Questions on short-term rental rules linger as city moves toward new regulations

A city memo published earlier this month suggests that, more than a decade after Austin became a leading destination in the market for short-term rentals, City Council could have code language later this year to comprehensively regulate the industry.

The memo, from Assistant City Manager Veronica Briseño, offers little insight into how the city will go about monitoring STRs throughout the city and penalizing those operating without a license. But it does give the first clear timeline on the matter since a federal court case last summer served as the latest strike against the city’s efforts to limit STRs operated by business conglomerates as de facto hotels and collect Hotel Occupancy Tax revenues that stakeholders say are needed for cultural arts and preservation purposes.

The issue has received waves of attention from different configurations of City Council since the advent of the industry that has been enabled by tech companies Airbnb and VRBO. A series of court cases over the years have gradually reduced the city’s ability to limit or geographically restrict the number of nonowner-occupied “Type 2” STRs. The issue’s other main sticking point has been the city’s stance that it needs STR platforms to hand over information on all properties with active listings so they can enforce licensing and monitor noise and other quality-of-life complaints.

The platforms, which have grown in number and gradually niched themselves off into specific portions of the STR economy, have objected to those requirements on the grounds that doing so could violate federal law as well as the Fourth Amendment. The companies also claim the city’s licensing costs and lengthy approval timelines since the August court decision act as a penalty against property owners trying to take out new Type 2 licenses.

What’s clear is the city remains an attractive destination for visitors in the aftermath of the Covid-19 pandemic, with STRs serving as an alternative to the many hotels operating throughout the city.

What’s ahead

Council Member Chito Vela has been among those pushing city staff for progress on STR regulations for most of the past year. For Vela, the urgency comes in part to address the quality-of-life complaints that regularly arise from homes in his district near Q2 Stadium, which attracts visitors who are more likely to create disturbances for longtime residents.

With those kinds of disruptions seen as commonplace in areas with higher concentrations of STRs, Vela said the ability to de-list problem sites could clear up the long-held concerns that the city’s code enforcement staff are stretched too thin to levy penalties when needed.

“Right now, (the Code Department) has to physically make a case against each individual home because it’s something where they have to take them to court, and the resources it takes to investigate and shut down an illegally operating STR right now are tremendous,” he said. “If we have an agreement by which there’s a quick administrative way to shut down an STR that has complaints, that has concerns, that could really take the burden necessarily off of Code so we can get much better compliance of our STR regulations with less resources.”

For years, the conventional wisdom on STR regulations was that the city could enter into a voluntary collection agreement (VCA) with the platforms, similar to those in place with other cities throughout Texas, as a way to collect the estimated $20 million in hotel tax revenues that go uncollected each year from approximately 13,000 unlicensed STR sites.

That thinking may be outdated, said Matt Curtis, a consultant and lobbyist in Austin who is seen as one of the national leaders in the STR industry. While the two most well-known platforms tend to prefer collection agreements as a way to operate legally in various cities, Curtis said every niche site and the industry leader Booking.com have resisted those kinds of agreements and would be unlikely to cooperate with the city in any meaningful way.

The emerging best practice, Curtis said, is for cities to partner with software and technology providers to harvest listing data from all STR sites so code enforcement staff can monitor and levy penalties on problem or unlicensed locations.

“Most (cities) have decided signing voluntary collection agreements don’t provide the needed data, compliance or enforcement to achieve local goals,” he said. “The preferred path is to have software compliance technology to ensure the highest rates of tax remittance and compliance of local rules. Many compliance offices and marketing leaders see (VCAs) as not providing adequate data and only stall or confuse enforcement efforts.”

In a prepared statement, Mayor Kirk Watson said staff have been working since a high-profile defeat of city regulations to craft new rules that address neighborhood quality-of-life issues with the rights of homeowners to earn extra income from their property.

“It’s important that we ensure the ordinance that comes back to the council will accomplish a balance between providing a clear process for homeowners seeking a license and prioritizing the importance of preserving communities with long-term residents in our neighborhoods. We are waiting on the City Attorney’s office to bring forward its recommendation for the necessary changes in order to comply with the court decision. My hope is that staff, with enough time for community engagement and input, will bring back an ordinance that can accomplish that goal along with other council objectives.”

Former Council Member Kathie Tovo, who is running for mayor this year, said the city has shown inaction since the August court ruling – as well as by not moving forward with a resolution she helped pass in late 2022 that called for new city code to bar unregistered STRs from operating in the city.

Tovo also noted that language included in last year’s HOME package of land use changes seem to make it legal for property owners to operate two or more full-time STRs on their property. That technicality, she said, negates much of the intent behind HOME’s plan to add more housing for residents as a way to improve affordability.

“We shouldn’t be allowing short-term rentals to operate if they don’t have a license. They shouldn’t be eligible for a license if there are too many short-term rentals within that census tract because that’s the regulation. I don’t know how city legal feels about this in light of some of the new cases, but the city of Austin was not issuing new short-term rental permits to people who are not homeowners. I think we should hold strong on that,” she said. “Multiple times, I’ve brought this to two different managers’ attention, about the need for code compliance for Austin Code to take stronger actions.”

The cost of inaction

Tourism leaders in Austin have taken the stance that the city needs to realize the highest level of hotel tax collections possible so licensed chain and boutique hotels are playing by the same rules as STRs that some see as cannibalizing their business.

Tom Noonan, president and CEO of Visit Austin, said that revenue will be even more needed beginning in 2025 when the Austin Convention Center is closed for reconstruction for four years.

“If we’re going to have these Airbnb’s all over town, we might as well see the benefit of seeing the tax. We know that when you have conventions coming in town or even major festivals in town, you know, the Airbnb platform in Austin’s a very big platform, and a lot of people use them,” he said. “My hotel partners would love to see just kind of a level playing field that everybody’s paying the same tax level that they are.”

Noonan said comprehensive monitoring will also help the industry better serve visitors as a whole.

“When it comes to hotels, we can look at what’s the usage going on when I have a citywide convention going on or we have a festival going on. We can track rates and we can track occupancy, and that’s really helpful data for us. We’ll get more invested with those kind of platforms once we know that that is in place here in Austin and we’ll be able to see the full impact of festivals and events when they come to town.”

Over the past year, the Tourism Commission and Arts Commission have pushed City Council to enact whatever policies are needed to increase hotel tax collections that can benefit arts, historic preservation and other tourism-related efforts.

Bishop Chappell, a member of the Tourism Commission, said the June memo suggests the Law Department is leading the STR effort rather than building on the work of the commissions and prior Council resolutions.

“The city struggles with parallel start-stops on multiple projects, and I’m a little confused why there isn’t a quorum within City Council taking this up and talking about short-term rentals and using the historical data as well as the Tourism Commission recommendation, the Arts Commission recommendation, to push something forward to city staff,” he said.

“This seems to be coming in reverse. I’m a little confused by that because I know there’s a number of City Council members that want to be involved. It just seems like nobody knows who’s supposed to be doing the work or the effort.”

Photo by M.Fitzsimmons, CC BY-SA 3.0, via Wikimedia Commons.

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