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Federal court strikes down Austin's short-term rental rules as unconstitutional

Another federal ruling came out this week that determined that the city of Austin's rules for short-term rentals are unconstitutional.
Jorge Sanhueza-Lyon
A federal judge ruled this week that Austin's rules for short-term rentals are unconstitutional.

A federal judge ruled this week that Austin’s short-term rental ordinance is unconstitutional because it prohibits people from operating a rental, like an Arbnb, if they don't live on the property.

A Houston couple who own a property along Lake Austin sued the city in May after being denied a license for a short-term rental. A license is needed to operate an STR in Austin.

In 2016, the city amended its ordinance to ban short-term rentals that are not owner-occupied from certain residential areas. The ordinance also limits occupancy to no more than two adults per bedroom and bans "assembly" — weddings, bachelor/bachelorette parties and other group events — between 10 p.m. and 7 a.m.

City officials said at the time that they were trying to crack down on the number of short-term rentals, citing the displacement of families, because it limits housing stock, and the disturbance to neighbors from noise and other issues.

Council members had said the rules allowed them to create a distinction between residential properties that are used by homeowners to help generate income and properties that aren't occupied by a homeowner and serve a commercial purpose.

The judge ruled the city ordinance violated what is called a dormant Commerce Clause, which basically says a city can’t limit people’s ability to make money off their property even if they don’t reside there.

The judge also found the rule was “unconstitutionally retroactive” under Texas law.

When the city passed its new regulations on short-term rentals in 2016, it included a phased-in ban that would be in place by 2022. That meant all properties would have to follow the new rules, regardless of when they were purchased. But in 2019, a state appeals court ruled the ordinance violated the Texas Constitution because it was trying to retroactively impose laws.

Patrick Sutton, the attorney representing the homeowners, said the court's decision this week reinforces that decision. He said the Houston couple bought the Lake Austin property in 2014 with the intent to rent it out when they weren’t using it.

"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," Sutton said. "The city can't ban you from doing it because you already had that property right when you bought the property.”

The 2019 ruling should have allowed the couple to get a license, he said, but the couple was never granted one.

“So there was nothing really surprising here,” Sutton said. “It was just the city’s intransigence and just refusing the Andings a license for years and years, even after courts were striking down similar ordinances.”

Sutton said he and his clients are determining their next steps.

The city said there are more than 2,000 authorized short-term rentals in the city. But online listings show there are thousands more out there — likely unauthorized. Sutton said this week's ruling will prompt more operators to seek licenses.

The city says it is disappointed with the ruling, but will continue to enforce nuisance regulations. Attorneys are reviewing the decision and will decide whether to appeal.

Luz Moreno-Lozano is the Austin City Hall reporter at KUT. Got a tip? Email her at Follow her on X @LuzMorenoLozano.
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