Airbnb Is running riot in small-town America

KAITLIN HAD BEEN living in the Village of Oak Creek for over two years when she received the notice. It was June 2022 and her landlord had decided to raise the rent on her three-bedroom house by $800 to $3,000, an increase of 36 percent. For Kaitlin, who had been living alone since her sons moved out, the cost of staying was prohibitive. She had invested hard-earned money into improving the property, addressing persistent clay stains that the desert monsoons swept in from the surrounding red rocks of Sedona, Arizona. Kaitlin, who requested anonymity to protect her pending tenancy applications, was distraught to leave the property she had made her own. But she wasn’t alone. Across Sedona, rental prices were soaring—and a new kind of Airbnb gold rush was to blame.

For years, short-term rental companies like Airbnb have torn through cities. Some, like Mexico City, have embraced the rental platform to attract tourists and digital nomads. Others, like Amsterdam and London, have moved to limit or ban the platform, citing concerns of excess tourism; strains on housing supplies; or in the case of Toronto, the rise of Airbnb “ghost hotels.”

Three years into the pandemic, with flexible working the new normal for many and urban rental supplies taking longer to bounce back, short-term rental entrepreneurs have switched focus from big cities to tourist-friendly towns and resort destinations. And Sedona, a small city tucked between dramatic crimson rock formations in central Arizona, is amongst the worst hit. “Everyone wanted to go to those markets,” says Jamie Lane, vice president of research at AirDNA, a short-term rental analytics firm. And with the flood of outsiders coming in, local residents like Kaitlin are being forced out.

Sedona banned short-term rentals way back in 1995. But in 2017 an Arizona state law, SB1350, blocked such curbs. Legislators had pitched the law as an embrace of the new sharing economy and a boon for Arizonans looking to make some extra money by renting out their spare bedrooms. But when the law passed, investors flooded the market. More than 15 percent of available housing in Sedona is now listed on short-term rental sites like Airbnb or Vrbo, according to a 2021 study by local firm Elliott Packer & Co. As in many cities around the world, house prices in Sedona soared during the pandemic: The median price for a single-family home rose 64 percent over a two-year period from October 2020 to 2022. Stories of people living out of cars have become increasingly common, says Shannon Boone, housing manager for the City of Sedona. Camping on the city’s outskirts as a way to live—not for vacation—is damaging the pristine national forest that surrounds it.

Tourists flock to Sedona for its breathtaking vistas and walking trails, and the city has made a name for itself as a new age spiritual heartland of the American West. Along its main drag, healing centers and crystal shops are tucked between bars and restaurants. “Tourism is always going to be our economic engine, whether we like it or not,” says Sandy Moriarty, the former mayor of Sedona. But those tourists are increasingly strangling the life out of a city that depends on them for its survival. 

“Airbnb allowed the amount of tourism here to double, which means there’s more workforce needed, and at the same time decreased the housing available,” says Boone. It’s a brutal combination. More tourists equals more money and more job opportunities in Sedona’s hospitality and entertainment industries. But with housing in short supply, everyone ends up competing for the same tiny pool of rental properties. And in Sedona, more and more of these rentals are now Airbnbs.

The data shows an intriguing change in the city’s housing market. In Sedona, four out of five of the top property managers have added new Airbnbs in the past year. Sedona.org, the largest property manager in the city, with 115 active listings, grew its portfolio by 35.3 percent from a year ago. Now 16 percent of all active Airbnb rentals in Sedona are held by just five property management companies, according to AirDNA. Lane says the city has become the target of professional Airbnb hosts—operators who buy up and manage extensive real estate portfolios on Airbnb, often to the detriment of “mom-and-pop” hosts with one or two listings.

And so, pushed to the brink by short-term rental profiteers, Sedona has come up with a novel solution: paying Airbnb hosts to turn their properties back into long-term rentals.

The pilot, known as Rent Local, was announced in August. Sedona has set aside $240,000 to pay out to homeowners, with incentives going up to $10,000 for a three-bedroom property. But such sums barely touch the problem. At full tilt, the pilot could free up 35 rental units—but, according to Steve Segner, president of the Sedona Lodging Council, the acute need for housing in Sedona is more like 500 units. Three months since the pilot launched, the city has received just three applications. 

To understand why it’s been a flop, you need to understand the economics of Airbnb. According to Sara First, a property manager who works with nearly 70 Airbnb hosts in Sedona’s city limits, short-term rentals are simply too profitable, and the Rent Local kickback can’t compete. “I told all of my owners about it. None of them even considered it. It’s two months of cheap rent. It’s not enough. But it shows that the city cares.” Question is, can Sedona afford to care enough? A property in Sedona that would bring in $30,000 per year as a long-term rental could generate revenue in the range of $60,000 “in a crappy year” on Airbnb, says First. When the short-term rental market is hot—like last summer, when overseas travel restrictions brought record numbers of American tourists to the city—that figure is closer to $100,000.

Another tourist destination, Summit County Colorado, has been more ambitious with the scale of a similar program launched in October 2021. The county spent nearly $1 million on incentives to convert 74 short-term rental units into long-term rentals. The sums involved are eye-watering. Summit County surveyed over 700 local short-term rental owners and extrapolated nightly rates from tax revenues to land on an incentive price range of up to $24,000 for a three-bedroom house on a year-long lease. 

Back in Sedona, locals say the housing shortage is worse than ever. Heather Hakola, a resident for 39 years, runs a Facebook group for home seekers and is treasurer of the Sedona Area Homeless Alliance Board. She says that she’s seeing more people leave Sedona entirely or form multi-family housing groups to make rent. “Displacement is the highest it’s ever been,” she says. The Alliance estimates there are 125 people experiencing homelessness in Sedona and says last winter the organization spent $40,000 on hotel rooms to keep people out of the cold, a record high. Across the state, Arizona’s Department of Economic Security estimates that homelessness jumped 30 percent between January 2020 and December 2021.

Sedona’s high house prices are also worsening its teacher shortage. The city’s school district has plans to convert one building into affordable condos for staff. Restaurants are feeling a similar pinch. Gerardo Moceri, who owns Gerardo’s Italian Kitchen in Sedona, has lost 13 of his 25 full-time staff members in the past two years. He’s now struggling to get new hires who are willing to move to Sedona because housing is so expensive. 

As the crisis worsens, lawmakers are reevaluating their approach to short-term rentals. In July 2022, Arizona’s state legislature made it possible for local governments to impose license systems and fines on hosts. That allowed Sedona to add new requirements. From February 2023, Sedona’s Airbnb and Vrbo hosts will need to apply for a local license to operate. But such measures are little more than a Band-Aid. “Other than that, there’s just not really a lot we can do,” Boone says.

Bigger, busier Scottsdale, a Phoenix suburb across the Verde Valley from Sedona, has a different problem: bachelorette parties. In October of this year, the city passed stricter regulations in an attempt to satisfy growing discontent from residents frustrated by the noise, trash, and high turnover of guests that they say short-term rentals force on their neighborhoods. Airbnb made its pandemic-era global party ban a permanent policy fixture in June but has little mechanism for enforcement, short of blacklisting particular users. And so the party goes on in Scottsdale. The number of active Airbnb listings in the city has nearly doubled since August 2020—when the company first introduced its party ban. Bachelors and bachelorettes looking on Airbnb for Scottsdale party houses will still find an abundance of listings with pools, hot tubs, and yard games. The “House of Gucci,” hosted by Scottsdale company Rebl Rentals, is decked out with darts, a putting green, and space to sleep 18 guests. Another listing, “The Pink Palm,” has a spa and a beach cabana, with stock photos of bachelorettes tanning on the poolside.

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