This is Part 1 of a two-part series. Read Part 2 here.
Eureka Springs, population 2,166, attracts over 750,000 tourists annually. Visitors can choose to stay in one of the town’s 182 hotels, motels, bed and breakfasts, boarding houses, rustic cabins and cottages, hostels and other accommodations licensed and regulated by the city.
But some options are no longer available. During peak autumn tourist season last year, Eureka Springs passed an ordinance to ban new “tourist lodging” in residential zones. The ordinance is an effort to slow the spread of short-term rentals of furnished rooms, apartments or whole houses, which are commonly advertised on digital platforms like Airbnb and Vrbo (Vacation Rentals by Owner).
The number of short-term rentals operating in Eureka Springs has grown dramatically in recent years as both individual property owners and outside investors, many operating as limited liability companies, or LLCs, realized their earnings potential.
“We have more single family homes that are being purchased by out-of-town folks as second vacation homes,” said Kylee Hevrdejs, Eureka Springs’ historic preservation officer and planner. Housing has become so scarce that many workers in Eureka Springs must live elsewhere in Northwest Arkansas and commute to town, she said.
“We had strangers roaming our streets at all hours, disturbing working folk,” said Melinda Large, one of a group of Eureka Springs residents who had asked city officials to enact the ordinance. Large said short-term rental guests in her neighborhood, the Pines Subdivision, made a racket and left behind trash.
The town already has plenty of tourist accommodations, Large said. “We have to have a place to live.”
Other Arkansas cities are also taking action to regulate short-term rentals. Last year, Fayetteville and Hot Springs enacted ordinances requiring operators to obtain permits. The city of Little Rock is actively developing short-term rental land use controls. A draft ordinance will be presented at two public meetings this month.
Mayors and city administrators welcome the tax revenue short-term rentals generate, but have had to field growing nuisance complaints from neighbors. Critics say that without regulatory oversight, short-term rental hosts may dodge taxes, deplete residential housing supply, and avoid code 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. All lodging providers, even those operating without local permits, are required to register with the state revenue agency and remit applicable state and local taxes, he said.
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.
“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.”
From Vermont to California, Airbnb and similar companies have had an outsize impact on small tourist communities, where demand for lodging is high and housing can be scarce. So a growing number of towns, like Eureka Springs, are cracking down.
Eureka Springs has long sought to conserve a limited supply of residential housing. Converting a home to a bed and breakfast, for example, requires a conditional use permit from the city. Property owners who advertise an apartment or whole house as a short-term rental typically must obtain a conditional use permit designating the property “tourist lodging.”
Under the new ordinance, the city no longer issues tourist lodging permits in residential areas. The law exempts about two dozen residential properties whose owners had already obtained a permit and a business license before the ordinance passed. Tourist lodging permits may still be issued for property in nonresidential zones.
City officials said no one came forward to oppose the ban, which was unanimously approved by the city council last October.
“I think Eurekans are really, really happy about the new ordinance,” said Melissa Green, a member of the city council, the city planning commission and the advertising and promotion commission. She’s also a long-time owner of several licensed tourist lodgings.
“Our codes allow you to apply for a conditional-use permit to rent part of your home, as a licensed bed and breakfast, where you must live on site,” she said, “or as a licensed, stand-alone guest house, cottage or cabin.” Greene said she voted for the ordinance to preserve residential neighborhoods.
Some property owners have openly advertised short-term rentals on websites such as Airbnb without getting a permit. Hevrdejs, the historic preservation officer, said she and city staff had identified hundreds of short-term rentals operating without permits over the last several years — a huge amount for a small town.
Hevrdejs said the city is on the lookout for violators. She and her staff routinely scour online reservation sites and property sale records and respond to citizen complaints, which are kept anonymous under the new ordinance.
“Offenders are subject to a $250 fine for each offense in every 24-hour period of operation,” Hevrdejs said. “We haven’t had to take action against any property owners at this time.”
A few short-term rental owners, she said, came into voluntary compliance this winter. The city does not require a special permit for rentals over 30 days, and some property owners have started leasing their properties to tenants under a traditional long-term rental arrangement.
Among the impacted property owners are Austin residents Amy Hayes and Michael Box, who purchased and renovated a house in a historic neighborhood last year, before the ordinance was enacted.
“We planned to live upstairs and operate the downstairs apartment as a nightly Airbnb,” Hayes said. Instead, the couple is now renting the upstairs to a long-term tenant. The downstairs is listed on Airbnb — but as a monthly rental, to comply with the city’s 30-day minimum threshold.
“Obviously, we are not making as much money,” Hayes said. “I do think the new rule is pretty rigid. But I see both sides. If Eureka’s Historic District Commission didn’t exist? The character of Eureka would be significantly different – and likely not for the better.”
The prospect of earning short-term rental income has fueled Eureka Springs’ real estate market.
“There are so few homes for sale,” said Diane Murphy, owner of Century 21 Woodland Real Estate. “When anything remotely reasonably priced comes on the market, it sells quickly and competitively.”
Many would-be buyers are looking to invest in short-term rental properties, and Murphy educates them on the city’s rules governing tourist lodging and permits. She said the ordinance won’t help with the housing shortage.
“We need to protect our neighborhoods but the new ordinance won’t increase housing supply,” she said. “In the end, the solution is to create more housing.”
But Sandy Martin, the chair of the mayor’s task force on economic development, said the proliferation of short-term rentals are contributing in part to the city’s affordable housing crisis.
“It makes it difficult to recruit tourist-industry workers because there is no place to live,” she said. “Plus, with gas prices rising, that makes long distance commuting costly.”
Martin said the task force is investigating options to purchase land to build low-income workforce housing, possibly through a nonprofit community land trust or a community development corporation. Eureka counts around 1,300 housing units, 40% of which are classified as long-term rentals.
Suzie Bell, co-founder of the nonprofit Eureka Christian Health Outreach, said housing is a serious problem in Eureka Springs. The charity recently built a low-income residential development, now fully occupied, and is seeking funding to build more.
“A lot of people tell me we don’t have any homeless people here, and I say, well — you are not looking,” Bell said. This winter Bell was able to provide emergency housing to homeless resident Kim York.
“I’d been living out in the woods in a tent for 8 months with my cat,” York said. “I just can’t find an affordable place to live in Eureka.”
This story is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans.