Chattanooga sees lower than expected demand for new short-term vacation rental permits

Staff photo by Doug Strickland / A pillow reads "Hey Y'all" in a home managed by short-term rental management company Chattanooga Vacation Rentals on July 9 in Chattanooga.
Staff photo by Doug Strickland / A pillow reads "Hey Y'all" in a home managed by short-term rental management company Chattanooga Vacation Rentals on July 9 in Chattanooga.

In the two weeks since Chattanooga's year-long moratorium on certain vacation rentals ended, 38 new applications have been submitted to the city, fewer than some officials initially anticipated.

Chris Anderson, Mayor Tim Kelly's senior adviser for legislative initiatives, said the numbers could suggest the market for short-term vacation rentals has become a bit oversaturated.

"There's been a national trend that a lot of people rushed to get into this investment opportunity of short-term vacation rentals," he said in an interview. "I think they overbuilt and over-created short-term vacation rentals in cities all around America. I've heard from friends in peer cities that they're seeing the same thing."

Of those 38 applications, 30 are for absentee rentals, meaning the owner of the property doesn't live onsite, and eight are homestay, meaning the owner does. The city's temporary pause on applications specifically affected new absentee permits. All the new applications have been submitted over the course of the past week. None were submitted in the week immediately following the expiration of the moratorium on July 10.

"Honestly, I expected 100 or more on the first day," Anderson said. "Naturally, we thought there'd be a lot of people waiting after the moratorium ended. The fact that none came in for seven days after the moratorium was over -- and we publicized it -- that also tells me we have an oversaturated market."

Chattanooga's new rules, which the City Council adopted on May 16, allow homestay rentals within a designated, pre-existing area known as the overlay. Absentee rentals are now only allowed in 11 commercial zoning designations that permit hotels. Homestays are also allowed in those same commercial zones.

The city recently hired an administrative hearing officer, attorney Mike Mallen, who will enable Chattanooga to begin levying fines of up to $500 per day for owners who operate a short-term vacation rental illegally or commit violations of local rules.

Chattanooga has also been using specialized software to identify illegal short-term vacation rentals and sending out letters to owners to notify those who are out of compliance. Of the approximately 400 rentals that were initially operating illegally, Anderson estimated, half of them remain in place.

Although the city welcomes guests, Mayor Tim Kelly said in a May news release, Chattanooga must work to crack down on illegal rentals, which he said disrupt the character of neighborhoods and inflate housing prices.

Mallen, the city's administrative hearing officer, said his role is designed to be remedial rather than punitive.

"It's not calculated to punish ... but rather to cause remediation of citations and code violations," Mallen said in an interview, adding that there's discretion to lift fines if the violator addresses the issue within the ordered time period.

The city has empowered Mallen to hear cases involving violations of local building, residential, plumbing, electrical, gas, mechanical and energy codes. The position can also handle cases involving property maintenance violations like litter and overgrowth. City leaders also want Mallen to review noise violations.

"It's the densification of this city," Mallen told members of the Chattanooga City Council on Tuesday. "It's more people living in the same space, the same acres, and all the things that come with it."

Mallen has spent the last six weeks preparing for his new role, which has involved meeting regularly with city staff. He expects to be equipped to hear cases after Labor Day, which is Sept. 4.

A group of short-term vacation rental owners has threatened the sue the city over its new rules, arguing they're too restrictive. Brad Wardlaw, a member of that group, said in a text message Tuesday they're still moving forward with those plans.

Contact David Floyd at dfloyd@timesfreepress.com or 423-757-6249.

  photo  Staff photo by Matt Hamilton / Kendall Petersen holds a variety of pamphlets advertising various Chattanooga area attractions in the living room at a vacation rental property on Riverfront Parkway on Monday.