Arizona Considers New Airbnb Regulations

In recent years, Arizona has been a national leader in reforming and streamlining its regulations. Gov. Doug Ducey and others have made clear that the state’s economy is more vibrant when people have wide latitude to start and operate small and home-based businesses. A widely-touted example was when the state enacted one of the more sensible laws regulating short-term rentals just a few years ago.

But these efforts have not come without the potential for setbacks, and a bill working its way through the state’s Legislature would add a suite of costly new rules that threaten to bring Arizona’s budding home-based industry to its knees.

These rules would cap the number of guests allowed in short-term rentals based on the number of “sleeping rooms” on a property to two per room, plus an additional two people. A rental with two bedrooms, a loft with a rollaway bed, and a sofa bed in a living room may be able to comfortably sleep seven or eight guests, but under these rules, it would be able to host only six people. Worse still, the rule limits the total occupancy on the property to this number. Properties rented to the maximum number of overnight guests could not have anyone else over, even temporarily.

The bill also bans all nonresidential activity on short-term rental properties, preventing their use for events, banquets and any retail activity. And perhaps most disturbingly, the bill would allow towns to require that property owners install equipment to monitor property occupancy and noise at all times.

If officials find evidence that guests breached occupancy regulations, nonresidential activity limits, noise rules, or other regulations, they can impose fines on the property owner. This would be the case even if local zoning rules in an area allow nonresidential activity in homes. Renting through an online platform would incur a layer of state-level rules that pre-empt local allowances for mixed uses of residential space. This is actually the reverse of the recent trends in regulatory pre-emption, where states have intervened to ensure that localities do not pass rules that create a complex patchwork of different land-use regulations.

Together, these rules would turn the Arizona short-term rental industry into a monoculture of sleeping spaces. They would reward hotel-like properties that offer many small bedrooms but limit square footage dedicated to living space. Meanwhile, they would punish Arizona property-owners that rely on renting multi-use spaces for income.

The rules would also harm people who seek to rent these properties. Short-term rentals have filled a gap in the market, allowing families on a budget that do not own large homes to gather for events at relatively cheap prices. Yet under the proposal, these families would not be able to use properties rented through online platforms for weddings, reunions, or funeral receptions. This would mean less competition in the market for event space, especially for smaller towns in Arizona where formal spaces are already rare.

On top of the property regulations, the possibility that localities would require property owners to purchase and install monitoring equipment, combined with punishment for over-occupation of the properties, has its own complications. Monitoring equipment adds costs—both financial and privacy-related—that could easily deter homeowners from renting out their property and vacationers from renting homes. Additionally, requiring property owners to surveil lot occupancy would force short-term rental ownership to be a profession rather than a way to get more value out of one’s property, thereby adding an additional deterrent to those hoping to offer short-term rentals to make some extra cash.

What’s more, the monitoring requirements empower busybody neighbors who could report even brief guest visits or meetings to police. Society is made worse when people try to use law to adjudicate disputes rather than working with their neighbors to solve mutual problems.

The bill does seek to resolve some legitimate issues, such as the misuse of residential property to throw loud, late-night parties. But this misuse isn’t limited to vacation rentals, and the combination of town noise ordinances and land-use regulations that are already on the books can be used to punish those obnoxious people. Asking hosts to install equipment and watch the property for violations is simply an overreaction to one minor flavor of neighbor disputes.

Together, the rules would add a web of costs to renting one’s home in Arizona. Stringent occupancy rules will invite costly municipal fines and would tilt Arizona’s neighbor disputes against vacation rental owners. Ultimately, the state’s public officials could find the costs that these rules will impose on Arizona homeowners, entrepreneurs, and visitors perfectly reasonable, but it’s far from clear whether voters will agree.

Nick Zaiac is a Catalyst Policy Fellow and a Fellow in Commercial Freedom at the R Street Institute where his portfolio includes housing, postal and transportation issues. He holds a master's degree in economics from George Mason University. He lives in Washington, DC with his wife, Ali.
Catalyst articles by Nick Zaiac