Federal Court ruling means more Airbnb in ATX

Last month a federal judge struck down Austin’s short-term rental (“STR”) ordinance as unconstitutional. Central to its decision was the ordinance’s owner-occupancy requirement. This case was filed by Robert and Roberta Andings, a Houston couple that was denied a STR license for their Lake Austin property, because they did not live on the property permanently.

The road to this decision has been marked with legal battles and community outrage, starting with fervor in 2016 when the City amended its STR regulations, which banned anyone who was not a permanent occupant of an Austin home from renting out their home. These regulations included a phased-in ban that would take full effect in 2022, meaning that all properties would have to follow these new rules regardless of when they were purchased. In 2019, the Austin Court of Appeals struck down this ban, ruling that the City’s ordinance violated the Texas constitution, because it applied retroactively. The Austin Court of Appeals’ decision should have allowed a couple like the Andings to apply for a STR license with the City. The City, however, narrowly interpreted that ruling as applying only to STR-licensees as of 2016. Thus, Austin continued to restrict non-resident owners who purchased their property after 2016 from obtaining an STR, including the Andings.

Senior U.S. District Judge, David Alan Ezra, disagreed with the City’s interpretation, overturning Austin’s 2016 STR regulations and holding that property owners may operate a STR in the City, regardless of whether they occupy the property as a homestead. Judge Ezra struck down the City’s 2016 ban on two separate and independent bases, holding that the regulations: (1) were unconstitutional under the dormant commerce clause of the United States Constitution, and (2) were “unconstitutionally retroactive,” under the Texas Constitution.

Simply stated, the Court found that if property was acquired before the City’s ban, then the City cannot apply restrictions to it. As the Andings’ attorney stated: “If you already owned a property when the City started banning some people from renting for short-terms, the City can’t do that to you. The City can’t ban you from doing it because you already had that property right when you bought the property.”

Per the City’s website, an STR owner is required to obtain an operating license annually. This requirement applies to all STR properties, including rooms and guest houses, that are rented for fewer than 30 consecutive days. Currently, there are approximately 2,000 licensed STRs in Austin, and an estimated 10,000 non-licensed STRs. These numbers, however, will likely rebalance, as this ruling is poised to motivate more operators to pursue licenses.

Though the City is disappointed with the ruling, it remains steadfast in enforcing its nuisance regulations at STRs as needed. Only time will tell what the City chooses to do next: appeal this latest ruling, or finally decide to follow the law, and throw in the towel.