Arizona Court of Appeals Delivers Major Blow to Sedona’s Vacation Rental Restrictions: Wider Ramifications for Community Dynamics and Housing Markets
The ongoing, contentious battle over local control of short-term rentals (STRs) in Arizona reached a pivotal moment on November 26, 2025, when the Arizona Court of Appeals issued a unanimous decision rejecting the City of Sedona’s arguments against allowing vacation rentals within a mobile home park. This ruling, which remanded the case back to the lower court for proceedings consistent with the appellate opinion, powerfully reaffirms the restrictive nature of the state’s 2016 preemption law, sending reverberations across vacation-centric communities grappling with housing affordability.
The case originated when Oak Creek Hospitality, which owns the 59-space Oak Creek Mobilodge, was denied the ability by the City of Sedona to operate its mobile home units as short-term rentals. The city’s initial interpretation was dismissed by the appellate panel, which found that the structure’s function as a residence, rather than its physical classification as a mobile home in a zoned park, was the controlling factor under state statute. Appellate Judge Jennifer Perkins, writing for the three-judge panel, concluded that the dwelling unit is the mobile home itself, stating, “Oak Creek has succeeded in showing that the City’s interpretation of the Short-Term Rental Statute violates the statute’s plain language.” This decision effectively grants the park owner the same rights as other property owners under the state’s STR framework, establishing a significant legal standard.
Wider Ramifications for Community Dynamics and Housing Markets
Beyond the specific victory for the mobile home park owner, this judicial finding is poised to alter the socio-economic fabric of tourist destinations across Arizona. The ruling tightens the preemption leash on municipal governments, potentially unleashing more properties into the highly lucrative STR market, which directly counters local quality-of-life and housing preservation goals.
The Ongoing Tension Between Tourism Economy and Resident Housing Affordability
The November 26th opinion is being characterized as yet another substantial setback for municipal leaders who have been actively lobbying and litigating against the preemption law that stripped them of regulatory power. These local leaders consistently argue that the proliferation of short-term rentals, enabled by the statute, has directly contributed to a severe erosion of the long-term rental stock, thereby making it exceedingly difficult for essential local workers, service employees, and permanent residents to secure affordable housing within the communities they serve. The depth of Sedona’s local housing crisis is underlined by its previous efforts; as far back as 2022, the city had explored controversial measures, including offering stipends to homeowners to lease their properties to local workers for up to a year, in an attempt to mitigate the impact. This recent court ruling arguably exacerbates that crisis by fully opening up an entire property classification—mobile home units—to the short-term market.
The context of this struggle is framed by the state’s increasing, yet mandated, embrace of STRs. For instance, legislation signed in 2024, House Bill 2720, explicitly bars cities with populations over 75,000 from banning STRs in Accessory Dwelling Units (ADUs), a change that took effect on January 1, 2025, despite frustrations from city councils who had previously sought to restrict such uses over affordable housing concerns. This decision reinforces the legislative priority of maximizing STR availability over local housing needs, a trend that Sedona’s leadership has fought against.
Precedential Value for Other Jurisdictions Facing Similar Regulatory Conflicts
The Court of Appeals opinion establishes a strong, binding legal precedent for all lower courts within its jurisdiction. It serves as a vital roadmap for interpreting the relationship between state preemption and local zoning codes concerning short-term rentals. The critical takeaway is that the focus must be on the definition of a “dwelling unit” and “residential rental property” as defined in the state statute, not on the specific zoning category of the land parcel.
Any other municipality in Arizona attempting to use zoning or land classification arguments to restrict the leasing of dwelling units—be they apartments, condos, or, as proven here, mobile homes—will now face a significantly higher legal hurdle. The ruling clearly establishes that the structure’s function as a residence is the controlling factor under the state statute. This legal clarity is anticipated to embolden property owners across the state who are eager to enter or expand their presence in the vacation rental market, seeing this as a judicial green light to proceed.
The Evolving Landscape: Future Legal and Legislative Trajectories
While the appellate court’s decision is final at that level, the dynamic situation suggests this is unlikely to be the absolute end of the matter. Both the challenged municipal government and state lawmakers are expected to pursue alternative avenues to address the regulatory vacuum they perceive.
Anticipated Next Steps from the Challenged Municipal Government
The immediate reaction from Sedona’s leadership suggested that this judicial defeat would not be passively accepted as the final word. Following the November 26th ruling, Sedona Mayor Holli Ploog indicated a strong expectation that the legal battle would continue, stating, “I expect there to be an appeal,” with the logical next step being a petition for review to the Arizona Supreme Court. The city council’s interpretation of the law remains fundamentally opposed to the appellate court’s finding, which signals a continued commitment to exploring every available legal avenue. This commitment includes seeking to either appeal this specific ruling or to swiftly devise alternative, non-preempted regulatory mechanisms—perhaps focusing on nuisance, noise, or owner-occupancy rules not directly addressed by the current preemption language—to manage the impact of transient accommodations on the community.
Broader Legislative Efforts to Modify Statewide Short-Term Rental Restrictions
The local conflict mirrors a larger, persistent effort at the state capitol to revisit and potentially amend the restrictive 2016 statute. Local government associations, such as the League of Arizona Cities and Towns, have made amending the law a central priority, seeking to regain authority lost to state preemption.
Despite initial attempts during the recent 2025 legislative session to introduce bills that would allow cities to cap the number of rentals or lower the threshold for license revocation, these measures largely stalled, often facing stiff opposition from legislative leadership. Some opposition is rooted in a strict adherence to limiting local regulatory reach, while other resistance may come from lawmakers who have personal or professional interests tied to the short-term rental sector. In fact, in the 2025 session, Senate Bill 1141, which sought to shorten the suspension threshold for STR licenses, did not advance out of committee.
The outcome of the Sedona case, which reinforces the current law’s restrictive nature on municipalities, is likely to inject renewed urgency into legislative efforts ahead of the 2026 cycle. Municipal leaders are actively preparing policy goals to pursue in the next session, including measures that would allow them to cap the number of licenses issued in oversaturated areas, a step seen as vital in communities where STRs can comprise as much as 10% of the total housing stock. The success of these legislative maneuvers will ultimately determine whether the appellate court’s interpretation remains the definitive standard for the state’s housing market for the foreseeable future.