Property owners await Chattanooga’s decision on short-term vacation rentals

Staff Photo by Matt Hamilton / A rental home belonging to Donna Morgan in Chattanooga is shown on Friday.

Last Tuesday afternoon, the conference room at the Chattanooga City Council building on Lindsay Street was packed.

Chairs were brought in to accommodate an interested crowd of roughly two dozen people who lined the perimeter of the room as a dedicated committee of council members and staff continued a months-long discussion about how to best regulate short-term vacation rentals in the city.

In April, council members placed a temporary pause on applications for all rentals not occupied by the property owner as officials worked out how to best refine the city's rules. They expect to consider revisions before the moratorium ends in January, and the entire council will discuss the issue during a strategic planning meeting Tuesday, to be followed by another committee meeting Nov. 1.


Regulating rentals

According to its website, the city has regulated short-term rentals since 2009, initially limiting them to areas zoned R3 for multi-family residential housing or R4 for office areas with multi-family residential uses. Currently, Chattanooga restricts short-term rentals to zones in a designated disctrict called an overlay, which includes downtown and the southwestern portion of the city.

Applications for rentals not occupied by the owner already receive additional scrutiny during the approval process. If they accumulate four or more objections from nearby neighbors, those applications go to the Chattanooga City Council, which holds a public hearing to consider the request.

Councilman Chip Henderson, of Lookout Valley, chairs the study committee and said council members have consistently heard apprehension from residents about how short-term rentals affect the character of the neighborhoods. Their potential impact on affordable housing has been another concern, but Henderson said by phone Friday that he hasn't yet heard a definitive answer to that question.

During their meeting Tuesday, staff members suggested the city consider regulating rentals by zoning district rather than using an overlay, but Henderson said he opposes linking short-term vacation rentals to zoning, something the city has already attempted.

He anticipates Chattanooga officials could ultimately decide to regulate short-term vacation rentals based on density, which could involve permitting a certain number on a street or setting an allowable distance between units.

Community character

As the city inches closer to a verdict, residents and property owners are watching the city's deliberations with interest. Donna Morgan attended last week's meeting and operates a property management company for short-term rentals called iTrip Chattanooga.

She co-owns seven permitted units in the city with her husband and also manages rentals owned by other clients. In total, there are 12 properties in her portfolio, and Morgan said her business has about another 22 in the pipeline, although almost half of those could depend on how the city chooses to regulate them. Many people who own short-term rentals in the city, Morgan said, tend to be local.

"It's residents of Chattanooga that are wanting, just like me, to supplement their income, supplement their retirement," she said.

A former math professor, Tom Purdy and his wife decided to retire in Chattanooga, moving permanently to the city about two to three years ago. He's a landlord with 15 single-family homes and one duplex he rents out to longer-term tenants.

"The idea was that people would come and live and just be a part of the community, and for the most part that's pretty much the way it's worked out," he said in a phone call.

Purdy said converting all his properties to short-term vacation rentals would result in a significant boost in revenue, but he would prefer to see neighborhoods with more deep-rooted residents.

Homeowners within a certain range of a property receive a notice when the owner plans to turn it into a short-term vacation rental, he said. Purdy said the uptick was gradual at first, but he and his neighbors were eventually surprised by the abundance of units coming into their community.

"You started to get more and more of these notices, and you started to realize that, I think, the ultimate path was before long the whole Southside could be short-term vacation rentals," he said.

That diminishes the residential feel of a neighborhood, Purdy said, making it more of a commercial block. The city's system also lacks strong enforcement, he said.


Chattanooga city staff members estimate there are 450 unpermitted units across the city. AirDNA, a database that tracks short-term rental information, shows 1,195 active units in Chattanooga, which charge an average nightly rate of $169.

The city has recently introduced software through a company called Granicus that officials are using to identify unpermitted short-term vacation rentals. Chris Anderson, Mayor Tim Kelly's senior adviser for legislative initiatives, said by phone that the city is now four weeks into a nine-week timeline for issuing 272 letters to the owners of all unlicensed units in Chattanooga.

The city hopes to boost financial penalties for property owners found to be running a short-term rental without a permit, although Anderson said there's still a lot of administrative work that needs to be done before that can happen.

The city took in $940,392 worth of occupancy tax revenue from short-term vacation rentals in fiscal year 2022 and $594,056 in 2021.

Finding the right approach

Morgan said the city's overlay may have ended up concentrating short-term rentals in certain parts of the city, which has led to the higher density of units in parts of Chattanooga that have upset residents in certain communities. Overall, she said, short-term rentals shouldn't have been confined to just certain districts in Chattanooga.

That being said, existing regulations are working, she said. Nearby homeowners have the ability to voice their objections if they don't want a short-term rental in their neighborhood, and they have opportunities to make a complaint if renters are causing a nuisance. In 2021, the city received about 10 complaints regarding licensed short-term rental units.

"That's not a lot of complaints to turn around and kind of shut down a growing business that benefits the city of Chattanooga and Hamilton County," Morgan said.

Instead, Morgan said, the city should focus on the nonpermitted short-term rentals.

Beth Palmer co-owns three properties in North Chattanooga, which she operates as short-term vacation rentals. When the moratorium went into effect in April, Palmer already had permits for those three houses, but she knows people lost money as a result of the decision.

"If you have a house that you're furnishing, you're pouring thousands of dollars into furniture and all the things you put into kitchens and linens and technology," she said in a phone interview. "I have no doubt there were people who were in the process of that who (had) the rug ... just pulled out from underneath them."

Palmer said the city's enforcement of unpermitted short-term vacation rentals has been lax, and as they talk about the best regulatory approach, it's frustrating to see officials not properly differentiate between property owners who are following the rules and those who aren't, she said. She regularly hears positive comments from neighbors about guests.

"The people who are our guests are respectful, classy -- parents of McCallie boarding students, business travelers, families coming in for weddings," she said. "It's grandparents with their kids and grandkids, those kinds of situations where a hotel is not ideal but a home is. And really it's the new way that people are traveling now all over the world, not just in Tennessee."

Contact David Floyd at or 423-757-6249. Follow him on Twitter @flavid_doyd.