While not a recent phenomenon, short-term rentals of single-family homes have increased throughout Arizona over the past several years.
Defined as “lodging rentals for less than 30 days” by the Arizona Department of Revenue, they are becoming, to some, a preferred way to travel and stay in an area for a couple of nights or more.
Why are short-term rentals so popular?
The popularity of vacation rentals is really not surprising. Staying in a home provides a place to cook your own meals. Having a place where you can cook what you want when you want is not only a treat, but it can also save you from having to go out to restaurants, and that can amount to significant dollar savings. Grocery shopping and cooking your food can be easier on the stomach and the wallet.
Depending on the location, the cost of renting in the short term is typically comparable to a night in a good hotel in that area.
The added advantage is the privacy factor. You won’t have to worry about other occupants coming in at late hours and disturbing your rest. For us, this is a big deal!
When done well, you may find some suggestions for local points of interest you can visit during your stay. Catching the local flavor is one reason we travel in Arizona or anywhere, really.
Among the reasons this form of travel has become so prevalent are the owners. Investing in a property and having a methodology to have it pay for itself allows folks to have that property appreciate in value over time. A reasonable goal for any investment.
Community Impacts
As homeowners in Arizona, we need to be aware of how vacation rentals impact our communities and neighborhoods. There are some things to know about this trend. Our lawmakers and regulators are wrestling with the delicate balance between private property rights and maintaining balanced neighborhoods and communities. One argument in some neighborhoods is the influx of transient residents has displaced more stable, long-term residents.
Let’s take a look at some of the efforts our lawmakers are making.
What the rules are, and how are they changing?
Let’s start with how the Arizona Legislature has treated this topic over the past few years.
In 2017, the Arizona State Legislature prohibited cities, towns, and counties from instituting any restrictions on short-term rentals. We get the property rights angle associated with this position. However, some problems caused municipalities, with help from the League of Arizona Cities and Towns, to push for some level of local control.
There were several concerns of local control left to be addressed. The most pressing of these is the “party house” phenomenon. This is where someone rents a home and invites a lot of people to the party. As you might imagine, having this occur in an otherwise quiet neighborhood is cause for great concern. Local jurisdictions had their hands tied beyond “disturbing the peace” complaints. Another issue was addressing absentee owners. Because of the unavailability of owners who could address complaints, the lack of control had no real consequences.
The Arizona League of Cities and Towns represents the 91 cities and towns in our state and pushed to address the issue of how the short-term rentals were impacting revenue streams from what is commonly referred to as a “bed tax.” Businesses such as hotels and motels pay that tax locally and short-term rentals do not.
In 2019, the legislature passed a bill that required short-term rentals to obtain a TPT license. That is a Transaction Privilege Tax, more commonly known as a sales tax. This requires short-term rental owners to pay sales tax and to display their license number in all advertising. This legislation also banned short-term rentals from hosting special events, like large parties. It also allowed municipalities to require owners to provide contact information for someone who could quickly respond to complaints.
Local governing bodies wanted more control, and their constituents were complaining about being able to maintain the integrity of some neighborhoods. In a law that went into effect in September of 2022, the legislature allowed cities and towns to:
- Require permits or licenses. This allowed them to track the homes in neighborhoods that were used as short-term rentals.
- Require owners of short-term rentals to notify neighbors of what they are doing. There is no restriction placed on the owner’s ability to have short-term rentals under existing rules, but at least neighbors know what is going on.
- Mandate that owners carry liability insurance.
- Allows fines to be levied on owners or management companies should guests violate local ordinances. This can be up to $3,500.
These laws, giving local communities the right to some control over short-term rentals, have helped and fixed some of the problems facing communities.
What could be next?
Realizing there are issues to address, we asked Senator Ken Bennett (LD1) what might lie on the horizon regarding short-term rentals. He tells us that while nothing has been solidified, there is some talk about how local jurisdictions might want further control over short-term rentals in their communities. Senator Bennett says that a movement is afoot to allow communities to limit the percentage of homes in any jurisdiction that can be classified as short-term rentals.
Existing zoning rules in communities have been and continue to be a valuable tool in regulating both the positive and negative effects short-term rentals bring. The State of Arizona can control what local governments can and cannot do. It will be interesting to watch what transpires.
Thinking about purchasing a home?
If you are about to purchase a home to live in, what protections might you need to know if a short-term rental is in the area?
Disclosure statements offer no protection in this regard. Therefore, “Caveat Emptor” is to be embraced here. A seller is not required to disclose to a prospective buyer if such an entity is nearby. As a potential buyer, you will have to investigate on your own. Because of the law changes noted above, you will need to contact your local jurisdiction to see what might be near your new home.
Another protection to consider is buying a home in a neighborhood with a Homeowners Association (HOA). If you buy in an area governed by an HOA, that organization may be a great resource.
While being both a wonderful way to travel and a potential thorn in the neighborhood’s side, this needle is hard to thread. Do your homework.
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PODCAST
Short term rentals have become popular but can be a nuance to neighborhood if not managed properly. Even with new regulations in each city, we asked listeners for their horror stories. Turned out we got callers with positive things to say about their properties and some downsides of course. Yet you might surprised by the reasons behind those positive experiences.
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