Arizona’s disastrous attempt at regulation of short-term rentals

By Deborah Goonan, Independent American Communities

 

What can homeowners do about short-term rental homes causing nuisances in their neighborhoods? In Arizona, not much.

Short-term rentals are a hot trend in Arizona and across the U.S. Believe it or not, taking on lodgers for vacation rentals or special events is no longer limited to condominiums.

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Owners of single family homes have discovered a healthy market for families and larger groups of people willing to pay big bucks to rent a whole house for one night or a week.

Resort communities are the most obvious location for short-term rental properties. But homeowners and investors are cashing in on the opportunity to charge hundreds of dollars per night for vacation rental through Airbnb or VRBO, even in run-of-the-mill residential communities.

If a homeowner occasionally uses Airbnb or VRBO to earn a little extra money, and if the lodgers are quiet and respectful of the neighbors, it usually doesn’t cause a problem.

But when a single family home owned by investors operates the dwelling as a small hotel, a bed and breakfast, or a party house, neighboring homeowners rightfully object.

Party goers with drinks
(Unsplash.com free image)

De facto hotels and party houses

For example, in the Royal Crest Villa neighborhood of Phoenix, homeowners complained about noise, traffic, parking problems, and the general rowdy party behavior of short-term rental guests at one home owned by a real estate investor.

Parents expressed concern about the safety of their children. Homeowners worried about negative effects on their property values.

In Royal Crest Villa, as in many other U.S. neighborhoods and condo communities, short-term rentals create a significant nuisance, and interfere with the quiet enjoyment of full-time occupants.

But in Arizona, state law not only allows short-term rentals in residential neighborhoods, it also prevents cities, towns, and counties from restricting them.

As currently written, Arizona statute can only regulate short-term rentals under certain circumstances:

9-500.38. Limitations on regulation of vacation rentals; state preemption; definitions
A. A CITY OR TOWN MAY NOT PROHIBIT VACATION RENTALS OR SHORT-TERM RENTALS, RESTRICT THE USE OF VACATION RENTALS OR SHORT-TERM RENTALS OR REGULATE VACATION RENTALS OR SHORT-TERM RENTALS BASED SOLELY ON THEIR CLASSIFICATION, USE OR OCCUPANCY.

B. NOTWITHSTANDING SUBSECTION A OF THIS SECTION, A CITY OR TOWN MAY REGULATE VACATION RENTALS IF THE REGULATION IS NARROWLY TAILORED TO PROTECT THE PUBLIC HEALTH AND SAFETY AND IS FOR THE FOLLOWING PURPOSES:

1. PROTECTION OF THE PUBLIC’S HEALTH AND SAFETY, AS DEFINED IN TITLE 12, CHAPTER 8, ARTICLE 2.1, INCLUDING RULES AND REGULATIONS RELATED TO FIRE AND BUILDING CODES, HEALTH AND SANITATION, TRANSPORTATION OR TRAFFIC CONTROL, SOLID OR HAZARDOUS WASTE AND POLLUTION CONTROL.

2. LIMITING OR PROHIBITING THE USE OF A VACATION RENTAL FOR THE PURPOSES OF HOUSING SEX OFFENDERS, SELLING ILLEGAL DRUGS, LIQUOR CONTROL OR PORNOGRAPHY, OBSCENITY, NUDE OR TOPLESS DANCING AND OTHER ADULT-ORIENTED BUSINESSES.

C. FOR THE PURPOSES OF THIS SECTION, “VACATION RENTAL” OR “SHORT-TERM RENTAL” MEANS ANY INDIVIDUALLY OR COLLECTIVELY OWNED SINGLE-FAMILY OR ONE-TO-FOUR-FAMILY HOUSE OR DWELLING UNIT OR ANY UNIT OR GROUP OF UNITS IN A CONDOMINIUM, COOPERATIVE OR TIMESHARE, THAT IS ALSO A TRANSIENT PUBLIC LODGING ESTABLISHMENT.

* NOTE: The same regulations apply to Counties as well as Cities and Towns.

So, as long as a property owner doesn’t break any laws, or run a brothel, a strip club, or an illegal drug operation, local government cannot shut down short-term rentals in its neighborhoods.

 

 

Supported by Realtors and government

It’s important to note that Arizona Realtor organizations fully supported the current statute, which began as SB 1350 (2016).

And homeowners may be surprised to learn that the bill received near unanimous support in both chambers of State Legislature.

Translation: Arizona state government elevated the concerns of real estate investors above the concerns of taxpaying homeowners.

As expected, the statute is an open invitation to real estate investors interested in earning big profits, by booking short-term rentals via online lodging websites.

 

Problems and solutions sign blackboard
(Pixabay.com free image)

What can homeowners do?

There is one potential solution to the short-term rental problem for some homeowners.

A neighborhood with deed restrictions is able to legally restrict or even prohibit short-term rentals, even if the neighborhood is not governed by a homeowners association.

