Short-Term Rental Regulation to Change Following Federal Court Ruling (Austin, TX)

August 3, 2023

Summary of Case:

A pivotal, multi-year legal case with profound implications for the short-term rental (STR) licensing landscape in Austin, Texas, concluded on August 1, 2023. The case of ROBERT ANDING AND ROBERTA ANDING (Plaintiffs) vs. THE CITY OF AUSTIN (Defendant) reached its culmination within the U.S. District Federal Court. The plaintiffs, Robert and Roberta Anding, are proprietors of a Lake Austin property that was previously utilized for short-term rentals.

In October 2022, the Andings initiated legal action against the City of Austin (COA), contending that the ordinances issued by the COA in 2016 for operating a STR without a license were unconstitutional, both in terms of their textual content and their application to the Andings' circumstances. Throughout the course of the litigation, the Andings presented multiple arguments and submissions, with the following being of particular relevance:

  • The Andings sought a Type 2 license but faced repeated denials from the City of Austin.
  • The Andings challenged the STR Ordinance’s homestead requirement, which dictates that owners of properties within certain zoning districts – including the one where their home is located – may only receive a short-term rental license if the owner resides on the premises.
  • The contention was made that the ability to lease property constitutes an inherent and fundamental right of property ownership.

Analysis of the Case:

This case has been closely monitored, and over the past few years, it has been our opinion that the City of Austin's STR regulations were in potential contradiction with certain prior rulings of the Texas Supreme Court. The litigation led by the Andings ultimately evolved into a landmark court decision, declaring the requirement of owner occupancy as unconstitutional.

Implications for Austin, TX Short-Term Rentals:

Preceding this ruling, the City of Austin exclusively issued Type 1 STR licenses, which necessitated owner occupancy on the premises. While Type 2 licenses for unoccupied owner homes were previously available, no such licenses have been issued since 2019. It is our opinion that this ruling will lead to the homestead requirement being expunged from the municipal code in the coming weeks, thus equalizing the treatment of both Type 1 and Type 2 licenses. We were able to talk with the City of Austin’s STR licensing department today and essentially they said that they are awaiting legal guidance to discern the practical implications of the court’s decision.

From our perspective, the current juncture presents an opportune moment to initiate the submission of STR applications. We actually encourage and think its best for cities to have certain limitations on STR operations/licenses, such as those adopted in San Antonio. In a recent case in Dallas, the city council decided to entirely prohibit short-term rentals in residential zones and chose not to grandfather existing STR permits. We are of the opinion that the outcome of the class action lawsuit will establish the unconstitutionality of such measures, thereby permitting owners to sustain their operations under their preexisting licenses.

This ruling is poised to attract more STR investors to Austin, TX. With an existing inventory of over 12,000 short-term rentals, numerous local hosts and STR managers have commented that the market is already saturated, and this ruling may exacerbate saturation. While an escalation in property numbers is expected, it’s noteworthy that several STR properties already face profitability challenges and would most likely exit the market regardless. As the landscape evolves, it will become essential to have top-tier properties and short-term rental management companies.

Five Star Vacation Home Rentals stands ready to offer its assistance!

(This article is written by Lucas Piper, the Owner of Five Star Vacation Home Rentals)

View the full PDF here.

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