On Tuesday, a federal court issued a groundbreaking ruling, striking down Austin's short term rental rules, deeming them unconstitutional. In particular, the ruling disbanded the restriction that only owner occupants could receive a permit for a short term rental in the city limits of Austin. Interestingly, this isn't the first time Austin's STR restrictions have been ruled unconstitutional.
Back in 2019, the Third Court of Appeals decided Zaatari v. City of Austin. In this case, the court ruled that the City of Austin's ban on short-term rentals by owners who do not claim a home as a homestead is an unconstitutional retroactive law. Essentially the right to lease, no matter the duration, is a constitutional right in Texas. However, with this ruling, nothing happened. The City of Austin continued to deny the ability for non-owner occupants to receive short term rental permits.
The City of Austin is taking a different stance this time. According to our communications with City staff from the short term rental department they are awaiting guidance from their internal legal team as to how to proceed. However, based on this interview with KXAN, it appears the city will be complying with the federal ruling. A city staff member stated, “The City is disappointed with the ruling but hopes that the owners and guests of short-term rental properties will be respectful and considerate of the neighborhoods in which they are located. The City is committed to enforcing its nuisance regulations to short-term rental properties as needed”.
Now, the question remains what will this actually look like? Will they just allow STRs to proliferate in the Austin market? I think this is unlikely. I anticipate that they will come up with some type of cap system. In 2016, the City of Austin changed their STR restrictions and essentially banned Type 2, non-owner occupant, STR permits. Prior to that, Type 2 licenses were allocated by census tracts. No more than 3% of the total single family houses in a given census tract could receive a Type 2 permit. It's possible they may return to a similar regulating strategy, but one that combines the total number of permits available for owner occupants as well as investors.
We have consistently worked to monitor short term rental rules and regulations through the greater Austin area, and this matter is no exception. We will be closely communicating with City of Austin staff to ensure we have the latest reliable intel to share with you. Get ready, because once the City has a plan, it will be imperative to act swiftly.
UPDATE! On Monday, August 7th 2023 we reached out to the City of Austin ‘s short term rental department with a few follow up questions in regards to the recent ruling. We asked if Type 2 permits would be issued at this time for any property regardless of acquisition date. We were told that yes, they will be issuing Type 2 permits in all areas where Type 1 permits are currently being issued. As mentioned previously, we speculate they may try to regulate the total number of str permits in the future. When we asked about the possibility of a cap on the number of issued permits per census tract or something similar, the city staff said it would be up to city council to vote on such a policy. Given that the Andings vs City of Austin case established the premise of retroactivity it appears to us that even if they did create limits in the future, anyone with a current permit would be grandfathered in. We have no doubt such policies will come to a discussion relatively quickly. Thus it’s imperative to lock in your Type 2 permit now while you can.
