Part 2 of a two-part series. Read Part 1 here.
As summer tourist season fast approaches, millions of travelers are booking accommodations on platforms such as Airbnb and Vrbo (Vacation Rentals by Owner). And more property owners and investors in Arkansas are cashing in on the opportunity to rent out rooms, apartments and whole houses on a short-term basis.
The massive growth of the short-term rental industry is also creating headaches for local residents and public officials. From Little Rock to small tourist towns in the Ozarks, more cities across Arkansas are taking steps to regulate short-term rental operators.
In October, Eureka Springs, which sees over 750,000 visitors annually, banned short-term rentals in residential areas. City officials say they were motivated by nuisance complaints and concerns that the town’s limited supply of housing was being snapped up by investors.
Last spring, Fayetteville began requiring operators to obtain a permit and established “density caps” on how many short-term rentals can operate in any single multifamily building and in the city as a whole. Hot Springs, which threatens unlicensed operators with fines of up to $500 per day, has created a new “compliance officer” position specifically to identify violators. And in Little Rock, a draft ordinance regulating short-term rentals will be presented at two public meetings this month.
The first short-term rental digital startup was launched in 1995 by Vrbo, in Aurora, Colorado. The website advertised privately owned ski chalets, beach houses and rural cabins. The industry’s growth accelerated after the founding of Airbnb in San Francisco in 2008, initially a website for hosts to advertise bedrooms for rent in private homes. Listings for private apartment and whole-house rentals soon followed.
As of late last year, Airbnb, which describes itself as the “world’s leading community-driven hospitality company,” was valued at over $100 billion, with an 80% share of the short-term rental market.
The Arkansas Short Term Rental Alliance (ASTRA), an advocacy group, claims short-term rentals generate local jobs, increase property values, and improve communities. ASTRA lobbies city officials with the mission of promoting fair and reasonable regulation of short-term rentals in Arkansas.
(Credit: Jacqueline Froelich)
“Many members of our group vehemently oppose any regulatory framework,” said ASTRA president Logan Humphrey who operates a short-term rental property management firm in Fayetteville. “But others welcome regulations to keep neighborhoods safe and to protect the professionalism of the industry.”
Humphrey said private hosting allows individuals and families to earn a living. Some hosts rent out vacation homes, which otherwise would go unoccupied for many months out of the year. Humphrey said more investors are buying up vacant residential and commercial property to develop as lucrative short-term rental real estate.
Cities often welcome the tax revenue short-term rentals generate, but have had to reckon with growing nuisance complaints from neighbors. And critics say that, without regulatory oversight, short-term rental hosts may dodge taxes, worsen local housing shortages, and avoid inspections applied to traditional accommodations, such as hotels.
“The number of short-term rental operators in the state seems to increase minute to minute,” said Scott Hardin, a spokesperson for the Arkansas Department of Finance and Administration spokesperson. All lodging providers, even those operating without a local permit, are required by state law to register with the state revenue agency, and remit applicable state and local taxes, he said.
Northwest Arkansas
In fast-growing Fayetteville, an estimated 600 short-term rentals cater to visitors attending University of Arkansas football games, cycling competitions, festivals and other events.
The Fayetteville City Council voted unanimously last April to pass an ordinance requiring short-term rental owners to apply for a conditional use permit, obtain a business license to remit necessary taxes and submit to building safety inspections. Since then, the city has twice extended a grace period for owners to secure a permit. Property owners now must voluntarily obtain a permit by May 21 to avoid having to appear before a planning commission in a public hearing.
Once granted, owners have another year to come into compliance with building inspections and codes.
According to Jonathan Curth, Fayetteville’s development services director, the city has received 446 applications. Of those, just 84 are classified as Type 1 rentals, meaning owner-occupied. The rest are Type 2, or stand-alone vacation rentals. Under the new ordinance, both types of rentals require a conditional use permit. To conserve housing in Fayetteville, the ordinance says no more than 2% of the city’s residential units may be Type 2 rentals.
The ordinance also limits the number of occupants per bedroom. Parties, including weddings and receptions are barred. Over 250 licenses have been issued as of March, Curth said.
Unlike some cities, Fayetteville does not actively search for short-term rental owners operating without a permit.
“But unlicensed rentals may be subject to legal action or fines if a complaint is made about the location, and validated,” Curth said. “For neighbors, licensing formalizes and identifies short-term rental owners and properties along with an avenue to pursue problems like noise and parking violations. For visitors, the ordinance offers safety through our building inspections for elements that range from handrails and smoke detectors to furnace inspections and fire extinguishers.”
Taylor and Erika Rayburn operate Stay NWA. The couple owns three luxury vacation homestays and manages around forty vacation rental properties. They also develop and sell short-term rental real estate.
“We are pro-ordinance from a safety perspective, legitimizing and professionalizing the vacation rental industry here,” Taylor Rayburn said. “The part that we don’t agree with are density caps —for example, limiting short-term rentals in duplexes.”
