Paradise Valley wants to stop Airbnb ‘party houses.’ Doing so could cost it $1.6 million.

By: - March 10, 2022 9:27 am

The wide doorway of the living room in an elegant, modernist house in Paradise Valley frames an unobstructed view of Camelback Mountain. Photo by Carol M. Highsmith | Carol M. Highsmith Archive, Library of Congress, Prints and Photographs Division

An ordinance passed earlier this year by Paradise Valley to regulate “party houses” could jeopardize $1.6 million the town receives in state income tax payments after a Republican legislator complained that it violates state law. 

Thanks to a proliferation of short-term rentals, often through companies like Airbnb and Vrbo, the town is grappling with how to regulate events and large social gatherings being hosted in residential areas.

“It is our number one issue in Paradise Valley,” Town Manager Jill Keimach told the town council on Jan. 27 as it prepared to vote on an ordinance regulating short-term rentals, or STRs. 

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AirDNA, a company that tracks vacation rentals and other rental property information, lists 407 STRs in Paradise Valley proper. Of those rentals, 32% are large homes — they have 5 or more bedrooms and the average guest size for a rental is 10.4 guests in a rental with 3 bedrooms. 

The ordinance the council passed unanimously that day does a number of things in an attempt to rein in what town leaders see as bad actors in the STR space, enhance public safety and target “party houses.”

The ordinance requires property owners to be on site for certain events, meet their guests within one hour of them arriving at the property, do a background check on every guest, provide the owner’s name and contact information to the town, install a landline telephone, prove that the guest has acknowledged the rules and regulations set by the town, clean the air filters every three months and more. 

But in 2016, the Arizona legislature passed a bill that prohibited municipalities from enacting regulations on STRs except in specific circumstances. It touted by Gov. Doug Ducey and other lawmakers at the time as boosting the short-term rental market, though Ducey has said since that lawmakers will “revisit” short-term rental regulations after a string of complaints from cities and towns that find themselves with no way to go after bad actors.  

And it’s that 2016 STR law that poses a challenge for Paradise Valley, after Republican state Sen. Warren Petersen filed a complaint with the Attorney General’s Office. He contends that the ordinance violates that law because it imposes different requirements on specific STRs, has new “significant” obligations for STRs and “​​increases regulatory burdens on businesses by subjecting platforms to new liability and disclosure requirements in violation of state and federal law.” 

The challenge is known as an SB1487 complaint, named after a different 2016 law that permits any legislator to ask the attorney general to review an action by any municipality or county if they believe that action violates state law. If the attorney general finds a violation, the offending law must be repealed or the violator loses 10% of the money it receives from state income tax revenues. In the case of Paradise Valley, that would mean a loss of $1.6 million.

Critics of Paradise Valley’s ordinance who spoke at the council meeting said that the measure is too onerous on STR owners and that it goes beyond what municipalities are allowed to do under current state law. That law says municipalities are prohibited from taking any action that “materially increases the regulatory burden on a business unless there is a threat to the health, safety and welfare of the public that has not been addressed by legislation or industry regulation within the proposed regulated field.” 

What started as a legislative travesty has turned into a tragedy.

– Paradise Valley Councilmember Mark Stanton

Keimach, the town manager, told the council in January that Paradise Valley had been working at the legislature to fix the issue — but with a legislative fix unlikely, they were instead told to use the “tools” provided to them to remedy the issue. The new ordinance is what resulted. 

“These codes are to protect the hosts of short term property rentals, as well as the neighbors of short term property rentals,” Keimach told the council members, recalling a story of a party house where hundreds of thousands of dollars of property damage was done and no one was able to find the homeowner. Keimach argued that the new ordinance would allow for better communication to remedy these issues. 

The new ordinance also clearly defines the noise complaint process and allows a police officer to initiate the complaint if a home is making too much noise as determined by the officer. STR owners can face fines of up to $1,500 under the new regulations.

Paradise Valley Mayor Jerry Bien-Willner said at the council meeting that the town went “above and beyond” to get comment from short-term rental owners and residents about the new regulations, adding that they even went further than what they had seen in the “legislative process.” 

“Self-regulation, while helpful, is not enough,” Bien-Willner said, later adding that the new regulations are “not a ban on short term rentals,” but a way to strike a “reasonable balance.” 

In a small speech prior to taking testimony on the ordinance, Bien-Willner addressed what he expected would be the incoming SB1487 complaint.

“We have worked extremely hard and tested these as hard as we can…to make sure we are within our limited authority,” Bien-Willner said. “That doesn’t mean that our revisions, if passed, won’t be challenged.”

Bien-Willner also claimed that “the threats from Airbnb have started rolling in” and began referencing litigation by the company in other cities such as London, New York and others. He also referenced a letter he got from the company as the council and mayor were about to take their vote, which he characterized as “threatening.” 

The letter said that Airbnb believed the ordinance violated Arizona law and that it would challenge the town’s regulations.

“The ordinance’s burdensome and impractical restrictions designed to operate as a ‘de-facto’ ban for short-term rental hosts are preempted by state law,” John Choi, policy manager for Airbnb, wrote. 

The ordinance was adopted on Jan. 27 and went into effect on Feb. 26. Two days later, Petersen filed the SB1487 complaint with the AG.

The new ordinance was passed by the council with unanimous approval, something Vice-Mayor Anna Thomasson said she hasn’t seen much of in her time on the council. All the members of the council also agreed that their main issue is at the state Capitol. 

“What started as a legislative travesty has turned into a tragedy,” Councilmember Mark Stanton said.

The sentiment was echoed by his colleagues, including Councilmember Julie Pace who said that lawmakers need to be “re-educated and they have to understand the impact” of the STR issue on local communities. 

In 2021, neighboring Scottsdale saw an increase of STRs despite the pandemic and the industry supported more than 75,000 jobs and $500 million in tax revenue, according to a Vrbo commissioned study.  

Republican lawmakers have been attempting to and wanting to revisit a possible repeal to the 2016 law, though multiple attempts to do so have failed. 

In his letter to the AG, Petersen argues that the ordinance attempts to prevent “party houses” illegally by broadly defining an “event center” as any dwelling that is “used for a social gathering.” Petersen says that this language could prevent two people from being in an STR at the same time, as a social gathering can be described legally as any two people gathered. 

Petersen also claims that the ordinance attempts to obtain more information from STR owners than is allowed under the law. Petersen did not respond to a request for comment. 

Bien-Willner said in a phone interview with the Arizona Mirror that he wasn’t surprised by the SB1487 challenge, but added that the town did not do anything outside of their legal ability. He also mentioned Airbnb’s track record of fighting back against municipalities and communities that have sought regulations. 

“We are trying to do the best we can for our citizens and our residents with the tools we can and utilize them in good faith,” Bien-Willner said. “We are prepared to go through the process, we do not set the state law and we tried to not cross any state law and this is a health and safety issue.”

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Jerod MacDonald-Evoy
Jerod MacDonald-Evoy

Reporter Jerod MacDonald-Evoy joins the Arizona Mirror from the Arizona Republic, where he spent 4 years covering everything from dark money in politics to Catholic priest sexual abuse scandals. Jerod has also won awards for his documentary films which have covered issues such as religious tolerance and surveillance technology used by police. He brings strong watchdog sensibilities and creative storytelling skills to the Arizona Mirror.

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