Home sharing through online rental platforms like AirBnB and VRBO is a thriving business in Arizona. AirBnB hosts in this state alone collected $51 million in revenue in 2016. That number climbed to $94.9 million in 2017. It pencils out to about $6,100 for the average Arizona host on the platform. In fact, as of February 2019, Scottsdale ranked the #1 most profitable AirBnB destination in the country.
However, as the short-term rental industry flourishes here, a rift has formed.
On one side of the divide stands a collection of towns, cities, homeowner associations, agitated neighbors and the hotel industry. They have lined up behind efforts to regulate the use of home sharing platforms.
In the opposite corner are homeowners eager to monetize their unused homes, investors looking to buy rentals, tourists seeking affordable accommodation and a Governor who is keen on growing the sharing economy.
The early framework of laws here in Arizona is developing to favor the burgeoning home sharing industry. City and town ordinances prohibiting short-term rentals have now been subordinated to a 2017 state law. Agitated neighbors of a home sharing rental who want to look to their local municipality to carve out new laws now have a tougher row to hoe.
This article and podcast episode explore both sides.
What is home sharing?
Home sharing means renting all or a portion of your private residence to an individual(s) in exchange for money. In most instances, the rental period is for less than 30 days and the property is furnished. These properties are not licensed and regulated like the hotel, motel and bed-and-breakfast industries.
The practice of home sharing for profit has existed for centuries. Only recently have platforms like AirBnB, VRBO and HomeAway facilitated quick and secure introductions between landlord and tenant through websites and smartphone apps. A home sharing arrangement may also be referred to as a short-term rental or a peer-to-peer rental.
Phoenix attorney weighs in
My guest for this episode of The Arizona Report is Phoenix real estate attorney Patrick MacQueen. Mr. MacQueen has extensive exposure to the legal issues on both sides of the home sharing industry. He is a founding partner of MacQueen & Gottlieb, PLC in downtown Phoenix and a 14-year veteran of real estate issues here in the Valley.
Patrick MacQueen is one of the most visible Phoenix attorneys in the space encompassing home sharing.
I invited Mr. MacQueen to The Arizona Report to catalog the issues that he is dealing with now. He estimates that 20-25% of his caseload is related to home sharing. Watch my video episode below to learn more about the climate for short-term rentals in Arizona:
Topics discussed in this episode
- The problem with defining short-term rentals
- What is the purpose of covenants, conditions, and restrictions (CC&Rs)?
- Are homeowner associations (HOAs) still an enforcement mechanism?
- The general state of laws in Arizona that govern short-term rentals
- Short-term rentals putting pressure on affordability in a Phoenix real estate market already tight for inventory
- What are the next action steps for an agitated neighbor who can’t get relief from the landlord of a nearby short-term rental?
Cities moved first to restrict
Several years ago, pressed by residents who claimed a loss of quiet enjoyment in their communities, the cities of Scottsdale and Sedona implemented ordinances that prohibited short-term rentals for periods of less than 30 days. Both are popular tourism hubs. The move discouraged high-turnover short stays in residential areas while leaving longer-term lease arrangements intact.
Sedona’s ordinance was in place as early as 1995.
When a state law later disallowed this type of local ordinance in 2017, the city then implemented a $50 business license fee for short-term rental operators. However, Sedona’s license fee was later withdrawn after a challenge from the Arizona Attorney General’s office.
Opponents of home sharing asserted that short-term landlords are not subject to the same oversight and regulatory standards as hotels and innkeepers.
Fundamental rights of property owners
As the popularity of online rental marketplaces like AirBnB grew, homeowners discovered that they were up against city and town ordinances. Even homeowners outside the scope of HOAs could do little. Libertarian public policy think tanks, like The Goldwater Institute in Phoenix, interceded on behalf of Arizona property owners.
The think tank proffered that critical constitutional rights of responsible property owners should not be usurped by municipalities. After all, cities and towns have now and always had tools to address unwelcome rental arrangements. The mechanisms at their disposal are zoning and nuisance laws.
