SB1350: Examination of the vacation rental

Posted 3/2/20

March is expected to be a big month for both short-term rental hosts, and those who put up with problematic party houses in their neighborhood, as thousands of tourists are expected to descend upon …

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SB1350: Examination of the vacation rental

Posted

March is expected to be a big month for both short-term rental hosts, and those who put up with problematic party houses in their neighborhood, as thousands of tourists are expected to descend upon Maricopa County for pristine springtime offerings.

As the issue of short-term rentals in Scottsdale and other Valley communities nears a fever pitch --- with state legislators actively seeking regulatory changes to rein-in the rampant party houses --- officials say tourism season is expected to be an economic boom for the hospitality savants and their municipalities.

But the tourism season isn’t great for everyone. Short-term rental properties --- often utilized through vacation websites such as Airbnb and Vrbo --- have become a living nightmare for some Scottsdale neighborhoods.

Single-family homes are, in some cases, being turned into makeshift hotels with different guests every weekend who reportedly show behavior of not knowing, or caring, how their actions affect the neighbors.

However, not all short-term rental hosts are problematic, and there are Scottsdale property owners using the state-allowed business option to make an honest living.

The issue stems from Arizona Senate Bill 1350 --- which some call the “Airbnb bill” --- restricting local cities and towns from regulating or restricting the use of vacation rentals or short-term rentals within municipal boundaries. SB1350 went into effect at the end of 2016.

Officials say the bill was thought to provide homeowners with the option of renting out a spare bedroom as a way to earn extra cash. However, the realities of short-term rentals have been much different for some folks who claim raunchy and foul behavior stemming from properties that are rented out to large groups, bachelor parties and vacationers.

In 2019, realizing SB1350 was being abused, the state passed a new law tightening regulations on the vacation rental properties. The new law, House Bill 2672, includes:

  • Rentals may not be used for special events, or any event that would require a permit or license, such as weddings or banquets;
  • STR owners must provide contact info for complaints;
  • Cities and towns must notify the STR owner and the state within 30 days of the violation; and
  • Limits number of guests.

Despite the newest regulations, residents are still desperately seeking solutions to resolve perceived issues in their neighborhoods.

But, as one property owner and short-term rental host contends, the problem houses and party pads are the exception --- not the rule.

“In any kind of business, people are going to abuse it,” Ghassan Aboukhater says of homeowners who are not responsible with their property.

“My listing here in Scottsdale is seven bedrooms and I put on there no parties, no bachelor parties, no events, no loud music or noise after 10 p.m. --- I will evict you.”

Mr. Aboukhater, whose Vrbo ad even stipulates the minimum age of the primary renter must be 28, also points out the importance of being a good community member and neighbor.

“I make sure that my house adheres, that my neighbors are happy and no one is complaining,” he said.

“That increases the value of my property because I know if someone wants to come in and buy, and they hear ‘Oh there’s a party house on this street,’ they won’t buy.”

A pretty penny

Short-term rental properties appear to be big business, numbers show.

Airbnb reported Maricopa County hosts earned $44.8 million during the five biggest weekends of 2019 --- totaling 112,000 guest arrivals.

Four of the popular weekends took place during the month of March, and the company estimates 2020 will be similar.

Airbnb reports the five biggest weekends of their hospitality company in Maricopa County were:

  • March 22-24: 23,800 total guest arrivals; $9.4 million total host earnings
  • March 15-17: 23,300 total guest arrivals; $9.6 million total host earnings
  • March 8-10: 23,300 total guest arrivals; $9.4 million total host earnings
  • Dec. 27-29: 21,800 total guest arrivals; $7.5 million total host earnings
  • March 1-3: 19,900 total guest arrivals; $8.9 million.

For perspective, Mr. Aboukhater’s 4,200-square-foot home in McCormick Ranch is rented for an average of $1,300 per night.

Just like a traditional hotel, vacation and short-term rentals in Scottsdale are required to pay both transaction privilege sales tax and transient tax --- often referred to as “bed tax.”

The city imposes a 1.65% bed tax, with revenues used to finance the cost of various city services including police, fire, parks, libraries and streets.

Half of the revenue derived from the 5% transient tax imposed on properties used as vacation or short-term rental is used for destination marketing to promote tourism in Scottsdale; and the remaining half is divided among tourism-related event support, research, capital projects and other eligible uses, Scottsdale city officials contend.

In addition, Airbnb officials point out the impact short-term rentals play in local economies when guests spend money at restaurants and events, citing on average Airbnb guests report 41% of their spending occurs in the neighborhood where they stay.

Since the hospitality company began collecting applicable taxes in 2017, Airbnb has remitted $53.3 million in tax revenue in the state of Arizona, a company press release stated.

Boots on the ground

Residents in Scottsdale, Paradise Valley, Sedona and Phoenix report witnessing every type of behavior imaginable at short-term rental properties.

First-hand accounts include extreme drunkenness; guests arriving at the wrong address and attempting to enter the home; reported gun shots; nakedness; and myriad other undesirable attributes.

Scottsdale resident David Mason, who serves on his Homeowners Association Board of Directors, says there is one problematic home in his community. He has talked with the owner of the home several times, and cites one particular response to an issue as odd.

When neighbors reported hearing what they thought were gun shots coming from the home, Mr. Mason called the owner. At the time, the home was being rented out to a group of men who he believed was using the property as a rooming house more than a vacation rental.

“Her response to me was, ‘it couldn’t be my people --- they have excellent credit,’” he explained.

“It’s very disturbing --- the owner was not interested in the fact of, ‘Oh my goodness, it’s a gunshot, let me see what’s going on.’ I thought it was not a very good way to deal with reports of some sort of violence.”

