Proposed Change in Arizona’s Vacation Rental Regulation

By Kendra Richards. 

Introduction

Arizona has some of the nation’s least restrictive regulations for vacation rentals and short-term rental properties (“STRs”), such as those on Airbnb and Vrbo. Since 2016, Arizona has blocked its cities from banning STRs, subject to the standards in A.R.S. § 9-500.39. 

However, the Arizona State Legislature is currently considering a bill, S.B. 1076, that may signal a significant shift in the state’s attitude toward STRs. If adopted, this law would amend existing law to allow towns with fewer than 70,000 residents to cap the number of rental licenses issued and set minimum distances between STRs. While this bill could help small cities and towns address housing concerns, it could also affect local economies that rely on tourism and expose municipalities to regulatory takings claims under A.R.S. § 12-1134.

A.R.S. § 9-500.39 and S.B. 1076’s Proposed Amendment

A.R.S. § 9-500.39 currently governs Arizona’s regulation of STRs. The law broadly forbids cities and towns from prohibiting STRs. It also restricts the regulations that municipalities may impose on STRs, allowing only those related to health and safety, nuisance control, zoning compliance, permitting requirements, and civil penalties.

On January 12, 2026, S.B. 1076 was introduced in the Arizona Senate. This partisan bill aims to amend A.R.S. § 9-500.39 by creating a statutory exception for small towns with fewer than 70,000 residents. The exception is two-fold. If adopted, it would allow small towns to (1) “set a maximum number of vacation rental or short-term rental regulatory permits or licenses” issued in their town, and (2) set a minimum distance between STRs.

The Senate read the bill for a second time on January 14, 2026, signaling how fast S.B. 1076 might make its way through the Arizona State Legislature. 

Arguments in Favor of S.B. 1076

There are many strong policy arguments in favor of a statutory exception for small Arizona towns. Supporters of S.B. 1076, including the League of Arizona Cities and Towns, assert that A.R.S. § 9-500.39 has allowed large developers to purchase units on a large scale and eliminate housing availability for Arizonans. Sedona is just one of many towns facing this issue, with around 20% of its housing stock converted to STRs.

Since 2020, Arizona’s population has grown by 6%, placing Arizona fifth in the nation for numeric growth. This has led to a significant “housing crunch.” In fact, the Arizona Department of Housing estimates that the state’s housing shortage currently sits at around 270,000 units. Proponents of S.B. 1076 believe that it could help reduce this housing shortage.

A notable concern involves the eviction of residents due to the “conversion of mobile home parks into de facto hotels,” which has become increasingly common throughout the nation. The Arizona Court of Appeals recently ruled that Sedona could not prohibit a 59-acre mobile home park from renting out its units as STRs. This decision illustrates the limits that towns currently face when attempting to restrict this practice, reflecting the need for S.B. 1076.

While opposition to STRs often stems from issues such as nuisance and parking congestion, some Arizonans also feel as though the large presence of STRs affects the character of their neighborhoods. One Sedona resident wrote that she feels as though the “heart” of her neighborhood is gone, as she is now surrounded by a “continuous cycle of strangers.” 

Arguments Against S.B. 1076

If adopted, S.B. 1076 could significantly impact both the local economies and the owners of STRs in Arizona towns that often attract high levels of tourism, including Sedona, Prescott, and Pinetop. A strong policy argument against further regulation of STRs stems from the huge growth of the vacation rental market and its substantial impact on the tourism industry. In fact, studies show that STRs drive tourism, boost employment, and positively affect hospitality and leisure industries. 

Airbnb, one of the largest short-term and vacation rental platforms, echoes these arguments in its apparent opposition to this legislation. The company asserts that its hosts contributed around “3.5 billion in economic activity” to Arizona in 2024, supporting over 42,000 jobs. Airbnb further claims that it has worked hard to “promote responsible tourism” and provided a “critical economic opportunity for everyday Arizonans at a time of rising costs.”

Another potential argument against S.B. 1076 is that it creates unequal treatment between landowners in small towns and those in larger municipalities. For example, landowners in towns like Flagstaff and Scottsdale, which attract significant tourism but have over 70,000 residents, would not be subject to the same licensing caps or distance requirements. Because STRs affect communities regardless, the population-based distinction could be considered unnecessary and could give an advantage to larger municipalities.

Further Concerns Arising Under A.R.S. § 12-1134

Perhaps the most critical concern surrounding S.B. 1076 is the way in which it might interact with A.R.S. § 12-1134. In 2006, Arizona voters approved Proposition 207, the Private Property Rights Protection Act, which limits cities’ exercise of eminent domain power and provides stronger protection for private property owners from regulatory takings. A regulatory taking results when a land use regulation is so restrictive that it constitutes a taking of private property.

A.R.S. § 12-1134 was codified as a part of Proposition 207. Subsection (A) provides that if a land use law reduces a landowner’s existing right to use, sell, divide, or possess the property, resulting in a reduced fair-market value, the owner is “entitled to just compensation” from the municipality that enacted the land use law. Subsection (B) contains an exception for land use laws that “limit or prohibit a use . . . of real property for the protection of the public’s health and safety.”

The intersection between S.B. 1076 and A.R.S. § 12-1134 raises the potential for regulatory takings claims. If a municipality deprives landowners of the ability to use their property as an STR, landowners could argue that their properties have suffered a diminution in fair-market value. Thus, if S.B. 1076 passes, landowners may assert that the restrictions constitute a regulatory taking, and as a result, they are entitled to just compensation under A.R.S. § 12-1134. 

Municipalities could respond by arguing that their regulations relate to public health and safety and are thus permissible  under A.R.S. § 12-1134(B). However, A.R.S. § 9-500.39(B)(1) already contains an exception under which a municipality can regulate STRs “to protect the public’s health and safety.” Therefore, this argument would likely fail, because if S.B. 1076’s exceptions were genuinely tied to health and safety, the new amendment would be redundant.

Conclusion

S.B. 1076 highlights the difficulty of balancing local policymaking and private property rights. While the bill could address significant housing issues, it could also negatively impact local economies and subject municipalities to regulatory takings claims. Regardless of whether S.B. 1076 passes during this legislative session, the bill signals that the Arizona State Legislature might be reconsidering its permissive attitude toward STR properties.