“We have done this for a long time,” he said. “We upkeep properties, maintain good guest experiences, and have good clients come stay. And honestly, long-term renters will trash your place more than someone staying for only two days.”
Rayburn said vacation homestays tend to be self-regulating, meaning those that offer derelict accommodations will yield lousy online reviews.
“People that do this, for the most part, really care about providing a good guest experience,” he said. Hosts who don’t care, he said, are eventually weeded out.
The Rogers City Council voted last summer to collect lodging taxes on short-term rentals and began doing so in January. Bentonville, Springdale and Fort Smith do not yet have regulations in place for short-term rentals.
Hot Springs
As the global pandemic eases, Hot Springs is buzzing with out-of-town visitors, said deputy city manager Lance Spicer.
“There is no way Hot Springs has enough hotel rooms for all these folks, so I figure that short-term rentals are getting good use,” Spicer said.
Hot Springs is benefiting from increased sales tax revenue and investments made in older homes that have been renovated into short-term rentals, Spicer said. But he too is receiving complaints about traffic, trash, noise and public safety in neighborhoods hosting large numbers of tourists.
Last March, the city gathered input from residents and short-term rental operators in a series of public meetings. In May, the Hot Springs Board of Directors adopted an ordinance requiring all short-term rental operators within city limits, which number nearly 650, to obtain a license.
Occupancy data and contact information must be physically posted on all short-term rental building exteriors. The city will issue no more than 500 licenses in residential zones, Spicer said, but commercial zones are not subject to a cap. By October, the city had issued 573 licenses, which require annual renewal.
Unlike Fayetteville, Hot Springs has taken a proactive approach to identifying unlicensed operators. The city has hired a compliance officer and contracts with Host Compliance, a leading national short-term rental monitoring and enforcement firm. And the ordinance mandates stiff penalties: $1,000 for a first offense, not to exceed $4,000. Persistent offenders face daily fines of $500.
“My application for inspection got lost in the shuffle,” said Anna Rodgers, who operates four short-term rentals under an LLC. “I had to email the city employee in charge five times, call and then finally had to physically visit the office.” After fulfilling certain renovation requirements, she passed inspection for licensure this year.
Rodgers said she understands that regulations are intended to maintain safety and protect neighborhoods. “But my concerns are that they are too much, too quickly, which is deterring the influx of investors in our area and slowing progress,” she said.
Rodgers also asks why short-term rentals are regulated by the city while long-term rentals — that is, residences leased or rented to tenants by a landlord — are not.
Short-term rentals remain “a hot, multilayered topic,” for cities like Hot Springs, Spicer said. “We’ve heard at our public meetings from citizens that are against short-term rentals in their neighborhood, but use them as their travel accommodation of choice,” he said.
Little Rock and other cities
Spencer Watson, a spokesman for the city of Little Rock, said planners last summer issued a short-term rental working draft, now posted online for comment. The draft ordinance declares that “the use of homes for short-term rentals across the city is occurring without clear allowances, requiring a regulatory framework.” The ordinance aims to preserve neighborhoods while allowing private homeowners to generate income.
The draft ordinance would categorize short-term rentals by on-site and off-site owner occupancy. A responsible party will be required to be in proximity at all times. An estimated 300 short-term rentals operating within the city will be required to obtain licenses, pay taxes, and pass inspections.
Smaller cities have also seen growth in short-term rentals. Conway counts as many as 70 operations. Russellville is seeing an increase as well, in part to accommodate workers on contract at the nearby Nuclear One power plant.
Even remote Newton County is seeing a surge in short-term rentals and vacation property sales. “I’ve seen small tracts of property sell for a ridiculous price,” County Clerk Donnie Davis said.
Jasper (pop. 482), the county seat, counts 20 short term rentals, said Mayor Jan Larson. The Buffalo National River tourist town has passed an ordinance requiring operators to obtain a permit and has placed a temporary moratorium on overnight rentals in residential areas, she said.
“It’s increased property values and is attracting investors who are buying up our local residences, which means our population will decline if this continues unchecked,” Larson said.
More cities are likely to pass local regulations as short-term rentals continue to proliferate. In late March, as part of its winter conference, the Arkansas Municipal League held a land-use workshop focused on short-term rental controls at the request of members.
Spicer, the Hot Springs official, was one of the panelists at the workshop. The session left him feeling there’s no “one size fits all approach” for cities to approach the issue, he said later in an email. “Regulations that work for Hot Springs might not be needed or wanted in Eureka Springs because each city has its own set of challenges.”
Still, Spicer said, all Arkansas cities have tools at their disposal to regulate short-term rentals if they so choose. “The two main tools for cities to use are their land use regulations (zoning) and taxation (business license and occupation tax, and sales tax) authorities which are granted to cities/counties by Arkansas Code,” he said.
Spicer is urging other city officials to take control of their short-term rentals sooner rather than later. He quoted a popular proverb: “The best time to plant a tree was 20 years ago. The second best time is now.”
This story is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans.