The city of Austin’s short-term rental, or STR, ordinance, which regulates the existence of non-owner-occupied vacation units in residential neighborhoods, survived a potential blow during the Texas Legislature’s recent session.

Although a bill that would have stripped localities of STR regulating power and given it to the state did not pass, Austin’s restrictions on STRs remain under fire because of a pending lawsuit filed in 2016 that claims several parts of the city’s ordinance violate the U.S. Constitution.

What follows is an explanation of how the city arrived at its existing policies and the subsequent legal backlash against its regulations: City Council passed an ordinance in 2012 allowing for the regulation and licensing of STRs. Mayor Pro Tem Kathie Tovo said it was understood that the program was only a pilot and would likely need to be adjusted.

The council defined an STR as a property that is leased for less than 30 consecutive days and created three types: Type 1, or owner-occupied, multifamily, single-family or duplex units; Type 2, or non-owner-occupied single-family or duplex units;  and Type 3, or non-owner-occupied multifamily units.

In response to residents' concerns in 2015 about Type 2 units that had been brought into residential neighborhoods, Tovo said discussion focused on the once-single-family properties becoming hotels and “party houses.”

Tovo said she and her colleagues saw another issue taking shape: Type 2 STRs were set up to become investor-owned commercial properties, which did not belong in single-family neighborhoods.

“We have a situation where we’re talking all the time about how to create more housing opportunities throughout the city, but we have a policy that allows some of our housing stock to be converted into commercial services,” Tovo said.

Council voted in February 2016 to end the issuance of new Type 2 licenses, phase them out of neighborhoods by 2022 and place tight regulations on how they are operated. Employees from vacation rental company HomeAway’s Austin headquarters marched on City Hall in protest.

The Texas Public Policy Foundation, a research institute, sued the city claiming the STR ordinance violated several constitutional rights, from property rights to the freedom of movement, privacy and assembly.

“It’s not constitutional for you to tell me how many people I can have come over and watch a football game just because I am staying in a short-term rental,” said Robert Henneke, general counsel and litigation director at the foundation.

Texas Attorney General Ken Paxton joined the lawsuit against Austin, claiming the ordinance violates the Constitution by stripping away a revenue stream from property owners without providing just compensation.

Tovo said the city would prevail against unmerited claims raised in the lawsuits.

“Most cities ... separate commercial and residential zoning, and that’s what we’re doing here,” she said. “An attack on that ... would really be an attack on our ability to zone.”

Henneke said he expects to present evidence and receive a decision on the case this fall.