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8 min read

Cities across Arkansas are cracking down on Airbnb bookings.

From Eureka Springs to Hot Springs, cities say the short-term rentals, which were typically found on Airbnb or similar websites, were bringing trash and loud parties to residential neighborhoods while displacing affordable housing for workers who live there. Cities also feared they were missing out on hotel sales tax revenue from property owners who didn’t submit it. 

“We were pursuing a lot of violations and complaints about” short-term rental properties, said Jonathan Curth, development services director for the city of Fayetteville. “But enforcement was very difficult.”

In the last year, several Arkansas cities have passed ordinances that limit the number of properties used for short-term rentals, raising tensions with property owners. Some cities require owners to get business licenses; others mandate that properties pass inspections before  homes or spare rooms can accommodate travelers. 

A Fayetteville ordinance that went into effect May 21 requires inspections and business licenses before property owners can advertise rentals online, and annually renewable licenses for this purpose will be limited to 2% of the city’s housing. If homeowners don’t comply, they may face up to a $250 fine per day the property is listed. 

Hot Springs and Eureka Springs have also passed similar ordinances restricting the number of short-term rental properties in their cities. 

The ordinances have worried some property owners. “It’s unclear how generous the Planning Commission is going to be granting these conditional use permits,” said Garrett Ham, principal broker and majority owner of Weekendor Manager LLC of Bentonville, which offers Airbnb rentals and manages about 20 Airbnbs in Benton and Washington counties.

He said it’s also unclear how long the licensing process will take or whether the regulations might stifle investment in real property in the area.

Michelle Sestili uses Airbnb to rent her home in Hot Springs, a house about a mile from downtown in one of the city’s historic neighborhoods. 

She and her husband, Max, began using the house, built in 1937, as a short-term rental in 2019. “We did long-term rentals, but long-term rentals were a losing game,” she said.

The revenue couldn’t support maintaining the aging home. Short-term rentals have generated more revenue, allowing the couple to keep up with capital improvements. The house stays rented about 85% of the year, she said. 

Hot Springs has also applied inspection and licensing requirements, but the city staff “has been extremely helpful in helping us navigate the changes that the Board of Directors passed in that ordinance,” Sestili said. 

Sestili said turning a house into a short-term rental property also has benefits for a neighborhood. Instead of sitting empty, homes can  be put to use, aiding neighborhoods.

“That’s a huge benefit for our little end of this little street,” Sestili said. “We no longer have the fear of squatters, and we have people investing in our neighborhood. It’s really good. It’s been a positive experience.”

Airbnb Inc. of San Francisco blames hotels and groups tied to hotels for using lobbyists to push for stricter restrictions across the country, according to its 2021 annual report filed with the U.S. Securities & Exchange Commission. Other groups, including homeowners and neighborhood associations, have joined the clampdown. 

“These groups and others cite concerns around affordable housing and over-tourism in major cities among other issues,” Airbnb said in the filing with the commission. 

It noted that a number of cities have enacted legislation to address short-term rentals, and more cities might follow their lead. Airbnb didn’t respond to emailed requests for for comment. 

Officials in three Arkansas cities interviewed for this article gave details on their new rules for short-term rentals. Here are their summaries.

Eureka Springs

In October, Eureka Springs passed an ordinance that bans using property in all residential zones as short-term rentals, which are for rentals of less than 30 days, said Kylee Hevrdejs, director of planning and community development for the city. The ordinance allows owners to book short-term stays in commercial zones. 

But if the owner had a conditional use permit to operate a short-term rental before the ordinance was passed, that permit will remain in place and can be sold with the property, she said. 

The ordinance came in response to a lack of affordable housing in the city;  out-of-state investors were snatching up houses to use as short-term rentals, officials said.

Service workers and city employees were “increasingly having a difficult time finding housing” in Eureka Springs, Hevrdejs said. 

“So the need to protect housing was No. 1,” said Hevrdejs, who lives in Rogers and drives 45-50 minutes each way to work because she couldn’t find an affordable place in the tourist town of about 2,000 residents. Eureka Springs hosts more than 750,000 visitors a year.  

Hevrdejs also said it wasn’t clear whether Eureka Springs was receiving all its tax revenue from the short-term rentals. Airbnb was sending the city hotel tax money to the City Advertising & Promotion Commission, but other property owners or booking services might not have remitted it. “Unfortunately, there’s just no way to know what that would actually amount to,” she said. 

During public comment hearings for the proposed ordinance, “the overwhelming comment we heard was from residents who live here and were having negative impacts because of homes being used as tourist lodging,” Hevrdejs said. 

Complaints included cars speeding, parking in unauthorized spaces, loud visitors and “shady” people walking through neighborhoods, she said. 

