By Sean Krieg.
If you’ve traveled in the last decade, you have likely considered staying in a short-term rental. Largely due to the success of peer-to-peer rental platforms like Airbnb and Vrbo—which digitally connect property owners with potential renters—short-term rentals now make up nearly a third of the U.S. lodging market. This rapid introduction of lodging into the “sharing economy” has given travelers more options, and owners the opportunity to turn properties into sources of revenue.
The rise of short-term rentals has not only had a direct effect on travelers and property owners, but also on the communities where the rentals are found. Some evidence suggests Airbnb guests stay at a destination longer and spend more at local businesses than hotel guests. But this increased spending may come at a cost. Indeed, at least one economic study found that local costs outweighed the benefits to travelers and property owners. Short-term rental activity is associated with affordable housing shortages. The emerging use of short-term rentals as “party houses” disrupts neighborhood characteristics and taxes local resources. In the Arizona town of Paradise Valley, short-term rentals account for nearly half of all police disturbance calls. With appropriate local control, however, municipalities may be able to balance these economic benefits with the negative impacts to communities.
RED ROCKS AND REGULATION
Looking to strike that balance, many cities across the country have enacted some form of regulation. Some cities adopted a complete ban. Others only allow owners to rent out their primary residence—and only up to three months each year. Still others favor geographical restrictions, requiring owners to obtain a conditional use permit that is only granted to owner-occupied homes that are at least 660 feet from any other short-term rental.
Like the rest of the country, Arizona municipalities initially took different approaches to regulation. For example: the town of Jerome enacted a complete ban, whereas Page simply required a conditional use permit. However, Governor Ducey preempted these diverse approaches in 2016 when he signed a bill that broadly eliminated local control of short-term rentals. The bill passed despite the strenuous objections of community groups, and was codified as A.R.S. § 9-500.39. It forbids local prohibitions on short-term rentals and severely limits cities’ authority to regulate them.
Around the time this law was passed, Sedona—which had previously banned short-term rentals—amended its city code to allow their operation as licensed businesses. Nevertheless, state legislators complained the licensing requirement violated A.R.S § 9-500.39, and targeted the city with a SB1487 investigation. This type of investigation can result in a city being denied its portion of state-shared revenue if Arizona’s Attorney General believes the law was violated. In May 2018, Attorney General Mark Brnovich issued his finding: Sedona had violated the law. Faced with the loss of millions of dollars, the city repealed its short-term rental ordinance. Today, about thirty percent of available rooms in Sedona are short-term rentals. Of these rentals, nearly seventy percent are owned by non-residents.
TROUBLE IN PARADISE [VALLEY]
Though Arizona cities have largely been stripped of their ability to regulate how short-term rentals operate, some cities have focused on penalizing renters and property owners for nuisance “party houses.” Increasingly, these parties are occurring in some of the state’s wealthier communities. The City of Scottsdale recently enacted two new ordinances that establish fines for short-term renters and property owners for raucous parties. These fines increase with repeat offenses and can reach tens of thousands of dollars.
The Town of Paradise Valley has also amended its town code. Like Scottsdale, the changes included fines for owners, but Paradise Valley’s ordinance goes further. The ordinance requires publicizing rental owner’s name and contact information, compels owners to perform background checks on every short-term rental guest, and mandates in-person meetings prior to occupancy. It is not entirely clear whether A.R.S. § 9-500.39 allows these requirements.
Because it is so difficult for municipalities to address issues with short-term rentals, homeowner’s associations have begun to amend their covenants, conditions, and restrictions to limit them in their communities. Aggrieved neighbors can also try to have properties removed from online listings. This may benefit individual neighborhoods, but this piecemeal approach is unlikely to address the housing issues plaguing Arizona cities.
Some state legislators have attempted to loosen regulation restrictions on municipalities. Although minor changes have been made to A.R.S § 9-500.39, significant attempts to overhaul the law have faltered. Some attempts have been criticized for focusing only on “party houses” in wealthy neighborhoods, and ignoring short-term rentals’ effect on housing stock. Others have been decried as weakening the rights of property owners. So far, the state legislature has struggled to implement sensible reform.
CURRENT CALLS FOR CHANGE
As of January 2022, there are two bills in the Arizona Legislature seeking to repeal A.R.S. § 9-500.39—SB1026 and HB2069. If successful, these bills would allow local leaders to adopt successful land-use practices from similar out-of-state municipalities, or otherwise regulate short-term rentals. Doing so can reduce nuisance complaints and increase affordable housing stock. Naturally, Airbnb opposes both bills. However, support for these bills does not seem to fall along party lines. Even Governor Ducey has admitted the original law has had “unintended consequences.” Though they are only one part of the problem, recent high-profile “party house” incidents may ultimately provide the impetus necessary to return land-use control to where it always belonged: Arizona’s cities and towns.