An Understanding of the Debate Surrounding Short-Term Rentals
Many cities in some of America’s largest states, including California, New York, Michigan, Florida, and most recently Texas, have found themselves embattled in a public policy debate and litigation resulting from a ban on Short-Term Rentals (STRs). The STR industry is a growing practice of property owners making residential property available for rental on the commercial market, a practice made possible by the simple technologies of companies such as Airbnb and VRBO. While arguments for and against such a ban seem to represent a classic battle between private property rights and big government, a deeper understanding of the conflict reveals a much more complex public policy debate.
On the surface, a ban on STRs appears to be a move by local governments to control how a property owner uses their home. This divide is currently played out in Austin, Texas. In 2016, Austin passed a grandfathered ban on non-owner occupied (Type 2) STRs in the city. Neighborhood associations cheered and private property rights activists jeered. In fact, the city was sued by the Texas Public Policy Foundation (TPPF) on behalf of several short-term rental property owners and their guests. Texas Attorney General Ken Paxton intervened in the lawsuit on behalf of the public interest in support of the TPPF lawsuit. The city ordinance was upheld at the District Court level and is currently on appeal to the Texas Court of Appeals.
The position of the state, as explained by Attorney General Paxton, is that an STR ban “exceeds the lawful scope of the city’s authority and infringes upon property owners’ fundamental constitutional rights.”
But David Knight, president of the Austin Neighborhoods Council, which represents nearly 100 neighborhood associations, provides a different perspective, “We believe they’re essentially commercial hotels embedded in our neighborhoods.” Often times those neighborhoods are zoned for residential housing. Meanwhile, the City of Austin has made its position clear and will continue to defend the ordinance. According to Mayor Pro Tem Kathie Tovo, “We want to preserve those housing opportunities for Austin families whether they are renters or owners. And what I heard increasingly from community members is that they didn’t want to live next door to a mini hotel.”
Texas zoning laws are determined by cities, not the state government. The city of Houston, for example, has no zoning laws so it’s not uncommon to find a commercial business a stone’s throw away from residential property. But they are the exception to the rule and most cities do separate residential housing from commercial business. The city of Austin has taken a strict position that if someone earns income from their property, that property becomes an illegal commercial enterprise. State Senator Kelly Hancock (R-Fort Worth) wants to limit cities’ ability to ban STRs. During the 2017 Legislative Session, Senator Hancock introduced a bill that would have allowed cities to “maintain their ability to set residential zoning restrictions, such as density or occupancy limits, and enforce traditional city ordinances” but prevents cities from being able to ban the practice.
So while proponents of STRs defend their position as a property rights issue, their neighbors cite those same property rights as a reason to restrict or ban the practice. And understanding who benefits economically from STRs is just as muddy as defining whose property rights are being infringed. Airbnb claims that their users spend over twice as much time and money on their travels as hotel guests. Furthermore, money spent on STRs stays in the community, with their host, as opposed to benefitting a corporate hotel chain. But neighbors to STR hosts claim that being located next to what is essentially a hotel depreciates their home value.
The understanding of the impact on the hotel industry is also mixed. The Hotel Association of New York City successfully advocated for strict STR regulation by claiming that the impact of those rentals cost the hotel industry $450 million in lost revenue and 2,800 lost jobs in 2015. But Airbnb disputes those numbers too. They claim that STRs, because they are less expensive than hotels, mostly allow travel for those who could not, and would not, stay at a hotel. But in citing this contribution, they fail to offer that their rentals are less expensive because property owners (or hosts) are not subject to the same health and safety standards as a hotel, nor are they subject to sales tax.
As cities pass regulation on STRs, essentially picking economic winners and losers, the question will end up in litigation. How will the courts respond? We already know that the Supreme Court has upheld limitations on certain rights, when exercising those rights infringes on the safety or quality of life for others, including the right to freedom of speech and the right to bear arms.
We will continue to watch this important debate and the implications that the final ruling will have on future private property rights debates, so watch for more updates on our website.