measures reflect what many local communities have already enacted for local regulations.

In Muskegon, Michigan, where our vacation rental house is located, recent legislation requires inspections, fire extinguishers, annual fees, carbon monoxide detectors, and liability insurance. We were advised to carry a certain amount of liability insurance by our real estate agent and insurance agent, which is the equivalent of what the national proposal is suggesting.

It makes sense to have regulations across the state for short-term rental properties, but this uncertainty in the market regarding rising fees and bans or pauses on new rental operations in various cities particularly in West Michigan has many property owners resorting to renting off the market and risking local fines. Some are bringing lawsuits against their cities that are hostile to rentals, such as in Douglas-Saugatuck. Property owners need to have their right to rent their properties protected within reason, which is the primary reason most local bans have been struck down legally in higher courts.

“Any state solution needs to specifically protect the right to rent and define its use,” said Brad Ward, vice president of public policy and legal affairs for the Michigan Realtors Association.

In Michigan, short-term rentals are still performing well despite domestic travel being down nationally due to concerns over inflation and the national economy. We have seen a downturn in fall rentals, though it's early days for us to have this established as a rental property. For new property buyers looking to set up a short-term rental, it's crucial that you look up local legislation on STRs ahead of a purchase, or with time to do due diligence on this issue while under contract. Many townships and towns have different legislation in the same region, so make sure you know which township or jurisdiction your property falls into.

Michigan has a healthy tourism industry. Moody in the Market reports as of 2023 that "Visitor activity growth was led by the overnight sector, with spending increasing $2.7 billion to reach $21.5 billion in 2022. In total, visitor activity supported $48.5 billion in business sales across the state, generating $3.2 billion in state and local tax revenues in 2022." For comparison to the overall state economy, USAFacts.org reports: "In the third quarter of 2023, the real GDP for Michigan was $674.8 billion in goods and services per year." Automobile and light industrial manufacturing are still the state's largest industry, but tourism is important to the overall state economy and is a valuable resource to individual entrepreneurs looking to make some rental income in a down jobs market.