Short-term Rentals and Regulations in Texas

Short-term Rentals and Regulations in Texas

For a growing number of vacationers, short-term rentals are a preferred alternative to hotels. As vacation rentals grow in popularity, and the demand for them increases, more and more property owners, with the help of select management companies, are opting to rent their houses to travelers.

Cities, meanwhile, have struggled to govern the trend, and have witnessed contentious debates about how much to regulate vacation rentals, or whether even to allow certain kinds of them. When regulatory rules are finally passed, owners of short-term rentals sometimes find themselves frustrated by the restrictions and confused about how to comply. Inevitably, many ordinances prompt lawsuits as well as calls for state legislatures to intervene on behalf of owners of short-term rentals.

Austin Went Too Far

A look at Austin’s experience illustrates the tensions and conflicts behind the debate over short-term rentals. Austin’s experience also illustrates how vacation-rental regulations sometimes turn out to be a prologue to later, broader restraints — and how backlash begets backlash, as a push for more rules produces its own push to overturn those rules.

The Austin City Council first regulated short-term rentals in 2012 and 2013. Then in February 2016, the city significantly tightened its regulations. The new rules impose strict occupancy and time-of-day limits on vacation rentals in residential neighborhoods. No more than 10 adults can gather in a vacation rental at a time — the limit is six if the adults are unrelated. Further, the ordinance bans “an outside assembly” with more than six adults. It’s not a great exaggeration to say the city essentially wants lights out in short-term rentals located in residential neighborhoods between 10 p.m. and 7 a.m.

Austin’s new rules particularly target what the city calls Type 2 rentals by phasing them out of residential neighborhoods by April 2022. Type 2 rentals are properties with no live-in owners that are available for rent year-round, though owners might occasionally make personal use of the property.

To meet its goal of slowly eliminating non-owner-occupied vacation rentals in residential neighborhoods, the city stopped accepting license applications for them last fall. Thus in five years, only owners of single-family homes or multifamily dwellings who live on their property and who want, for example, to rent out their house while they’re temporarily away or use a garage apartment or an adjoining unit as a vacation rental can continue to operate in a residential neighborhood.

Lawsuit Could Overrule Austin

In response to the new rules, the Texas Public Policy Foundation, a conservative think tank in Austin, sued the city in June 2016. The foundation argues that Austin’s rules go far beyond standard-issue licensing, health, safety and taxation rules and violate property owners’ constitutional rights. In October, Texas Attorney General Ken Paxton joined the foundation’s lawsuit.

Missed Opportunity in Texas Legislature

Not to be left out, the Texas Legislature, currently in session until late May, considered two similar bills that would prevent cities from banning short-term rentals. The proposed legislation would have overturned or significantly narrowed ordinances in Austin, San Antonio, Fort Worth and elsewhere.

Tribtalk, the Texas Tribune’s editorial page, published Why the Texas Legislature Should Protect STRs. The piece highlights the additional tourism dollars, tax revenue, homeowner income, and jobs the vacation rental industry brings to Texas.

State senators moved their version of the proposed legislation forward April 18 when they approved Senate Bill 451. Written by Republican state Sen. Kelly Hancock of North Richland Hills, a Dallas-Fort Worth suburb, SB 451 sought to standardize short-term rental rules across the state, aiming to eliminate confusion for property owners. The bill still lets cities impose health, safety, traffic and nuisance rules on short-term rentals but prevents them from banning short-term rentals.

The same day the Texas Senate passed SB 451, a Texas House committee considered companion legislation. The House bill, HB 2551, was left pending.

Vacation rental owners argue they shouldn’t be punished because a few irresponsible homeowners failed to properly manage their properties. Indeed, most owners want to protect their rental investments, which not only are a source of income, but also contribute tax revenues to local and state economies. In Austin, vacation rentals play a vital supporting role in the city’s $9 billion tourism industry by meeting the demand for places to stay, especially during major festivals and events such as SXSW, F1 and ACL. Short-term rentals in the Austin area can house more than 34,000 visitors, only a few thousand fewer than the area’s hotels can house.

Texas needs short-term rentals to meet tourism demand. Yet harmful regulations mean many homeowners invested in their vacation rentals under one set of city rules, and are now possibly facing eventual elimination of their business under a separate set of rules.

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