As Airbnb takes off, Duluth and other cities wrestle with rules

Her charming 1920s house in the Morgan Park neighborhood of Duluth had a rarely used third floor, so marketing professional Elisabeth Crosby turned to a website that rents out unused space to travelers — Airbnb — and became a modern-day hotelier.

She dispensed advice on touring Duluth, welcomed her guests with fresh flowers and scones and turned a tidy profit while hosting people from around the world.

"It's awesome," Crosby said of her Airbnb business. "I just love the concept."

Not everyone shares her enthusiasm. Surprised by the website's sudden growth in Duluth, and coaxed into action by traditional B & B owners, the Duluth City Council recently enacted a one-year moratorium effective July 15 on new vacation rental permits. Existing spots can stay in business.

It's a familiar tale around the world for Airbnb, a pioneer of the so-called sharing economy. The company was founded in 2008 by a couple of guys in San Francisco who rented out air beds in their apartment. Today it's a business used by 35 million guests, with 1.2 million listings in 34,000 cities around the world. And from Burnsville to Borneo (434 rentals available at last check), it's spawned headaches for local governments charged with regulating the tourism business.

The Burnsville City Council has all but banned the business, saying local zoning ordinances prohibit it.

The Eagan City Council will hold a workshop next month to come up with an answer.

Duluth will research the Internet-fueled industry of short-term vacation rentals before developing new rules, said City Council member Joel Sipress.

It will be the city's second try at regulating vacation rentals in recent years. Duluth established an interim use permit in 2013 for homeowners who were renting out their entire property, either through Vacation Rentals by Owner (vrbo.com) or a similar site called Homeaway.com.

Renting out homes can be a great deal for homeowners who want to make extra money while they're away, but it's rarely welcomed by neighbors.

Community's concern

When Duluth resident Cameron Fryer learned that a house in his neighborhood would go up for rental on VRBO, he took the issue to the City Council to stop what he feared would become a procession of loud parties at "an unsupervised motel," he said.

"We're adamantly against them," he said. "It's very disruptive to our neighborhoods."

A zoning rule helped the Fryers and their neighbors; the Duluth City Council voted last month to deny the application for a vacation rental house in their neighborhood.

Unlike VRBO, Airbnb rentals may cover just a single room in the house, or a basement space.

It's not covered by the 2013 city action but has generated the same concerns from neighbors about loud parties, a procession of strangers through the neighborhood and houses getting trashed.

Such rentals were deemed illegal earlier this year in Boulder, Colo., but Airbnb lists 352 listings there today.

That City Council wrote a draft ordinance this month that they plan to have in place in time for a November referendum on taxing the rentals.

The Santa Monica, Calif., City Council banned short-term vacation rentals last month.

It's still legal to rent out a spare bedroom or basement, but renting out an apartment or home without the owner present is no longer allowed. Numerous other cities, from New York to San Francisco, have grappled with the issue as well.

Crosby, a proponent and user of the business, said she hopes to build her portfolio of Airbnb properties.

The company will soon go public, she predicted, and she's already making plans to attend its annual conference, which will be held in Paris this year for the first time, home of the most Airbnb listings of any city.

The website uses some basic verification methods to build trust.

It helps the hosts and guests make personal connections and gives travelers an experience they would otherwise miss out on, Crosby said.

"I hear people talking about Airbnb all the time," she said.

Permit problems

Airbnb lists 57 rentals in Duluth, covering everything from a complete house to lavish rooms in a historic mansion to a single bedroom with a twin bed for $35 a night.

Duluth City Planner Keith Hamre said the challenge for Duluth is ensuring that the rental unit is safe, meets code and that taxes are collected. His office has sent out 10 to 15 warning letters to Duluth residents who were renting rooms or homes without a permit.

Most of the homeowners came in and paid for the "interim use permit" the city requires of Airbnb and VRBO operators, he said.

Enforcing the rules will also be difficult, with dozens of properties spread across the city, he said.

The interim use permit is good for six years. It requires an initial inspection of the house and a second fire inspection after three years. It also requires the homeowner to collect lodging and sales taxes.

Popular city

About 3.5 million people visit Duluth and its 3,000 hotel rooms every year, according to Visit Duluth, the city's convention and visitor's bureau. Tourism is the city's third largest industry, worth $800 million to the local economy.

Tim Allen, owner of Duluth's A.G. Thomson House Bed and Breakfast, filed some of the first objections to Airbnb.

He's not against people offering lodging in their homes, he said, but when they don't collect taxes or make their homes available for inspections, it can hurt the local tourism business.

Some Airbnb places offer breakfast, he said, and probably don't have needed health code inspections done.

"The city is losing a lot of revenue," he said. "We just think that the Airbnbs need to get a license. Essentially they're doing exactly what we're doing as B & Bs."

Allen said he brought it to the City Council's attention because few of the members understood how widespread Airbnb had become in Duluth.

He expects the City Council to codify more stringent rules about where vacation rentals can operate, and beef up the requirements.

He's not entirely against the business, however: He thinks the website is so slick that he lists his own B & B on it.

The allure of Airbnb goes beyond saving a few bucks, said Elizabeth Kaplan, who hosted a Grandma's Marathon runner at her Duluth Township house after listing a spare room on Airbnb.

She and her husband have also found places to stay through Airbnb while visiting the Twin Cities.

"We've really had some awesome experiences," she said. The rentals that she and her husband found while traveling were in neighborhood homes, places where they could "explore a little corner" of the cities, park their car on the street and feel more at home than at a hotel near a freeway, she said.

"I understand that there probably does need to be some way to pay taxes to the city," she said. "I'm totally fine with that. I hope they'll figure out a way to let people continue to do it."

Matt McKinney • 612-673-7329