The Sedona City Council voted for a 13.6% increase in the rental rate cap for the city’s Rent Local program on April 8. Council spent 41 minutes considering the change, which had originally been scheduled to take five minutes.

The program was created in August 2022 with the aim of inducing property owners to rent their properties for terms longer than 30 days by offering a one-time financial incentive. Participants must agree to refrain from renting their properties as short-term rentals for one year after signing up and cannot charge rents that are greater than the monthly rental cap set by the city.

“We simply want to raise the rental cap to $2,500 per month from the original $2,200 per month,” Housing Manager Jeanne Blum said. “We want to do this to better align with current market rates and encourage more home owners to participate.”

“Participation rates do remain low because the rental caps are kind of misaligned with our market rates,” Blum said. “Most potential participants have been discouraged because the rental cap is below what they can bear.”

According to the information provided to council by city staff about the current rental market in Sedona, which Blum said was derived from an “ad hoc study,” the average monthly rent is Sedona is $1,762 for a one-bedroom, $2,424 for a two-bedroom and $3,553 for a three-bedroom, compared to U.S. Department of Housing and Urban Development fair market rates for Yavapai County of $1,293, $1,606 and $2,048, respectively. Blum also estimated that a studio would run between $1,200 and $1,900 a month, while the rent for the few properties currently partici pating in the Rent Local program is $1,500 a month to $2,200 a month.

Councilwoman Kathy Kinsella asked why staff were not suggesting that the cap be raised to $2,700 per month.

“It’s not appropriate,” Blum said. “It’s a burden.”

Blum also argued that raising the rental cap, in combination with the one time incentive, would bring a landlord’s potential return up to an amount closer to the market rate for a three bedroom home, or $3,333 per month. The one-time incentives offered through the program are $6,000 for a studio, $7,000 for a one bedroom unit, $8,500 for a two-bedroom and $10,000 for a three-bedroom, while those renting individual rooms can receive $3,000 for a single room, $4,000 for two rooms and $5,000 for three rooms. The program paid out $8,500 in incentives out of a budget of $240,000 in fiscal year 2023, $31,250 against a budget of $100,000 in FY23 and $14,250 against a budget of $100,000 in FY25, with the budgeted amount for FY26 having been reduced to $50,000.

A total of seven properties have been enrolled in the program; the council’s packet for the April 8 meeting states that three of those renewed for a second year.

Blum said that renting properties long-term would reduce maintenance costs for property owners over short-term renting.

“The increase covers the first year, gets closer in the first year, and then goes away. Maybe that’s why only three households have renewed their leases in year two,” Vice Mayor Holli Ploog said.

“Of course, if the incentive were available for multiple years, there would be more traction in the program, more longevity,” Blum said.

“Perhaps there are modifications in addition to the increase in the cap that we should consider,” Ploog said.

“The number of registered STRs has continued to increase over the life of the program, and yet we still aren’t getting meaningful traction,” Councilman Brian Fultz said. City statistics show that the number of STRs increased by 6.4% between 2018 and 2024.

“At what point do we say that this is a strategic distraction?” Fultz asked.

“I don’t think it is a distraction,” Blum said. “If it helps one family, in my view that’s successful.”

“The housing that we need is two- to three-bedroom,” Lindsey Hammersmith said during the public comment period. “I agree with the amounts that were brought up today.”

“What we’re seeing on the sales market is that a lot of these short-term rentals now are going out to market, and if they were sold today, I know of a local one, a three-bedroom, two-bath, that if I were to purchase that, my mortgage would be about $4,000 a month,” Hammersmith added. “So you really kind of perpetuate this needing to do a short-term rental continuation.”

“I’m fine with giving this a try as requested, but I’m skeptical that it’s going to work,” Fultz said, saying that “the average short term rental is still grossing $3,200 a month.”

“I’m willing to try it,” Councilwoman Melissa Dunn said, but expressed concerns about the program merely “deferring homelessness.”

“Maybe we need to have an incentive that increases if you leave a property in the program,” Councilman Derek Pfaff suggested.

“We’re not trying to compete in the marketplace. We’re trying to find that trip level,” Councilman Pete Furman said.

“We can never compete with the market,” Kinsella said. “We were trying to find someone’s better side.”

Council voted unanimously for the increased cap.