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Excelsior is one of the last communities surrounding tourist-magnet Lake Minnetonka that has not regulated or banned short-term vacation rentals.

That might change soon.

The Excelsior City Council is set to hear a second reading of a draft ordinance on Nov. 6, and could vote to approve limits on licensing, location and frequency of short-term rentals, such as Airbnb or VRBO.

It's an attempt to preserve more homes for full-time residents, city leaders said.

As Excelsior has transformed from a working-class enclave to a summer-home destination, year-round residents are worried about losing a sense of community, already threatened by tensions between older and newer residents over newcomers' proclivity for tearing down cottages to build large houses. City leaders worry houses used solely as short-term rentals will further erode the fabric of the city and could price out people who want to be year-round residents.

"In general, we're getting more concerned about homes not being for people who reside here year-round," said City Manager Kristi Luger.

Summer houses and short-term rentals have become more common in Excelsior over the years. The city, population 2,300 in just over a square mile of land, has about 25 short-term rentals listed online at any given time, city staff estimate.

"We're seeing, in certain pockets of the community, every third or fourth house is someone not living there year-round," Luger said.

Some other Lake Minnetonka communities, including Shorewood and Deephaven, have banned short-term rentals outright. Others, such as Orono, have limits on the size of houses that can be rented out. Right now, there are no limits or restrictions on short-term rentals in Excelsior, Luger said, because the city has not really had any problem properties or party houses.

"It does decrease the affordability of housing, and it does take housing stock out of Excelsior," Council Member Rob Tyler said.

Home values in Excelsior soared during the pandemic. The city estimated the median home value was $490,000 in 2019, but by 2022 that number was $735,000. More than a third of the homes in Excelsior are valued at over $1 million, according to the U.S. Census Bureau.

"The town is changing," observed longtime resident Thomas Knowlton, who counts two short-term rentals on his street. He has never had any trouble with the properties, he said, noticing only that sometimes there are a lot of cars parked out front.

Balancing tourists and residents

Visitors have become key to sustaining Excelsior's small businesses, centered on picturesque Water Street. But with few hotel rooms around Lake Minnetonka, short-term rentals will probably be a piece of the tourist economy for a long time, Luger said.

Still, the council is looking for ways to preserve housing for full-time, year-round residents. City staff looked to Stillwater, and places like Bozeman, Mont., where leaders have sought to balance a tourist economy and housing affordability, for ideas about possible regulations, Community Development Director Julia Mullin said.

Luger said the city wants visitors "to experience the community and see how great it is. ... We just don't want those [short-term rental] uses taking over."