The Goldwater Institute authored model legislation which would be used by Arizona legislators in 2016 to draft protections for property owners seeking to rent their homes on the new online platforms.
Arizona signals it’s open for business
In 2015, the state of Arizona began to aggressively court business like AirBnB. Governor Doug Ducey’s administration began fostering a business climate favorable to the sharing economy firms. For example, ride-hailing companies like Uber and Lyft have benefited from a light-touch regulatory environment here. (Uber’s self-driving car program relocated to Arizona in 2016 after a falling-out with regulators in California).
Political climate aside, Arizona is fertile ground for the sharing economy for another reason. We are a significant tourist destination. Arizona receives $21 billion annually in tourism spending from 44 million visitors. In fact, it’s the eighth-ranked state for the volume of visitors. That’s a lot of vacationers who need short-term accommodation and an Uber ride to attractions around the Valley.
Proponents of home sharing see Arizona’s supportive framework as a model for other states that want to embrace the sharing economy. “Many states across the country are now considering similar reforms,” said Goldwater Institute executive vice-president Christina Sandefur in a video. “[These are] states like Indiana, Michigan, Florida, and Nebraska, among others.”
New state law fosters home sharing
Governor Ducey was behind SB1350 in 2016 that granted a wide berth to home sharing platforms. He signed the bill into law and it was enacted on January 1, 2017. It states that no city, town or county in the state can restrict short-term rentals. There remain exceptions in the law for instances of threats to public health and safety. It is notable that this law does not preempt homeowner associations (HOAs) from establishing covenants to prohibit short term rentals.
Ducey stated in a press release, “This groundbreaking agreement is a signal to entrepreneurs across the U.S. that Arizona is a state that empowers innovative companies like Airbnb to set up shop and expand their operations.”
As a result, municipal restrictions banning short-term rentals like AirBnBs and VRBOs outright are no longer enforceable in Arizona. The law is the first of its kind in the nation.
SB1350 also cleared the way for online home-sharing platforms to collect and remit sales taxes to the Arizona Department of Revenue. In 2017, the first year of the new law, the state received $11.5 million in tax revenue from AirBnB alone. The process simplified the collection of state tax revenue for hosts and saved the AZDOR from hiring additional staff.
Here is the full text of the enacted SB1350.
Stop the press!
Just as this post was being written, Arizona Governor Doug Ducey signed into law updated restrictions on short-term rentals that were being used as “party houses.” The new law, HB 2672, was passed on May 21, 2019. The new restrictions were designed to mitigate nuisance and noise issues. For example, municipalities may now regulate if a home rental arrangement involves an event requiring a license, like a banquet or a wedding.
Additionally, contact information for a landlord or landlord’s representative must be on file with the city or town. Landlords must now respond to complaints within a timely manner or be subject to further actions under the new law.
Options for agitated neighbors
The original 2017 Arizona law doesn’t remove all options for homeowners affected by an unruly short-term rental. After exhausting attempts at an amicable resolution with the short-term rental operator, there are still ways for neighbors to seek relief.
“Unfortunately, the next step is to call the police,” said Patrick MacQueen. “It’s [also] considering filing a nuisance-based lawsuit.” There’s a third option that MacQueen describes in the interview that involves filing a request for an injunction for severe cases.
Notably, homeowner associations (HOAs) are immune to the effects of SB1350 and remain an enforcement mechanism. Many HOAs have been updating their deed restrictions and covenants, conditions and restrictions (CC&Rs) to address short-term rentals. Approximately 70% of the homes in the Phoenix metro fall under the administrative umbrella of an association. In fact, there are over 9,000 HOAs in Arizona.
How to contact Patrick MacQueen
If you are looking for legal counsel to help navigate a short-term rental issue in Arizona, contact Patrick McQueen. He may be reached at 602-533-2838 or firstname.lastname@example.org. The website for the law firm is www.mandglawgroup.com.
This episode was recorded in our Scottsdale studio on Thursday, April 25, 2019.
We didn’t invent anything new. Hospitality has been around forever. – Joe Gebbia, co-founder and chief product officer of AirBnB