Municipal Empires Strike Back in STR Wars: Bans on Short-Term Rentals, Where Owners Are Winning and Losing, and How to Preserve High-Value STR Portfolios
Texas is in the middle of a war over short-term rentals (STRs).
Dallas has petitioned the Texas Supreme Court to revive a 2023 ordinance that would effectively ban most STRs in single-family neighborhoods—just as the 2026 World Cup looms. For now, STR owners there are protected by an injunction that’s kept the ban on ice.
Elsewhere, owners are getting mixed results. Courts have struck down some aggressive bans, upheld others, and allowed HOAs and small towns to squeeze STRs through restrictive covenants and zoning.
For STR investors, the stakes are high. This post walks through:
where owners are currently winning and losing on STR bans in Texas;
how vested rights and injunction strategies are playing out; and
a practical playbook for preserving a high-value STR portfolio in a volatile regulatory environment.
Quick disclaimer: This article is for general information only and isn’t legal advice. Every portfolio and city is different—talk with counsel about your specific situation.
Dallas asks the Texas Supreme Court to revive the city’s STR ban.
In 2023, Dallas adopted two ordinances: one banning STRs in single-family zoning and another tightly regulating them elsewhere. STR owners and the Dallas Short-Term Rental Alliance sued, arguing the ordinances violate the Texas Constitution and state law. A Dallas County judge issued an injunction blocking enforcement, and the court of appeals has repeatedly refused to lift it.
Dallas is now asking the Texas Supreme Court to:
take the case;
reverse the lower courts’ decisions; and
let the city enforce its near-ban before the World Cup crowds arrive in 2026.
What this means today (late November 2025):
The 2023 “virtual ban” is not currently enforceable because of the injunction.
STRs can still operate in Dallas—subject to other applicable laws—while the Texas Supreme Court decides whether to get involved.
For owners statewide, Dallas is the bellwether. The high court’s eventual ruling (or refusal to rule) will signal how far Texas cities can push toward outright STR bans and what kind of protection existing operators can realistically expect.
Here’s where owners are winning: Austin, Dallas (for now), and targeted settlements.
1. Austin’s overreach gets rolled back.
Austin was an early adopter of aggressive STR rules, including:
a ban on non-owner-occupied STRs in residential areas; and
strict occupancy limits and burdensome operational rules.
In Zaatari v. City of Austin, the Third Court of Appeals struck down key parts of the ordinance as unconstitutional, relying on Texas’s strong protections for property rights, including constitutional limits on retroactive laws.
A federal judge later declared portions of Austin’s STR scheme unconstitutional as well, holding that Austin couldn’t simply bar non-owner-occupied rentals like Airbnbs when those uses had previously been allowed. (See our previous post on that decision here: https://www.cobbjohns.com/blog/federal-court-ruling-means-more-airbnb-in-atx?rq=STR.)
Austin’s response in 2025 was telling:
The city abandoned the full-blown “ban and phase-out” strategy.
It pivoted to a licensing and enforcement model that requires permits, platform cooperation, and density limits (with $500-per-day fines for violations), but stops short of a citywide prohibition on STRs.
2. The injunction against Dallas is a lifeline for STR owners.
In Dallas, owners haven’t “won” the case yet—but the temporary injunction is worth millions in preserved revenue.
The trial court found STR operators would suffer irreparable injury if the city enforced its ban while the constitutional issues were still being litigated.
The court of appeals agreed—multiple times—and left the injunction in place.
For portfolio owners, this is a real-world example of how powerful early injunctive relief can be: it can keep your use alive long enough to fight the case (or negotiate a compromise) instead of being shut down overnight.
3. Settlements can lock in “non-conforming” STR status.
In smaller jurisdictions, we’ve seen quieter but significant wins through settlement.
For example, Hollywood Park (close to San Antonio) adopted a 2023 ban on STRs. After being sued in federal court, the town settled. The plaintiffs were allowed to continue renting under “non-conforming use” status, subject to conditions and inspections, rather than being shut down under the new ban.
The take-away: Even when a ban passes, litigating (or credibly threatening to litigate) can result in grandfathered rights for existing STRs, especially if you can show substantial investment and reliance before the law changed.
Here’s where owners are losing: Arlington, New Braunfels, and private covenants.
1. Arlington prevails by tying STR bans to nuisances and neighborhood stability.
In Draper v. City of Arlington, owners challenged two ordinances that restricted STRs in areas around AT&T Stadium and in residential neighborhoods. The Fort Worth Court of Appeals upheld Arlington’s rules, emphasizing the city’s evidence tying STR activity to noise, trash, parking, and neighborhood impacts. (Read the Draper opinion.) The Texas Supreme Court denied review in 2022, leaving Arlington’s STR regime intact.
2. New Braunfels neighborhood ban is upheld in federal court.
New Braunfels has long prohibited STRs in residential neighborhoods. In early 2025, a federal district judge granted summary judgment to the city, upholding its ordinance against constitutional attack. Owners and advocacy groups have appealed to the Fifth Circuit, arguing the ban strips away traditional leasing rights without a proper factual basis.
3. HOAs and neighbors flex their muscles by revising private agreements and covenants.
Not all STR battles happen at city hall. In 2024, the Texas Supreme Court declined to review appellate decisions allowing subdivisions to amend HOA and/or restrictive covenants to remove or sharply limit leasing rights—effectively outlawing STRs in those communities through private governance.
This line of cases suggests that:
a majority of owners in a subdivision can, in some circumstances, vote to take away leasing rights from existing owners by amending restrictive covenants or HOA agreements; and
the high court is, so far, unwilling to intervene in those private fights.
For portfolio investors, private covenants and HOA documents are now as crucial as zoning maps.
Use the legal tools: vested rights, SB 929, and injunctions.
1. Use vested rights to lock in today’s uses against tomorrow’s politics.
Texas law recognizes several overlapping concepts that STR owners can potentially use to claim “vested rights”:
Chapter 245 of the Texas Local Government Code generally protects a property owner’s right to have applications and projects reviewed under the rules in effect when the first permit application was filed.
Section 211.006(a-1) of the Texas Local Government Code, as amended by SB 929 (88th Legislature), requires a city, before it revokes the right to continue a previously lawful use through a zoning change, to provide robust notice and sometimes compensate the owner for the loss.
The Texas Constitution (including its due-process and retroactivity clauses) has been used to strike down retroactive laws that destroy established property uses without sufficient justification (as in Zaatari).
In practical terms, “vesting” usually turns on questions like:
How long has the landowner used the property for STRs?
Did the city previously license or recognize STR uses?
What permits, renovations, and investments were made in reliance on the prior rules?
Is the city trying to regulate STRs or, instead, effectively erase them?
The stronger your factual record on those points, the better positioned you are once a city moves to curtail STRs.
2. Injunctions can buy time and leverage.
In Texas, to get a temporary injunction, you generally must show:
a probable right to relief (your legal claims have real merit), and
a probable, imminent, and irreparable injury if the court does not step in now.
In Dallas, owners persuaded the court that being forced to shut down STR operations before trial would cause irreparable harm, and the resulting injunction has already kept the ban on hold for nearly two years.
In the Arlington and New Braunfels cases, courts were more skeptical and allowed those ordinances to remain in effect, at least initially, while litigation proceeded.
For serious STR investors, an early injunction can:
preserve operating cash flow while the case plays out;
strengthen your hand in settlement talks; and
sometimes be the difference between a portfolio that survives and one that is forced into a distressed sale.
Here are some steps to preserve a high-value STR portfolio in Texas.
1. Underwrite regulatory risk like you underwrite rent comps.
Before you buy:
Map the political landscape. Is the city talking about STR caps, bans, or “studies”? Check council agendas, planning-and-zoning committee minutes, and local coverage.
Study existing ordinances:
Is the city on a registration/licensing model (like Houston’s new registration regime and Galveston’s tightening enforcement), or headed toward a ban?
How aggressively are complaints investigated and enforced?
Read the HOA documents and restrictive covenants (and amendment history) for any subdivision or condominium. Recent Texas cases show just how quickly leasing rights can disappear via a recorded amendment.
2. Paper your “right to operate” early and often.
Once you own and operate:
Get every license and permit the city will give you. Even if compliance is annoying, every approval helps prove that your use was lawful before any later crackdown.
Document your reliance. Keep records of things like:
renovation costs and STR-specific build-outs;
historical bookings and revenue; and
communications with city staff about licensing or zoning
Collect neighbor and community support where possible. When cities build nuisance findings off a handful of angry neighbors, a counter-record of good-neighbor practices can matter.
These are the facts that drive vested-rights arguments under SB 929 and inform a court’s view of whether you’re being treated fairly.
3. Move quickly when the law shifts.
If your city moves from “light regulation” to “effective ban”:
Track effective dates and grace periods. Many ordinances give existing operators a short window to register as non-conforming or wind down. Missing those deadlines can be fatal, or nearly so.
Evaluate injunction options early. If an ordinance would shut down your core operations, waiting until after enforcement begins may undercut your irreparable-harm arguments.
Coordinate with similarly situated owners. Group actions can spread cost and increase leverage—but they also need careful management to avoid conflicts or “race to the courthouse” problems.
4. Diversify geography and use-types.
Given the patchwork of outcomes—Arlington and New Braunfels more hostile, Austin and some settlements more favorable—it’s prudent to:
avoid having all of your STR revenue tied to a single politically volatile jurisdiction;
consider shifting some properties toward medium-term or traditional leasing where the regulatory risk is lower; and
treat STRs in pure single-family zones as higher-risk than those in mixed-use, commercial, or resort-oriented districts
The STR landscape involves a long-term struggle. Most places don’t have clear, uniform rules—and change can happen quickly. Your portfolio strategy should reflect that uncertainty.
While you can’t control the politics, you can control your facts, your paper trail, and your litigation strategy.
If you’d like to discuss how these STR fights affect your specific properties, reach out to a skilled Texas lawyer to review your STR portfolio.
