The City of Austin has unveiled proposed changes to its city code regarding short-term rental (STR) regulations. These changes stem from an August 2023 federal court ruling that rendered the city’s existing STR ordinance ineffective. Specifically, the court found the homestead requirement for obtaining a short-term rental permit to be unconstitutional. Since then, Austin has been issuing STR permits for single-family properties without distinguishing between primary residences and investment properties. Now, the city aims to introduce updates to the STR ordinance, with working drafts available for review.
Historical Context of STR Permits in Austin
Before the court’s decision, the City of Austin categorized STR permits into three types:
Type 1 – Owner-occupied single-family residences.
Type 2 – Non-owner-occupied, investor-owned single-family properties.
Type 3 – Multi-family properties.
Between 2015-2023, Type 1 and Type 3 permits were routinely issued. However, obtaining a Type 2 permit for a full-time STR investment property was more restrictive. Initially, Type 2 permits were capped based on the property’s census district. In 2015, the city placed a moratorium on new Type 2 permits, with one exception: properties zoned as commercial and not located within 1,000 feet of another active STR could still qualify. These types of properties were incredibly rare. From 2015 to 2023, this effectively prohibited investors from legally purchasing single-family homes for use as STRs within city limits. Investors either opted to operate without permits—taking on significant legal risks—or looked beyond Austin for safer opportunities.
Key Questions About the Proposed Changes
The city’s draft revisions raise several questions and concerns:
Owner/Operator Requirement: The proposal mandates that STR operators must own the property. Does this mean property management companies can no longer handle STRs on behalf of owners? How will this impact current owners who rely on third parties to manage their rentals while they’re away?
Multi-Unit Properties: The draft states that on a site with one to three units an individual can operate “a short-term rental”. Does this imply that an owner can only operate a single STR property?
1,000-Foot Distance Rule: Will this requirement apply universally to all STRs, similar to the former Type 2 commercial zoning rules, or only to properties owned by the same individual or entity? Does the rule exclusively apply to properties owned under LLCs? If an owner has multiple units on a single lot, does this rule prohibit renting all units simultaneously?
Corporate Entity Ownership: It appears the proposed amendments are attempting to skirt the homestead exemption issue by making rules based on how one takes title to the property. There is specific language surrounding single member LLC and trust ownership. These changes could be problematic especially for those purchasing a short term rental with a DSCR loan that requires LLC ownership.
These changes may inadvertently complicate the regulatory landscape, especially for multi-unit properties, accessory dwelling units (ADUs), duplexes, and those using “house hacking” strategies. Policymakers should consider the practicality of these amendments and their potential impact on community dynamics. For instance, clustered STRs on a single lot may be less disruptive than dispersing STRs across neighborhoods. Clear, accessible guidelines will be essential to avoid confusion among property owners.
One positive element of the proposed amendments is that any current STR owner with an active permit will be “grandfathered in”. So long as you keep your license active, and retain ownership you will be permitted to stay in business. As has been the case previously, licenses will not be transferable upon a sale of the real estate.
Public Input and Community Sessions
The City of Austin is hosting informational sessions to gather feedback on the proposed changes. These sessions are a vital opportunity to learn about the new regulations and voice your opinions. If you are invested in Austin’s STR market, your participation can shape the future of these policies. We highly recommend you sign-up for one of the upcoming public input sessions.
Tuesday, January 21: 11 AM - 1 PM (Zoom)
Wednesday, January 22: 6 PM - 8 PM (Montopolis Recreation and Community Center)
Thursday, January 23: 6 PM - 8 PM (Permitting and Development Center)
Monday, January 27: 6 PM - 8 PM (Austin Central Library)
From Draft to Law
After the City reviews input from the community sessions, the draft amendments will go through the City’s legal process to become officially binding. The timeline for this process is as follows:
Public Hearings:
Tuesday, February 4: 1 PM (Joint Planning Commission and City Council Meeting, Austin City Hall)
Tuesday, February 11: 6 PM (Planning Commission Meeting, Austin City Hall)
Thursday, February 27: 10 AM (City Council Meeting, Austin City Hall)
Call to Action
Austin’s STR industry is at a crossroads. The proposed amendments could significantly reshape the landscape for property owners, managers, and investors. Attending these sessions and hearings is crucial for anyone impacted by or interested in STR regulations. By voicing your concerns and suggestions, you can help ensure that the new ordinance is equitable, clear, and practical for all stakeholders.
