The next local control fight? Like Uber before, city regulations for AirBnB and HomeAway are in the crosshairs

When the Zaataris moved to Texas from Lebanon, part of the draw was the American Dream. In Austin, they're working toward that dream in the real estate business.

The young couple wants to grow their family — “I’m negotiating for three,” Ahmad Zaatari joked — but they rely on the income from their short-term rental property to support the one child they already have. But with overburdensome regulation, some argue, “the City of Austin wants to shut them down.”

That claim appears in glossy detail in a promotional video compiled recently by one of Texas’ most influential conservative think tanks. The video closes: “The Zaatari family believed in the American Dream. The Center for the American Future is fighting to keep it alive.”

The Zataaris are two in a small group of plaintiffs represented by the Center for the American Future, a legal arm of the Texas Public Policy Foundation that filed a suit against the city of Austin in 2016 calling the city’s short-term rental ordinance unconstitutional. That case, which is now winding its way through state appeals courts, has emerged as a likely candidate for review at the state’s highest civil court. And it's been bolstered by Attorney General Ken Paxton, Texas’ top lawyer, who has sided several times with the homeowners, most recently in a 102-page brief.

Short-term rentals, a longtime local reality especially widespread in vacation destinations like Austin and Galveston, have become astronomically more popular in the last decade with the rise of web platforms like AirBnB and Austin-based HomeAway. That ubiquity has ripened them for regulation — and for litigation, including more than one case pending before the Texas Supreme Court. In Texas, it's a new frontier for the simmering state-city fight over local control. Left unresolved last session by the Legislature, short-term rental ordinances have become an issue for the courts.

From the state house to the courthouse

More than a dozen Texas cities have some sort of ordinance regulating short-term rental policies, according to a list compiled by the Texas Municipal League. Among the most prominent are Galveston and Fort Worth; San Antonio is bickering over its own. They range widely in scope and severity: Some regulate the number of people who can stay in a short-term rental and what activities they may do while there, while others require little more than a licensing permit.

The rental services allow people to offer up houses or apartments to travelers for short-term stays. Some landlords are city residents just hoping to make some money off their spare bedrooms. But investors are also known to buy homes for the sole purpose of renting them on AirBnB or HomeAway. 

As short-term rentals grew more popular, cities began to worry that their quiet residential neighborhoods would be overrun with thrill-seeking vacationers or that the investment properties would drive up the cost of housing. Local officials say that short-term renters too often create disruptive party environments that agitate nearby families. But critics of the local regulations say there are already laws in place to regulate that kind of public nuisance. 

Austin’s ordinance, which aims to phase out certain types of short-term rentals entirely and limits how many can exist in any particular area, is one of the state’s oldest and strictest — and it’s situated, of course, in a red state’s blue capital city, making it the perfect backdrop for a familiar fight.

Rob Henneke, the TPPF lawyer representing the Zaataris, says Austin’s ordinance violates fundamental rights like equal protection — why should short-term renters be treated any different from long-term renters? — and property rights — why should owners be kept from leasing their homes however they choose? 

“It is a fundamental right to lease your property,” Henneke said. “It makes no sense — and is inconsistent with that — to try to bracket that right in some way.”

The city counters that it has the right to regulate commercial activity within its boundaries and that its ordinance is important for city planning purposes. The ordinance addresses critical issues in the city like rising real estate prices and noise complaints from obnoxious “party houses,” said Austin City Council member Kathie Tovo.

Beyond the question of whether short-term rentals should be regulated is the question of who should regulate them. For Tovo, it recalls the recent fight over Uber and Lyft, which ended when the Legislature overturned Austin's safety regulations for the ride-hailing apps. City officials sit closer to their constituents, she said, so they are better positioned to write rules that benefit their communities.

“It is an example of what we regard as state overreach," she said. "And those of us on the ground who represent our communities are in the best position to know what ordinance and regulations are responses to their needs.”

Henneke, meanwhile, advocates for uniformity statewide — if there are to be restrictions at all.

