STR owners take issue with city ordinance

Short-term rental owners strategize Monday night at Vapors Live on Park Avenue. - Photo by David Showers of The Sentinel-Record
Short-term rental owners strategize Monday night at Vapors Live on Park Avenue. - Photo by David Showers of The Sentinel-Record

In the span of several months, the city went from no regulations on short-term residential rental businesses to a 12-page ordinance establishing a comprehensive regulatory scheme, a time frame that has alarmed short-term rental owners who convened Monday night at Vapors Live on Park Avenue to discuss strategies for extracting owner-friendly concessions from the Hot Springs Board of Directors.

They seized on three items: the annual cap of 500 STRs in areas zoned for residential use, the annual inspection required to renew an STR business license and the annual business license fee.

The ordinance set an annual fee based on the maximum overnight occupancy, charging $100 per authorized occupant. An STR can have a maximum overnight occupancy of two people per bedroom plus two, meaning a three-bedroom STR is authorized for eight overnight occupants and is assessed an $800 annual fee.

Attendees of Monday night's strategy session questioned why the fee wasn't more aligned with the $4 per bed hotels pay under the city code's business license and occupation tax schedule.

They also said the annual fee was considerably higher than what other cities in Arkansas charge and questioned how the fee will advance the ordinance's stated goals of protecting public health, welfare and safety, minimizing adverse impacts on residential areas and preserving the availability of affordable housing stock.

An ordinance the board adopted in March prohibited STRs from operating without a business license and established a $50 per bed annual tax. The board adopted an ordinance earlier this month that amended the March ordinance and the May ordinance that established rules and procedures for STR owners.

The owners who convened Monday night questioned why the amended ordinance doubled the annual business tax, explaining that the tax, coupled with the cost of annual inspections for compliance with building and fire codes, could be cost-prohibitive for many STR providers. Several said their rental income only covers their overhead costs, which until a few months ago didn't include the annual business tax and inspection fees.

The group said it wants the annual cap of 500 STRs in areas zoned for residential use increased to 1,000. The May ordinance established a cap of 700, which the amended ordinance adopted earlier this month lowered to 500.

The 700 cap was in place when regulations required STR owners in residential zones to petition the Hot Springs Planning Commission for a conditional use permit, a dispensation allowing land uses, with conditions, that aren't permitted in a zoning district.

The conditional use requirement was intended to limit the number of STRs in residential areas, as the board heard from numerous city residents who said unruly STR patrons and absentee STR owners have disrupted their neighborhoods. The amended ordinance adopted earlier this month removed the conditional use requirement, prompting the board to lower the cap on STRs in residential areas.

According to information presented this summer at the board's 2022 goal setting/budget priorities work session, the city issued 378 STR licenses in residential areas prior to the moratorium on accepting STR applications that took effect at the end of May. The pause was set to expire on Oct. 13, but the board extended it through the end of the year.

Owners who convened Monday night questioned the city's claim that STRs are diminishing the availability of affordable housing. They said many homes converted to STRs were dilapidated, vacant structures, when STR owners acquired them. Some have since been sold to families that have made the homes their primary residence.

They noted how STRs have been a boon to many older neighborhoods, providing a much-needed capital infusion to areas in need of revitalization.

They asked why the city hasn't established a similar regulatory scheme for long-term rentals, many of which have the same issues the STR ordinance addresses. The city derives its authority to regulate STRs from the business license requirement included in the March ordinance, City Attorney Brian Albright said, but business licenses aren't required to operate a long-term rental.

"If you have a business license requirement for any particular business, police powers allow for that regulation of that for life safety issues," Albright said Tuesday.

He said discussions have been had about a business license requirement for long-term rentals, but the city has yet to settle on the number of rentals landlords would have to own to trigger the requirement. Albright said operating numerous rentals is a business, but a threshold number has yet to be determined.

"There has not been a number established to rise to that level," he said. "I have heard conversations being had and quite possibly could come up for consideration."

The STR owners planned to express their concerns during the public commentary period at the end of the board's Tuesday night business meeting. Per city code, the board allows a 21-minute period for public comments after business meetings are adjourned.

The owners tried to address the board at its Oct. 12 agenda meeting, but the code prohibits citizen or audience comments at agenda meetings. They said if their influence campaign isn't successful, they'll consider challenging the STR ordinance in court.

Many have questioned the need for regulations, given that self-regulation is a feature of the STR industry. Owners who advertise on online marketplaces such as Vrbo and Airbnb have to meet a set of requirements, and STR patrons can post complaints and issues they have had with STR owners and operators.

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