Short-term rentals challenge longtime Austin lodging choice

Revisions to city STR laws became official Jan. 1

Short-term vacation rentals have become Austin's most popular hotel alternative among not only travelers but also would-be bed-and-breakfast innkeepers.

There are four permitted B&Bs in Austin, according to city records, compared with more than 700 permitted short-term rentals, or STRs, which the city defines as any residential unit or accessory building leased for 30 consecutive days or less. Classified separately from hotels and motels, the first set of laws regulating STRs began being enforced in October 2012, and revisions made to the law last fall went into effect Jan. 1.

"Whether necessary or not, it's the law," said Joel Rasmussen, founder of Austin Rental Alliance, an STR nonprofit owners association. "We fought a long battle for two years, and the results, I think, we were very satisfied with."

Data from Austin-based HomeAway Inc., the world's largest vacation rental marketplace, suggests the Austin STR market grew 8 percent in the past year. On the other hand, rising property values, strict regulations and a housing inventory shortage have made it difficult for Austin's B&B industry to grow, said Liz Lock, who alongside her husband, Eric C. Hughes, operates Adams House Bed and Breakfast in Hyde Park.

The increase in STRs so far has not hindered business at Adams House, a 103-year-old house converted into a B&B in January 1998. In fact, occupancy is at record highs, Lock said. But as short-term rentals gain momentum, the couple said new B&B options are less likely to enter the market.

"Starting a B&B can be financially out of reach for a new innkeeper today," she said. "We were fortunate enough to go into a family-owned business, or we would have never been able to do this."

Short-term alternative

Austin B&Bs are unlikely to be replaced by STRs, Rasmussen said, although his industry is in growing demand. HomeAway has 1,114 Austin STRs listed in its network registry versus 29 bed-and-breakfasts.

"I don't think the appeal of [B&Bs] is ever going to go away," he said. "[But] there's a different appeal to traveling and having your own private place with kitchen and laundry—it's your home away from home."

A standard two- to three-bedroom STR typically costs $250 per night in Austin, according to HomeAway. Conversely, Adams House B&B has rooms available nightly for $139–$179.

The ordinance regulating STRs was amended in September to include stipulations for multifamily units such as condominiums, and council also updated the law so owners may occupy units during rentals—but B&B owners must live on-site. In addition, STR permitting costs were decreased from $485 to $285 annually.

The initial 2012 rollout of the Austin ordinance may have suffered in part because of the higher permitting fee, said Matt Curtis, HomeAway director of governmental relations. HomeAway and the city have each created programs to educate potential renters of the permitting process.

"The success of the rollout is very essential, and the [number of STRs] may have suffered because of that," he said. "However, people are still registering, and city staff has done a good job of educating the community. I'm confident in the long run the program will be very successful."

As part of the city ordinance revisions that became official Jan. 1, owners may promote a potential rental before seeking a permit from the city, making programs such as HomeAway's pay-per-booking system attractive to renters uninterested in paying annual subscription fees to join an online booking service. However, there is no method to confirming renters follow through with the permitting process after booking guests, Curtis said.

"When you think about how hyperlocal the rules are around the world and how difficult it is to define some of the nuances of the rules and how often rules change, it makes it very difficult for an online listing service like ours to be able to truly police," he said.

Coming into compliance

Matthew Christianson, division manager for Austin's Code Compliance Department, said demand for STRs is on the rise as the city adds new events each year.

"The number of short-term rentals in the market a few years ago was really small," said Christianson, who has more than 20 years of experience in city code enforcement. "People were a bit leery when we started licensing short-term rentals, but it's becoming more of an accepted regulatory practice that is not that expensive when you look at the cost of return."

STRs are most popular just south of Lady Bird Lake, where six Census tracts, or geographic areas averaging 4,000 people, have already reached their annual limit on the number of non-owner occupied units for rent.

Because property owners can now promote their property before gaining a permit, Christianson said the amount of listings on websites such as HomeAway do not necessarily reflect the actual number of active city STRs—permitted or otherwise. In total, the city has received 181 complaints about short-term rental properties, according to city records.

"We don't have the staff to focus on every ad we see, but we are constantly checking," he said. "If you have a website with calendars set up and reviews saying thanks, and you don't have a license—that's probably a good indicator you're operating illegally."

Chereen Fisher, a property manager and owner of TopTripRentals.com, recommends going through the permitting process prior to advertising any property for rent to ensure a permit is in hand before guests arrive.

"If you go down [for a permit] the week before SXSW because you have guests coming, you may not get in on time," she said.

Approximately one-quarter to nearly one-half of all STRs are handled by property managers, according to HomeAway national survey results. Fisher said her focus has been on getting permits for multifamily units that previously had no code stipulations, but regulations at many condos limit the new multifamily market's growth, she said.

Doubling as a manager and owner of rental units, Fisher said the city has so far shown a strong ability to spot non-permitted STRs.

"I've been surprised. I thought it'd be more complicated and nobody would really know what's going on, but it hasn't been that way," Fisher said. "They've been good."

B&B rebound

Part-time work equals part-time pay in the B&B industry, said Hughes, who, in addition to his duties at Adams House, doubles as an Austin musician.

"To be at the level we want to be at, we have to work full-time," he said. "We always try to make ourselves available, even if it's just to answer the phone."

Herb Dickson, who from 1990 to 2005 ran the former Woodburn House Bed and Breakfast in Hyde Park, said innkeeper duties are more work-intensive than most retirees prefer. He estimates the average B&B innkeeper lasts seven to eight years before the property exchanges hands.

"A lot of times when owners get ready to sell properties, it's hard to sell a bed-and-breakfast as a bed-and-breakfast," he said. "A lot of times they sell them as a personal home and not a bed-and-breakfast," including the Woodburn House, which sold last.

Adams House is in the process of expanding its private living quarters so Lock and Hughes can have more space while still living on the property. Christianson said there are more regulations on B&Bs because they have a business model similar to hotels.

"It's a matter of what business model you're choosing," Christianson said.

Adams House, granted historical landmark status by the city in 2010, now stands out as the only remaining bed-and-breakfast in Hyde Park, a neighborhood that once included three B&Bs in a six-block radius.

"Running a bed-and-breakfast is exciting, and it's also hard work," Lock said. "We want it to be more than a home away from home for our guests."

By Joe Lanane
Joe Lanane’s career is rooted in community journalism, having worked for a variety of Midwest-area publications before landing south of the Mason-Dixon line in 2011 as the Stillwater News-Press news editor. He arrived at Community Impact Newspaper in 2012, gaining experience as editor of the company’s second-oldest publication in Leander/Cedar Park. He eventually became Central Austin editor, covering City Hall and the urban core of the city. Lanane leveraged that experience to become Austin managing editor in 2016. He managed eight Central Texas editions from Georgetown to San Marcos. Working from company headquarters, Lanane also became heavily involved in enacting corporate-wide editorial improvements. In 2017, Lanane was promoted to executive editor, overseeing editorial operations throughout the company. The Illinois native received his bachelor’s degree from Western Illinois University and his journalism master’s degree from Ball State University.