In the end, the group staying at the home said the sounds came from dry ice.

Since then, the home was vacant for about two months and now there is a couple renting the property, Mr. Mason said.

“Everything seems quiet on the street,” he said of the couple staying there.

“The problem with vacation rentals is you don’t know who’s there --- it could be sex offenders. They don’t have to register if they’re there for less than 30 days. You don’t know who’s trying to chat with your child on the street.”

The only option for private neighborhoods to ban short-term rental properties is to amend the existing Covenants, Conditions & Restrictions --- commonly known as CC&Rs. The issue many neighborhoods are experiencing is that in most cases a super majority of agreeing homeowners is needed.

“We are trying to amend our CC&Rs,” Mr. Mason said. “56% of residents need to approve it. It’s very hard to do that --- first to read documents you send out, get them to respond to it, and understand it.”

Mr. Mason says his neighbors are depending on the local government to deal with the problem --- not aware that Scottsdale’s hands are tied in the issue.

“So many people are trusting their government --- SB1350 means the government can’t protect them,” he explained. “That’s the problem, it has to do with apathy of people, misinformation and assuming the government is going to take care of them.”

Legislator pursuits

In late 2019, a joint ad hoc committee was formed at the state level to look at the impacts of short-term rentals prior to the 2020 legislative session beginning. The first meeting, held at the State Capitol, garnered hundreds of attendees both for and against the hospitality option.

Thus far, multiple bills addressing short-term rentals have been submitted for this session, as well as two concurrent resolutions seeking to put short-term rentals on the November ballot.

While officials say an outright appeal seems unrealistic, Rep. John Kavanagh --- who moonlights as a criminal justice professor at Scottsdale Community College --- says changes will most likely occur.

Legislative District 28 representative Aaron Lieberman is also seeking change at the state level, as he sponsored House Bill 2001 --- the first bill filed at the Arizona State House of Representatives this year --- to repeal the ban on local cities and towns from being able to regulate short-term rentals.

In February, Mr. Lieberman also filed House Concurrent Resolution 2037 to refer a vote to appeal short-term rentals directly to the ballot in November to let the people of Arizona decide the hospitality option’s fate.

If the HCR passes both the House and Senate, the bill goes directly to the ballot, and can’t be vetoed by Gov. Ducey, Mr. Lieberman says.

Prior to Mr. Lieberman’s HCR, Senator Kate Brophy-McGee introduced Senate Concurrent Resolution 1042 ultimately seeking the same outcome.

Always under pressure

Despite the vocal complaints about short-term rental properties, Mr. Aboukhater represents himself as one of the good guys.

He also owns two rentals in San Diego, where he says his experience has been horrible due to the climate of the community. It was officially banned about a year ago, he says, when a referendum petition was submitted to the city.

“People don’t want a 100-square-foot, expensive night stay in a hotel; they want a home where families can come with their kids,” he explained.

“The people who abuse it, whether it’s a vacation rental or not --- sometimes I’ve had neighbors who were making noise and doing all kinds of stuff, they were not vacation rentals they were just my neighbors. So I think the laws we have already in Scottsdale where my house is, if my vacation renters are making noise then the neighbors can call the police. My neighbors have a right to do that.”

One aspect that may make Mr. Aboukhater unique is he stays in his Scottsdale property when it’s not being rented out, and he meets his renters upon their arrival. The majority of his renters are golfers and families, he says, noting that his listing weeds out 99.9% of the groups who would create issues for the neighborhood.

“I’m doing this not as a hobby, this is additional income for me --- I’ve been a single dad for 11 years now,” Mr. Aboukhater said.

“They are hurting us --- they’re trying to ban us in California, so I’ll probably sell those and wait and see what happens here. I’m always under pressure worrying that they might ban this or bring in a regulation that might hurt me, might decrease my income. I just don’t understand who wakes up in the morning and says ‘we need to ban vacation rentals.’

“I’ve never had anyone from the opposing side say ‘how we can work together?’ They just say ‘we need to destroy you.’ I’m not like that --- I think the majority of people are not like that.” 

-- Ghassan Aboukhate, Scottsdale homeowner 

Corporate partners

Officials at Vrbo, another online host site for short-term rentals and vacation offerings, say nearly 90 percent of their travelers are families with children who “value staying together so they can spend time with the ones they love.”

In terms of the push-back against short-term rentals occurring in Arizona, Vrbo Head of Public Affairs Philip Minardi says the company takes the concerns from residential neighbors very seriously.

“Vrbo is a global community built on trust and inclusion,” said Mr. Minardi.

“We’re dedicated to providing a safe and secure marketplace for our travelers, owners and property managers, and our communities. We’re here to support them 24/7 whenever they have questions or need a hand.”

Mr. Minardi says Vrbo launched a web-based communications platform called Stay Neighborly in 2017 that allows neighbors and community leaders to share concerns they may have about individual properties. And, partnered with companies like NoiseAware to help address potential issues.

“While we remain committed to working with cities across the state on local concerns, Vrbo believes in allowing time for the laws currently in place to work. Legislation has been in effect for less than a year that provides local officials with the tools needed to enforce existing laws around noise complaints, traffic and similar nuisance-related issues.,” Mr. Minardi said.

On the issue of housing, Mr. Minardi says Vrbo recently worked with research firm Oxford Economics to understand the impact vacation rentals have on American cities.

“The report looked at over 2,500 counties, over the course of four years and exploring over 70 variables. This new research concludes that vacation rentals have had a minimal impact on housing and rent prices, and as such, over-regulation of vacation rentals would have a minimal impact on housing affordability issues,” he said.

The full report can be found at: vrboadvocates.com/Research/.

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