Austin’s relatively strict regulation of short-term rentals will likely survive another pre-emption attempt from state lawmakers during the most recent legislative session.

Short-term rentals are dwellings that are rented for a fee and for less than 30 consecutive days. The marketplace for these offerings is dominated by websites such as Airbnb, HomeAway and Vrbo.

House bills introduced by state Rep. Angie Chen Button, R-Garland, were ignited by an attempt to pre-empt any city laws, such as Austin’s, that prohibit certain residential properties from being used as a short-term rental. The bills failed to gain traction in 2017 or 2019.

However, the fate of the most recent legislative attempt does not assuage the threat of an impending state overruling. Austin has committed to outlawing short-term rentals at non-owner-occupied houses in residential areas by 2022. Although city officials say the move responds to Austin’s housing affordability crisis, conservative lawmakers and short-term rental operators claim a violation of property rights.

“These people are going into neighborhoods and buying up homes with no intent to actually live there but to use them as hotels for [tourists],” Austin Mayor Steve Adler said. “This was resulting in a situation where were losing significant amounts of our housing stock. I don’t understand why [we] would be denied the tool that most effectively deals with that.”

Austin also awaits a ruling from the Texas Court of Appeals on a lawsuit filed in 2016 by conservative advocacy group Texas Public Policy Foundation against Austin. The suit aims to halt the city’s short-term rental ordinance, and Texas Attorney General Ken Paxton has signed on.

Rob Henneke, general counsel for TPPF, said he not only expects a ruling by the summer, but also predicts state lawmakers will continue their pressure on these local regulations for legislative sessions to come.

As fights over local rules have continued to play out, the short-term rental industry in Austin has not only thrived, but it has proven to be a difficult trade to contain.

Long-term growth

The dawn of platforms such as Airbnb, HomeAway and Vrbo have transformed the reach and accessibility of short-term rentals, allowing users to book full houses, apartments, or private or shared rooms from their smartphones. The bulk of listings, however, are for entire homes or apartments.

“People prefer staying in homes more than hotels,” said Kevin Kapadia, CEO of GuestSpaces, a local short-term rental property-management company. “Especially if you’re a larger group, say 10 people. You’d rather get one house than be segregated into four hotel rooms.”

The industry has boomed statewide, bringing in $3.5 billion into the Texas economy in 2018 and sustaining 35,000 jobs, according to an economic impact study published by economic consulting firm TXP Inc. earlier this year.

Austin has proven to be the most popular, and expensive, destination for short-term rentals of the largest Texas cities, according to AirDNA, a short-term rental data analytics firm. In May 2018, Austin had roughly 9,800 listings on Airbnb, at an average rate of $291 per night, which towers over Houston’s roughly 7,400 listings at $167 per night, Dallas’ roughly 2,800 listings at $171 per night and San Antonio’s roughly 2,700 listings at $165 per night.

Kapadia said when he first listed a property in 2014, he saw less than 1,000 total short-term rental listings in Austin. Today, that number is around 10,000 at any given time. Between March 2015 and March 2019, the number of Austin listings on Airbnb offering a full house or apartment jumped 145% from 3,587 to 8,789, according to Inside Airbnb, a website run by New York-based community activist Murray Cox, which collects Airbnb data in major cities across the world. Of those nearly 9,000 entire home or apartment listings, 6,134—70%—were located within Central Austin.

Struggle to regulate

Austin categorizes short-term rentals into three categories—Type 1: owner-occupied multifamily, single-family or duplex units; Type 2: non-owner-occupied single-family or duplex units; and Type 3: non-owner-occupied multifamily units. Austin requires all short-term rental operators, whether they rent a unit out for a day or all 365 days of the year, to register with the city and obtain a license.

The local government has struggled to enforce its registration requirements as illegal short-term rental units have proliferated throughout the city. In March, there were 7,750 total listings, from full houses to shared rooms, in Central Austin, according to Inside Airbnb, yet city data shows only 1,961 active licenses on file for the area, resulting in a roughly 4:1 ratio of illegal to legal listings in the city’s core.

Similar to the city’s battles with ride-hailing companies Uber and Lyft, Austin’s efforts to regulate short-term rentals have been messy—littered with lawsuits and differing legal opinions across jurisdictions.

In 2015, after seeing a rise in listings and complaints from residents, Austin lawmakers committed to phasing out and ultimately banning the Type 2 rentals by 2022. In the meantime, the non-owner-occupied units would be heavily regulated, from how many bedrooms were allowed in the rentals to how many adults could congregate outside and how many unrelated adults could gather in the house.

Although the move received praise from some community members, others raised serious concerns over property rights, government overreach and impacts to housing affordability.

“Regulation is good—to have these unregulated party houses and allow an unlimited number of people to do this is a terrible idea,” Kapadia said. “But to ban them completely is not a smart idea. You can’t ban someone from renting out their house.”

Kapadia said people will always find a way around short-term rental regulation, citing the number of illegal rentals in the city as proof. Last year, City Council passed a resolution for staff to analyze how much time and money the city was spending to monitor and enforce its rental restrictions, to weigh potential increases in fines against bad actors and for application and registration fees. City staff is scheduled to come back with the report in June.

Pressure from the state

The most high-profile complaint against the city’s rules has come from the state government.

Austin has survived pre-emption and attempts to overrule on multiple occasions. The city was successful against Paxton and the TPPF’s lawsuit in the initial trial court ruling but awaits a pending decision from the Texas Court of Appeals.

Meanwhile, conservative lawmakers at the Capitol who feel Austin’s ordinance is unfair and infringes on property rights have also continued attempts to pre-empt Austin's laws.  While those bills have yet to much traction, Henneke called it “typical” for some legislation to take multiple sessions before it gets enough momentum to pass into law.

Henneke said often when a case is pending while a similar issue is being battled out at the Legislature, the court will wait to see what state lawmakers do. He expects the court to hand down its decision sometime in June, and predicts state lawmakers will continue to apply pressure with pre-emption attempts in the future.

“The right to rent is fundamental to property rights,” Henneke said. “Where there has been a problem with short-term rentals, it has been the local government’s lack of enforcement of public disturbance regulations.”

However, supporters of Austin’s regulations maintain the issue is not as much a party house issue as it is about housing affordability.

“[Type 2 short-term rentals] decrease affordability by reducing housing supply,” said Jesse Moore, president of the Bouldin Creek Neighborhood Association. “It would be disappointing for the Texas Legislature to put affluent investors ahead of ordinary Texans who need homes by enacting legislation that reduces local control of non-owner-occupied [short-term rentals].”