There has been much publicity recently regarding Governor Ducey announcing that the legislature will review a law regarding short term rentals. A state law was passed in 2016 provided that local governments (think counties, cities and towns) were unable to prohibit short term rentals. Due to significant push back from cities (specifically Sedona), this law will likely be amended in 2020 and may impact those investors in the short-term rental game.
In 2016, the law was passed that stopped local governments from restricting short term rentals. The thought was that people own their homes and they should have the right to rent out such homes if they want. It is important to note that the law did not take away any rights of a homeowner’s association. Thus, while cities couldn’t ban short term rentals, it became very popular for HOAs to do so. As a result, many investors started buying properties that were not in HOAs with the intent of renting them out as vacation rentals via AIRBNB, VRBO and other similar websites. Needless to say, it became a big business quickly. Think about how many people visit Scottsdale in the winter – if an investor owns a single family home near downtown Scottsdale, they can charge high rents for such a property on a short term basis.
Cities and towns have since pushed back on the law saying that it changes the nature of their cities. For example, the city manager in Sedona claims that 20% of the entire housing inventory is now operating as short term rentals. They allege that this turns neighborhoods into party places and improperly increases the real estate prices pushing out locals. There are also claims that apartment communities are operating like hotels, by engaging in short term rentals.
It is expected that when the legislative session starts in January, there will be numerous bills proposed, which will seek to change to strike the previous law. We have not seen the language in any such bill and therefore do not know the scope of what will be changed. However, if you are an investor that has bought homes for the sole purpose of engaging in short term rentals, you need to watch this legislation carefully. A once profitable business can be significantly damaged by a simple change in the law.
By Mark B. Zinman, Zona Law Group