Can a city ban or restrict short-term rentals like Airbnbs?

by | Nov 9, 2021 | Litigation & Local Counsel, Regulatory Risk Analysis and Compliance

Across Texas, many cities are considering adopting or changing municipal ordinances to regulate short-term rentals (STRs) like Airbnbs. But how far can municipal governments go in regulating STRs? Can a city ban STRs completely? Although the case law is scant and the Supreme Court of Texas has not yet opined on the issue, lower court decisions suggest that cities are permitted to regulate STRs but city-wide bans of STRs are disfavored. When adopting or amending STR ordinances, cities should consider including a grandfathering clause to avoid challenges from owners of existing STRs.

The small town of Fredericksburg, Texas is home to 11,245 residents—and 850 short-term rentals. STRs make up about 12% of the town’s total housing stock. In the historic district, that jumps to about 30%. Following a spike in new STRs during the COVID-19 pandemic, Fredericksburg is now considering changes to their 2018 Short-Term Rental Ordinance, including requiring a certain number of parking spaces per unit and requiring new STR owners in R-1 zoning to live on-site.

The same story is playing out in other towns and cities across Texas. “The vacation homes take away from that community spirit and that sense of ownership a neighborhood needs to have a real identity,” a Galveston teacher told Texas Monthly in 2021. “It can create havoc, with cars everywhere, trash in streets, and blaring music.”

Municipal governments have some catching up to do when it comes to regulating STRs, an industry that has grown rapidly in recent years. But how far can a city go in regulating STRs? Can a city ban them completely?

The Supreme Court of Texas hasn’t opined yet on the issue of whether a city can ban STRs outright. There is very limited guidance from lower courts on the question, including:

  • In the case of Draper v. City of Arlington,[1] the Fort Worth Court of Appeals denied homeowners’ request for a temporary injunction to prevent the city from enforcing two new ordinances, one amending the city zoning code to allow STRs only in certain parts of the city and the other regulating the operation of STRs. The city had created an “STR Zone,” extending one mile from Arlington’s entertainment hub, where STRs were allowed. The city also allowed STRs in residential medium-density zoning districts, residential multifamily zoning districts, and nonresidential and mixed-use zoning districts. The homeowners have appealed the decision denying them an injunction by filing a petition for review with the Supreme Court of Texas in September 2021.
  • In the case of City of Grapevine v. Muns,[2] the Fort Worth Court of Appeals held that the City of Grapevine did not have immunity from homeowners’ request for injunctive relief. The city passed an ordinance in 2018 that prohibited STRs within city limits but claimed that the ordinance simply clarified and affirmed that a 2000 zoning ordinance did not allow STRs. The 2000 ordinance allowed bed and breakfasts but not “single-family dwelling transient rental,” an undefined term. Homeowners sued, seeking injunctive relief. The trial court denied the city’s plea to the jurisdiction and its summary-judgment motion. The appellate court affirmed—a win for the homeowners.
  • The Austin Court of Appeals has twice opined on the City of Austin’s regulation of STRs. In the case of Zaatari v. City of Austin,[3] the court invalidated the City of Austin’s ban on short-term rentals of non-homestead properties because it was “unconstitutionally retroactive.” In the later case of Anding v. City of Austin,[4] the court denied a homeowner’s constitutional challenge to the city’s regulation of STR properties. The Robert and Roberta Anding sued for declaratory and injunctive relief after the city cited them for violations of its STR ordinance, which requires owners of STR property (i.e., property rented for periods of less than 30 consecutive days) to satisfy eligibility criteria and obtain a license. The Andings tried to evade the STR ordinance by using 30-day leases signed by multiple, unrelated tenants. The trial court and appellate court granted summary judgment in favor of the city.

Although the case law is scant, the decisions suggest that cities are permitted to regulate STRs—but city-wide bans of STRs are disfavored. Cities should seek the advice of counsel when adopting or amending ordinances that affect STRs.

When first adopting STR ordinances, cities should consider including a grandfathering clause to avoid challenges from existing homeowners. The Houston Court of Appeals held in 2015 that a homeowner proved a probable right of recovery on her regulatory takings claim and could obtain a temporary injunction when she presented evidence that a village ordinance prohibiting STRs had an economic impact on the value of her property and that she had a reasonable, investment-backed expectation that she could engage in STRs.[5]

If you’re a STR investor or owner, you should stay up to date on STR regulations and changes proposed by your state and local governments.

[1] Draper v. City of Arlington, 629 S.W.3d 777 (Tex. App.—Fort Worth 2021, pet. filed).

[2] City of Grapevine v. Muns, 02-19-00257-CV, 2021 WL 3419675 (Tex. App.—Fort Worth Aug. 5, 2021, no pet.).

[3] Zaatari v. City of Austin, 615 S.W.3d 172 (Tex. App.—Austin 2019, pet. denied).

[4] Anding v. City of Austin, 03-18-00307-CV, 2020 WL 2048255 (Tex. App.—Austin Apr. 29, 2020, no pet.).

[5] Vill. of Tiki Island v. Ronquille, 463 S.W.3d 562 (Tex. App.—Houston [1st Dist.] 2015, no pet.).

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