Read how Royal Crest Villa, a non-HOA neighborhood with deed restrictions from 1955, was able to get rid of its short-term rental nuisance for good.

How Phoenix neighbors fought against an Airbnb rental home in their neighborhood — and won

Lorraine Longhi 11/30/2018

Judi Murphy had lived in the north Phoenix neighborhood of Royal Crest Villa for 48 years when an Airbnb moved in earlier this year.

Neighbors say the new owner was renting the property out as an Airbnb, after a state law passed in 2016 expanded protections for short-term rentals. Airbnb and VRBO are two popular websites for people to rent homes for short-term stays that can be for a couple days or up to a week. People can rent out their homes on occasion, but some investors turn their properties into year-round vacation rentals.


Changing deed restrictions
Royal Crest Villa was established in 1955 as part of a historic home-building challenge called the Parade of Homes.

The neighborhood is not governed by an incorporated homeowners association, but it does have a Declaration of Restrictions established in 1955 to outline rules for the neighborhood.

The restrictions reflected the issues relevant at the time, but the neighbors were advised by an attorney that they could revise the Declaration of Restrictions by voting through an official ballot.

The neighbors voted to change the restrictions so that no home could operate an Airbnb or VRBO short-term rental on their property.

With 30 homes on the street, the neighbors needed at least 51 percent of homeowners to approve the revisions. The vote passed, with 23 out of 30 neighbors voting “yes” and seven abstaining.

The future of the law
Republican state Sen. John Kavanagh, who represents Scottsdale and Fountain Hills, said he is drafting legislation to address some of the issues created by the original law.

“This was sold as a bill to allow individual homeowners to make some extra cash on the side,” Kavanagh told The Republic in October. “Unfortunately that morphed into large investment groups pooling their cash, buying homes and creating party houses and catering to drunken golf outings.”

In his new legislation, Kavanagh hopes to require a registry of all homes rented through Airbnb and VRBO, and prevent investors from buying homes to turn them into year-round, short-term hotels.

Read more:
https://www.msn.com/en-us/finance/realestate/how-phoenix-neighbors-fought-against-an-airbnb-rental-home-in-their-neighborhood-e2-80-94-and-won/ar-BBQiMaA

 

Rules restrictions hand written
(Pixabay.com free image)

So, are deed restrictions good?

Now, some readers may conclude that deed restrictions, also known as Covenants, Conditions, & Restrictions (CC&Rs) must be a good thing.

After all, in this example, CC&Rs are used to enforce reasonable property restrictions for the greater good of a neighborhood.

But, let’s look at the big picture. Deed restrictions are only necessary and beneficial in this case because state government has exercised excessive control over local government’s ability to limit short-term rentals in residential neighborhoods.

Unfortunately, local governments in Arizona were only too willing to give up local control in exchange for some extra business tax revenue.

FOR THE PURPOSES OF THIS CHAPTER AND CHAPTER 6 OF THIS TITLE, AN ONLINE LODGING MARKETPLACE MAY REGISTER WITH THE DEPARTMENT FOR THE PAYMENT OF TAXES LEVIED BY THIS STATE AND BY ANY COUNTY, CITY, TOWN AND SPECIAL TAXING DISTRICT WITH RESPECT TO ANY ONLINE LODGING TRANSACTION FACILITATED BY THE ONLINE LODGING MARKETPLACE.

And, why woudn’t cities, towns, and counties jump at the chance to tax short-term rental activities?

After all, as long as local governments can delegate regulation of neighborhood nuisances to private homeowners by way of deed restrictions and HOAs, there’s little reason for elected officials to work harder to represent the interests of their constituents.

Unfortunately, amending and enforcing CC&Rs is no easy task, with or without an HOA. Royal Crest Villa was fortunate that it’s a small neighborhood of only 30 homes, and most owners were of like mind.

In many cases, CC&Rs and HOAs govern very large communities  of owners with diverse interests. Part-time residency is also common in Arizona neighborhoods. Plus, Declarants (developers) or few investors owning multiple homes or condos control many HOA boards.

As for owners of property without deed restrictions, they are just plain out of luck. Perhaps it’s part of a strategy to promote the “benefits” of restricted living under HOA rule?

Let the reader be the judge.

 

 

More state regulations on the way

Now that homeowners are complaining to their elected officials, some state Legislators want to enact even more laws to attempt to “balance” the needs of homeowners, long-term renters, and well-funded real estate investors.

But chances are, unless a multitude of ordinary homeowners make a huge stink about limiting short-term rentals, real estate trade groups will kill or neutralize any bills written to rein in the abuse and neighborhood nuisances.

Remember, the state’s first attempt at “regulation” of short-term rentals only made matters worse for homeowners and long-term renters, not better.

Perhaps the best approach is to end state regulation of local governments, by scrapping the SB 1350 2016 amendments, and rewriting the law to benefit long-term residents and homeowners in Arizona.