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DULUTH — Sarah Lawrence and her husband were sitting one afternoon on the deck of their Duluth hillside bungalow with expansive views when some strangers walked by and offered to buy their house for twice what it was worth.

"We said, 'would you live here?' They said 'no,'" she said.

To her, it was the latest example of a shifting tide in Duluth, where full-time vacation rentals are spreading across the scenic city, and some residents are nervous.

Last fall, the city made sweeping changes to its rental rules and allowed up to 10 new full-time permits in residential neighborhoods each year, as long as 10 new residential housing units were added, capped at 120. Fifty-five Duluth homes in residential zones are now full-time vacation rentals; about half are on Park Point, a mileslong residential sandbar with houses, beaches and a small airport.

Duluth is among a number of in-demand tourism communities under strain across the country as residential vacation rentals grow in popularity, particularly in places like the Carolinas, Arizona and California.

The proliferation in Duluth has some residents worried about the repercussions, despite restrictions put in place by city officials. Neighbors attended city government hearings to express their concerns about the lack of on-site owners, the impact of outside investors on an already tight housing market and boisterous visitors who they say threaten the appeal of quiet neighborhoods. The issue is expected to resurface Monday when a group of neighbors plans to attend the City Council meeting to appeal a vacation rental permit that the city granted.

Beth Storaasli filed the $407 appeal against a house in her eastern Duluth neighborhood. She said her daughter is one recent example of the many potential Duluth homebuyers who can't find homes in their price range.

"The City Council came up with what appears to be a grand compromise, and they put their heads down and will not look at what it's doing to the community," Storaasli said.

Council Member Roz Randorf said residents' concerns were discussed in-depth before the council approved new rules last fall, including concerns over the city's housing crisis and density issues.

"We peeled the onion deep," she said.

As part of the agreement, Randorf said, they made many concessions to appease neighborhood concerns. The city requires screens or fencing and a maximum number of bedrooms. The city imposed parking requirements and requires a property manager living within 25 miles. The permits last six years, and then require reapplication.

"We put a lot of thought into the ordinance and made some thoughtful changes that everyone is complying with," she said. "I hope we don't unpack this thing and do it again."

'Not a NIMBY response'

Andrea Kuzel said her family has lived on Park Point for about a decade, relishing the coveted beach community with longtime residents who borrow sugar from each other and share baked goods. But the sheer number of vacation rentals on the Point is "destroying" its fabric, she said, adding that property taxes are "skyrocketing."

"It's the neighbors who live in houses who give it value," Kuzel said, and many rentals don't have onsite owners or are owned by businesses. "We are some of the younger people on Park Point — there aren't many kids now. It's slowly fading."

Limiting the number of vacation rentals in any one neighborhood isn't likely, said Adam Fulton, deputy director of planning and development for Duluth.

"It is complex to administer and is essentially a market modification that sometimes has unintended consequences," he said.

The city of roughly 36,000 households has about 100 vacation rentals in total. Some areas, such as downtown and other business districts, do not have a cap on permits. Complaints about renters are few, Fulton said, and because of the time limit on the permits, officials say they do not believe these types of properties will become permanent features.

"This is an emerging business," he said, and cities are approaching it in a variety of ways — from no restrictions to capping numbers or banning them outright.

"The policy imperative here is to ensure we are providing an adequate level of housing and making sure we are not suffering a loss of available housing of all types in our community," Fulton said.

Hundreds of apartment units in Duluth are expected to be built and opened in the next few years. There's a dearth, however, of available single-family homes.

The city is experiencing "the biggest growth in the number of housing units created in our city in a generation or longer," said Council Member Gary Anderson.

Lise Lunge-Larsen sees it differently. She lives across from the house at the heart of the appeal the City Council will consider Monday.

"Every house that gets turned into a VRBO (vacation rental by owner) is a home that's off the market," Lunge-Larsen said. "It feels like the left hand doesn't know what the right hand is doing."

As for Lawrence, she said she worries about the growing number of vacation rentals dotting Observation Hill that sit empty in-between visitors, giving a lonely vibe to a place that once bustled with children.

"This is not a NIMBY response," she said, using the acronym for the phrase "not in my backyard." "It's the absence of what might be there that bothers me."