“If short-term rentals are going to be regulated, it should be at the state level to ensure statewide consistency and to protect property owners from a patchwork quilt of overly burdensome regulations at the local level,” Henneke said.

The current fight, said Texas Municipal League Executive Director Bennett Sandlin, fits into a disturbing pattern of state lawmakers trying to consolidate power at the Capitol by taking it away from the cities.

“It’s absolutely a recent … concerted effort to say that — the allegation that cities are against liberty, and you should have the liberty to do anything you want to do with your house including turn it into a party barn," he said. "We support liberty but we also support liberty of the neighbors to keep their property values up and keep their yards free of beer cans.”

The Legislature did try to tackle the short-term issue last year. The effort that went furthest was a bill by state Sen. Kelly Hancock, R-North Richland Hills, that passed the upper chamber but died in the House in the waning days of the regular session. A similar bill championed by state Rep. Tan Parker, R-Flower Mound, never even got a committee vote. Neither Hancock nor Parker returned requests for comment.

Those measures struggled to find sufficient support even in a session rife with local control issues. All told, by the end of August, the 85th Legislature had passed state laws overriding city rule on issues ranging from tree maintenance to ride-hailing regulations. Gov. Greg Abbott, a Republican, even expressed support for a “broad-based law” to pre-empt local regulations, but no such bill passed. 

Short-term rental ordinances, some say, share all the hallmarks of the memorable fight over ride-hailing companies like Uber and Lyft. A new technology platform makes an age-old practice simpler; a liberal-leaning city council moves to regulate it. Eventually, the state steps in and opposes that local ordinance to protect “freedom and free enterprise.”

But while local control battles have raged in Texas since Abbott took office decrying a “patchwork of local regulations,” they have mostly been fought on the floors of the Legislature. (One notable exception is an ongoing legal fight over the city of Laredo’s ban on plastic bags, a case the Texas Supreme Court is expected to resolve in the next few months.) This court fight is a comparatively new playbook for opponents of local control.

“Opponents of local government are happy to challenge these ordinances either in the state House or in the courthouse,” Sandlin said. “They will absolutely take any avenue they can to go after it.”

“Business” or “residential”?

The Zaatari case isn’t the only lawsuit that has challenged a local short-term rental ordinance, but it is the most prominent. A Houston appeals court ruled in 2015 that in certain circumstances short-term rental ordinances can violate property rights; in Travis County, another pending case asks whether Austin's ordinance is unconstitutionally vague.

“Part of it seems to be that local government takes unusual positions when suddenly the internet becomes involved. ... Here in Austin, it’s been documented that short-term rentals have been an encouraged practice for over 100 years, and yet suddenly when the internet provides a way of efficiently connecting buyer and seller, everybody just has to go crazy and adopt a bunch of rules,” Henneke said. “I think it’s a need for control and a need for regulation for the sake of regulation.”

In the meantime, the issue is being litigated on other fronts.

A Texas Supreme Court case argued in February asks whether, for the purposes of homeowners’ associations' hyperlocal deed restrictions, short-term rentals should be considered primarily “business” or “residential.” That case won’t have direct legal bearing on local ordinances, but the fact that it’s ascended to the state’s highest civil court signals that the issue is set for a legal reckoning.

About a decade after the industry grew popular, “a lot of issues are coming to a head," said Patrick Sutton, a lawyer arguing that Texas Supreme Court case and many other short-term rental lawsuits. 

Short-term rental companies like HomeAway say they agree that their industry should be regulated — they say they’re eager, in fact, to collaborate on regulations. But many involved in the issue think those restrictions are best established democratically.

“Sharing presents a new set of public policy challenges,” Sutton said. “What upsets me is that these issues should be worked out politically. They should be worked out in the state house, and they should be worked out in the voting hall at subdivisions… But that didn’t happen.”

Disclosure: The Texas Public Policy Foundation, HomeAway, the Texas Municipal League, Uber and Lyft have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.