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Short Term Rentals in a Changing Texas Legal Landscape

Perhaps you are going on vacation, heading to a wedding or taking a college tour trip. The city you are visiting normally has ample hotel space, but a convention is in town and everything is booked or rates are at a premium. What to do? Short-term rentals of residences (STRs) are changing the travel landscape. Companies such as HomeAway and Airbnb are mainstream now; both are huge and wield financial power. According to The Wall Street Journal, HomeAway was purchased in November 2015 for $3.9 billion, and according to a March 2017 Securities and Exchange Commission filing, Airbnb is valued at $31 billion.

Homeowners make extra income by renting their homes for short periods, a night or a weekend or more, but less than a month. Here in Houston during the 2017 Super Bowl, the news coverage included stories on which mansions were rented by the rich and famous here for the game. Many smaller cities, or vacation cities like Galveston, Texas, and tax-paying homeowners are not fans. The fear is that your peaceful subdivision subject to homeowners association rules potentially has a home purchased only to be turned into Motel 6. And what about your property value?

Short-term rentals with no live-in owners boomed in Austin following a 2012 ordinance that introduced vacation rental guidelines to city code. To control the market, Austin capped rental houses with no permanent residents at 3% of total single-family residential units in each census tract. One could say Austin, Texas is on the cutting edge in terms of numbers as well as the regulation of STRs since HomeAway is based in Austin, and the city is a popular venue for entertainment events, including the SXSW Music & Film Festival and Austin City Limits.

In Austin, STRs must file an operating license and there are three types of STRs. Type 1: owner occupied single family, duplex or multi family; Type 2: not owner occupied single family or duplex; and Type 3: not owner occupied multifamily, according to Austin City Ordinance 20130926-144. The operating license costs $443.00 and the application is titled Short Term Rental and Hotel Occupancy Tax. At this writing per Austin City Council, no Type 2 (not owner occupied) applications are being accepted due to the cap.

A Senate bill that would limit local government control of short-term home rentals in Texas passed the upper chamber April 18, 2017 in a 26-5 vote and adds Sec. 250.008 Regulation of Short Term Rentals and Short-Term Rental Marketplaces to the Texas Local Government Code. Senate Bill 451 (sponsored by state Sen. Kelly Hancock, R-North Richland Hills, Texas) will prevent cities from banning short-term rentals, and their ability to write ordinances restricting SRTs will be narrowed. Austin, San Antonio, and Fort Worth, are among the cities that have enacted such restrictions. Hancock said his bill lets cities still enforce sound, safety and nuisance ordinances, and cities may still regulate short-term rentals. They just can’t completely ban them, as noted in an April 19 Fort Worth Star-Telegram article. The companion House Bill No. 2551 was left pending in committee, but from every indication will likely pass.

Once the Texas law is in place, municipalities may need new ordinances that regulate but not restrict STRs. The future is here though as the private sector has stepped in with several monitoring companies. BNB Shield claims on its website: “We use a combination of proprietary and publicly available mapping tools to identify all of the culprits within your properties.” SubletAlert.com claims it has 24/7 monitoring of Airbnb; Host Compliance, and Harmari are designed for use by cities and municipalities to improve public safety and improve ordinance compliance. Just as technology spawned the suddenly massive cottage industry that is STRs, technology can be relied upon to provide transparency to municipalities, HOAs and neighbors.

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