Austin’s short-term rental (STR) landscape is about to undergo significant changes, and if you own or are planning to invest in an STR property, these updates could have a major impact on your business.
The City of Austin is implementing new regulations to streamline compliance, increase tax revenue, and prevent corporate monopolization of the STR market. Here’s a deep dive into the proposed regulations, their implications, and what you should do next.
The History of STR Regulations in Austin
For years, Austin’s short-term rental market has been a battleground for regulations and court cases. Over the past decade, various legal decisions and policy shifts have shaped the current landscape.
In 2016, the city effectively stopped issuing Type 2 licenses (non-owner-occupied single-family STRs). Then, in 2019, the Zaatari v. City of Austin case ruled that the city couldn’t regulate STR occupancy differently from long-term rentals. By 2023, the Anding v. City of Austin case made it unconstitutional to require STRs to be a primary residence, forcing Austin to start issuing Type 2 permits again.
Now, in 2024, Austin is attempting to overhaul its STR rules to regain control over licensing and compliance. For a deeper understanding of how Austin’s real estate laws have evolved, check out this analysis on Austin zoning changes.
What Are the New Proposed STR Regulations?
The new STR regulations aim to create a comprehensive overhaul of the current system. These rules focus on limiting corporate ownership, enforcing tax compliance, and setting clear operational guidelines.
STRs Must Be Owned by Individuals
Under the new regulations, properties must be titled in the name of an individual, not a corporation.
The exception to this rule is single-member LLCs, which will still be allowed to operate STRs. This rule aims to prevent large corporations from buying up entire neighborhoods for STR investments, maintaining a fair balance in the market.
New Restrictions on Multi-Family STRs
Currently, residential-zoned condos allow only 3% of total units to be STRs, while commercially-zoned condos permit up to 25%. The new rule, however, caps any single owner to using only 25% of their total owned units in a multi-family building as STRs. This change ensures that one entity does not dominate STR usage within large apartment or condo complexes.
1,000-Foot Rule Between Properties Owned by the Same Person
A significant new rule is the 1,000-foot restriction. If you own multiple STRs, you won’t be able to operate another one within 1,000 feet of an existing STR under your ownership.
This applies to duplexes, accessory dwelling units (ADUs), and multi-unit lots. However, multi-family buildings will be subject to separate regulations, ensuring that rental density does not overwhelm neighborhoods.
STR Listings Must Display Permit Numbers
A major compliance measure requires all STR listings (Airbnb, Vrbo, etc.) to display their city-issued permit number. Platforms like Airbnb and Vrbo will be responsible for removing non-compliant listings. However, there is skepticism about whether these companies will enforce the rule, as they have financial incentives to keep as many listings active as possible.
Increased Focus on Tax Compliance
One of the key drivers of these changes is the need to enforce Hotel Occupancy Tax (HOT) collection. Many unlicensed STR operators have avoided paying HOT due to fears of being flagged as unregistered. By requiring compliance, the city aims to recoup revenue that funds cultural and tourism initiatives in Austin.
When Will These Rules Take Effect?
The first City Council hearing on these proposed changes is set for February 27, 2024. While it’s unlikely that the rules will pass immediately, this date marks the earliest possible implementation. If the ordinance passes, it won’t take effect for another 10 days.
💡 Key Takeaway: If you want to be grandfathered into the current system, apply for an STR permit ASAP! The rules at the time of application will be the ones you’re bound by.
How Will This Affect the STR Market?
Austin’s STR market has already been shifting due to increased supply and changing traveler habits. Here’s what’s happening:
More hotels in the city mean higher competition for STRs. The market has also seen an oversupply of STRs, leading to lower revenue for many owners. As a result, many “Airbnb investors” are now selling their fully furnished rentals because they underestimated the work involved in STR management.
Who Will Benefit and Who Will Struggle?
🏆 Best-Positioned: STR owners who offer a unique, high-end experience with excellent hospitality will continue to thrive. Personalized touches, curated guest experiences, and well-managed properties will set them apart.
⚠️ At-Risk: Investors who expected passive income without actively managing their STR properties will find it challenging to compete. Poorly managed or generic rentals will struggle to attract bookings.
Where Are the Best Areas for STR Investment Now?
The prime STR locations have evolved. While downtown (78701, 78704) and East Austin remain strong, new hotspots are emerging:
- Dripping Springs – A prime location for wedding venues, breweries, and event spaces.
- Lake Travis & Hill Country – Popular for waterfront and nature getaways.
- Round Rock & Pflugerville – Close to major attractions like Kalahari Resort and Dell Diamond.
- North Austin (Domain, Q2 Stadium) – A growing hub for business and entertainment events.
📌 Pro Tip: Properties near wedding venues, major attractions, and event spaces perform well due to consistent demand. If you’re considering STR investments, learn about different types of investment properties in Austin.
What Should STR Owners Do Now?
Here’s your action plan:
- Apply for your STR permit before February 27, 2024.
- Ensure compliance with HOT taxes and business regulations.
- Optimize your listing – Good hospitality is now essential.
- Monitor city council meetings for updates.
- Consider alternative areas outside city limits for future STR investments.
Austin’s evolving STR regulations are reshaping the market, bringing both opportunities and challenges for property owners. While these changes aim to promote fairness and compliance, they also require careful strategic planning. Investors who focus on quality guest experiences, maintain compliance, and adapt to market demands will continue to thrive. Staying informed and proactive is key to navigating these upcoming shifts successfully.
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