Cook County needs more housing part 2: the short term rental vs long term rental debateAug 24, 2022 09:02AM ● By Laura Durenberger
By Rae Wojcik Poynter - Boreal Community Media - August 24, 2022
Editor's note: This is the second part of a three-part exclusive series on the housing crisis in Cook County and Grand Portage, Minnesota. You can find part one here, and part three here.
While hospitality workers make up a big segment of the working population looking for housing in Cook County, the second group of people in need of affordable housing are long-term residents who work outside of the hospitality industry. Finding professionals to move to the community has been a challenge for employers like the school district, hospital, and the County, which have openings but nowhere for new employees to live. Cook County needs more affordable homes for working families to buy. And it also needs long-term rentals where newcomers can land while looking for a home to buy.
Cook County HRA Director Jason Hale said that while both homes to buy and apartments to rent are needed in the community, the need for long-term rentals is especially pressing.
“People typically find their housing one of two ways—they either know someone who knows someone who has some sort of housing available, or they just happened to get really lucky and were in the right place at the right time,” Hale said. “But I haven’t heard from anyone who has recently moved here who said it was really easy and they found lots of places to rent.”
This lack of affordable housing has long been a topic of conversation among community members, but the situation has become especially dire in the last two years as housing prices have soared, the busy tourist season has gotten even busier, and the people with the ability to work remotely found themselves suddenly able to live in the place they loved the most. (Which, for many in Minnesota, is the North Shore.) These changes have contributed to increased tensions in the community, with community members noting how difficult it has become for working families to buy or rent in Cook County, and how short-term rentals contribute to the lack of rental housing for workers. (A recent survey by Cook County officials revealed that more than 62% of respondents expressed an unfavorable view of vacation rentals, with effects on the housing stock being the number one reason cited.)
Second homes and cabins
Could our existing housing stock be the solution to the housing crisis? As mentioned in part one of this series, Cook County’s housing crisis does not have a single cause, and therefore does not have a simple solution. While Cook County’s beauty isn’t the sole cause of the housing crisis, there is no denying the fact that its desirability does add strain to the housing inventory. According to Cook County Assessor Bob Thompson, second homes and cabins make up the largest portion of Cook County’s housing; an estimation showing second homes and cabins make up about 70% of Cook County’s housing stock (although different ways to run the numbers yield slightly different percentages).
Jason Hale said, “I’ve talked with owners of resorts in the area who were putting offers on housing for employees, and despite offering above asking price they were outbid by cash buyers.”
When asked who these cash buyers were, Hale said that it varied, but the biggest demographic seemed to be wealthier people from the Twin Cities looking for second homes. While many of these second homes end up sitting vacant, some of them become short-term rentals. In addition to the roughly 70% of seasonal homes and cabins that sit vacant for most of the year, Bob Thompson recently estimated that out of 7,265 housing units in Cook County—excluding those within the City of Grand Marais or RCR (resort) zoning—3.1% of Cook County’s housing units are being used as short-term rentals.
Although the percentage of short-term rentals is small, wouldn’t limiting their use help to decrease the demand for housing and therefore make it easier for locals to find a place to live?
When asked whether there would be a way to incentivize these owners to rent their homes on a long-term basis rather than a short-term basis, Hale said that this could be tricky. Owners of short-term rentals usually fall into one of two categories: those who bought the house as an investment property for the sole purpose of doing short-term renting, or those who bought the house as a second home they hope to use at least part of the time.
“What often happens is these cash buyers are looking for a house to retire in,” Hale said. “They plan to use it as a cabin or a getaway in the meantime, but then after a couple of years, they realize that they’re not getting up to visit as often as they thought they would and have costs associated with a house they aren’t really using. They don’t want to sell, though, because they want to keep the house to retire here, so they decide to rent it out to help cover the costs of owning the property.”
Hale said that for this group, renting out these properties long-term is typically not an option, since renting long-term means that these owners don’t get to periodically use their property as a getaway.
“If they couldn’t do short-term rentals, a subset of these owners might sell, which would be a good thing in that it would add more inventory. But I’d suspect that most of these owners would just continue to pay the taxes on these properties and just not use them very often,” Hale said.
Bob Thompson agreed with this opinion, and said that while short-term rentals are often blamed by the public for the housing crisis, second homes that sit vacant throughout the year are actually the bigger problem. Not only do short-term rentals provide job opportunities, but their tax classification provides a greater benefit to the county than short-term rentals do.
“If you say that short-term rentals are the reason for the housing crisis, that is simply not the facts,” Thompson said. “Short-term rentals are actually more beneficial than cabins that sit vacant for a few reasons. First, they pay a higher tax rate cabins don’t. They count toward the school referenda and voter referenda whereas cabins don’t, and some of the tax income from cabins goes to the state rather than staying in the county. Since being reclassified in 2020, short-term rentals started picking up 7.5% of the levy.”
(For those wondering, tax rates based on property classification type are set by the state legislature. And given the strength of the cabin-owners association and their influence in St. Paul, increasing the tax rate on seasonal properties is unlikely to happen.)
This brings us back to the fact that, while a portion of these second homeowners may sell if they couldn’t do short-term rentals, most would likely keep their vacation homes vacant, contributing to a loss of tax revenue. And even for those properties that did sell, there is no guarantee that said units would be affordable or desirable for working families to live in. Cook County simply needs more housing. More new housing.
In fact, the biggest need that Hale identified is the need for more apartment buildings. While some of the existing housing stock could potentially be used as long-term rentals, the issue is that—even if a second homeowner opted to have a long-term lease rather than letting their house sit vacantly—the properties currently used as short-term rentals are often not ideal for the kinds of working families that Cook County so desperately needs. Houses far from Grand Marais are not practical for families with jobs in town and children in school or childcare; young professionals with job offers are not typically looking to live in a remote cabin with no storage space or plumbing; and many of the nicer vacation homes would have monthly rents so high as to effectively prohibit working class families from living there, even if long-term leases were a more common option.
“Let’s say you’re someone like a nurse who got hired at the local hospital and you’re moving here from out of town—you may not need your dream home to start out with. What you want is a comfortable and safe apartment not too far from the hospital where you can live while you figure out if you want to stay in the community and buy a house. And it’s that kind of housing that we don’t have right now,” Hale said.
In addition to the project designed for hospitality workers, Hale is also working on plans for multi-family housing that would have apartments larger than studios. Not only do new workers need apartments to move into, but so does another segment of the population—seniors.
“Apartments provide an opportunity for the older folks in our community who may be ready to move out of their house, but there’s nowhere for them to go,” Hale said. “They want to stay in the community but maybe they want to downsize or not have to worry about maintenance or shoveling or lawn care anymore. Apartments provide a place for folks in that season of life, and when they have a place to move, they don’t feel forced into staying in their house if they want to stay in the community. Then, those single-family homes go on the market and can be sold to younger families.”
While apartment units are certainly needed, Bob Thompson noted a recent case where an apartment was available to rent in Lutsen, and it took several months for the landlord to find a tenant, despite the apparent need for long-term rentals being so great. The reason it was so hard to find a long-term tenant? The unit was not pet-friendly, and most of the people interested had cats or dogs they were not willing to part with.
“Even if we built a new 40-unit apartment building in Grand Marais, I’d suspect you might end up with half of those units sitting vacant if they aren’t pet-friendly,” Thompson said. “Pet-friendly housing is essential.”