“This ordinance had a lot of support from locals,” she said. 

The penalty for scofflaws is a misdemeanor, and a violation can result in a fine of up to $250 per day. 

Hevrdejs said last week that she didn’t know of anyone who had been fined under the ordinance. 

Fayetteville

At the end of 2018, the city of Fayetteville was beginning to see an increase of short-term rentals. Curth, the development services director, said that those short-term rentals “were just flat-out illegal anywhere that our zoning code did not allow hotel or motel or just those transient uses like that. And so we were pursuing a lot of violations and complaints about them, but enforcement was very difficult.”

Curth also said it was unclear how much tax revenue the city might be  missing out on from those properties. 

The city also cited problems with the availability of affordable housing in Fayetteville.

In discussing the issue, the city decided to divide short-term rentals into two categories. Type one is for the owners who use the property as their primary home but also use it as a short-term rental part of the time. Type two are the properties that are used primarily for short-term rental. 

Last year, Fayetteville passed an ordinance that designates only 2% of city housing as eligible purely for use in short-term rentals. Another restriction allows only one unit in a building, or 10% of the building’s units, whichever is greater, to be full-time short-term rentals. 

The city requires all short-term rental owners to obtain a $35 business license whose cost can be prorated.

The application process also requires the property owner to produce ownership documents and hotel, motel and restaurant tax forms. Another piece of the application process includes making sure the owner has a certain level of insurance coverage. 

Curth said some properties suffered complete losses in house fires, but the owners’ insurance companies denied their claims because the policies did not  cover short-term rental properties.
Another part of the review process involves a building safety director to inspect the property for working smoke detectors, carbon monoxide detectors and similar safety measures.

He said the application can take as little as a week, if the owner has everything in order.  “And then from there, they get their business license,” Curth said. 

As of May 12, Fayetteville had 503 applications for licenses, with 411 for properties that are to be used primarily as short-term rentals. The city had approved 293 applications. 

Most of the property owners supported of the regulations, Curth said. “This allowed them an opportunity to operate in the light without having any fear of some sort of legal repercussions.” 

Violators of the Fayetteville ordinance can also face fines of up to $250 a day.

The restrictions come at a time when the housing market in Fayetteville has become “extremely hot over the last year,” said Ham, the Airbnb manager. 

In April, the median listing home price in Fayetteville was $395,000, up 29.5% from the same time a year ago, according to the website realtor.com. 

“The end result is that for traditional real estate investors, it can be very difficult to find a property, like a single-family home or something of that effect, that you want to buy and rent out long term the traditional way,” Ham said.

“The cash flow is not there to make it work.”

But in the right market, such as Fayetteville, having a short-term rental property can mean getting twice as much in rent as a long-term arrangement would provide, Ham said.

“So it makes these properties that would not traditionally be attractive for investors attractive,” said Ham, who himself owns a property that’s used as an Airbnb.  

Hot Springs

The city of Hot Springs began  working on its ordinance for short-term rentals in March 2021. 

Residents wanted regulations in place to protect their neighborhoods and level the playing field between those properties and hotels and motels, said Lance Spicer, Hot Springs’ deputy city manager. 

Affordable housing was also a concern for the city, he said, because Hot Springs has a large workforce employed by hospitality companies. And those workers were losing potential housing to investors who were snapping them up to use as short-term rentals.

“You can’t necessarily limit what someone invests in, but at the same time it was something that was definitely on our mind,” Spicer said. 

The city’s ordinance passed in December, and it limits the number of short-term rentals that can operate within the city’s residential zone to 500, Spicer said. 

Property owners are required to obtain a license with the cost based on the occupancy of the property.

It’s $50 per occupant. Each bedroom can hold two people, with the overall house another two occupants, meaning a three-bedroom house can have eight occupants, he said.  

The property also has to undergo a safety inspection by the building inspector. 

The property owner also is required to have a local contact person who can respond to any issue within 60 minutes of being notified.

That allows the city to contact that person if there’s a loud party, parking issue or trash and “hopefully get the issue corrected,” Spicer said. 

Last month, 283 of the 500 licenses available had been awarded, Spicer said.  

He said the vast majority of short-term residential property owners welcomed some sort of regulation. “Now, they didn’t love all the licensing fees and things like that,” he said. 

As a result of the ordinance, the city of Hot Springs created two positions to handle short-term rentals. One, in the Planning & Development Department, is a short-term rental coordinator to handle the licensing. The other is a Hot Springs police officer to deal with the complaints. 

“We have the daytime and evening, weekends covered,” Spicer said. “At this point, we’re not getting overrun with complaints. But that, of course, could certainly change.” 

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