Vacation Rentals in Austin – Good or Bad?

Last week I attended the VRBO “stakeholder’s meeting” held by the city of Austin. The meeting was the first in response to growing complaints from neighborhood groups and individuals about the burgeoning VRBO (Vacation Rental by Owner) business in Austin. There were over 100 attendees representing both sides of the debate, as well as some just there to listen, like me. The discussion was lively.

The Anti-VRBO Point of View
Imagine living next to or across the street from a VRBO house in Austin. This home is essentially a guest house for vacationers, year-round. You’re nowhere near a lake or vacation spot. You live in Allandale, or Barton Hills or Travis Heights. Each year, you witness a parade of 50 or more different groups, in and out of the home – every weekend – coming to enjoy UT football, ACL Fest, South by Southwest, and any number of other Austin attractions. Even if the visitors don’t cause problems, have loud parties, or otherwise bother you, you’d still probably rather have a family or other permanent residents living in the home. You’d rather have actual neighbors in your neighborhood instead of a constant stream of strangers on vacation or visiting locals.

The Pro-VRBO Point of View
Imagine you own a home, well located in central Austin. Perhaps you inherited it from a parent, or you purchased it many years ago and kept it as a rental when you moved to the suburbs. For whatever reason, you’d like to hang on to it. Because of the high property taxes, it doesn’t work well financially as a long term rental anymore, with taxes and insurance alone eating up more than half the gross annual rents.

You’ve learned about this new way of making money on a rental property called short term or “vacation” rentals. You decide to fix up the house, make it pretty, furnish it with nice stuff, and you post it on a website such as Austin-based as a vacation rental. You start booking stays for $600 per weekend or $900 per week, with a 3 night minimum. You visit the house every turnover, keep it looking good – in fact one of the nicest looking houses in the neighborhood now. You’re not breaking any laws (though this is debatable – more on that later) and you’re paying the required state hotel tax to the comptroller. Thus, you want your neighbors to mind their own business and stop griping. You don’t want others telling you what you can and can’t do with your property.

That’s both side in a nutshell, though it does get more complex than that.

“Non-transient” use of residential property is forbidden by city zoning rules in Austin, except for Bed and Breakfasts, which are strictly regulated. The term “non-transient” seems unambiguous, and most would agree that anything under 30 days is a short-term stay in a residential home. This 30-day standard is accepted nationwide.

Yet the city is clearly not moving to enforce this nor is it trying to shut down VRBO homes in Austin. Instead, it has embarked on this study, starting with the 1st stakeholder forum, to try to figure out what to do and how to do it. So, for now, the operators of these vacation rentals are, interestingly, either breaking or not breaking a rule that may or may not exist because it’s up to the city to interpret how it wants to treat the definition of non-transient. If I owned one of these, I’d hold tight and keep doing what I’m doing. If I was thinking about investing a lot into one of these, I’d hold off until I knew what the rules are going to be. There may or may not be amnesty for existing properties, depending on what the rules become.

Having heard from many of the VBRO owners themselves during the forum, it’s clear to me that the majority are clean operators conscientious of potential impact on neighbors and careful to enforce their own rules such as not renting to people under age 25, restricting the number of vehicles, and having written contracts that spell out the terms and conditions of the stay.

Having also heard from some neighbors of VRBO properties, it’s clear that these homes are a terrible nuisance in at least some cases, creating parking issues, noise and excess trash and debris. Calling 911 doesn’t solve the problem. Neither does reporting the property to city code enforcement. So these neighbors are angry and, in some cases, just want these homes banned entirely.

But an outright ban didn’t seem to be the consensus rising from the general comments, nor does it seem to be the direction the city wants to take this.

My prediction

This will probably take 18 months to 3 years to sort out, as Austin city government is slow. But, eventually, vacation rental homes in Austin will be regulated. Owners will be required to register the properties, collect the proper hotel taxes, and adhere to some new code standards specifically addressing VRBO homes. These standards will most likely include parking restrictions, occupancy limits, and the requirement that the owner be local or have local management handling the home so that there is always someone nearby to handle problems should they arise. There might also be a restriction, similar to Bed and Breakfast zoning, that prevents too many of these homes from clustering together on one street. B&Bs in Austin can be no closer than 1,000 feet from another. This “no clustering” rule, which I think would make a lot of sense, is why I’d hold off before jumping into this business.

There may also be tiers of use and exemptions. For example, if I want to swap my home for 2 weeks with a home owner in New York City, but I’m not advertising or operating a full VRBO home, that should NOT be regulated. Also, in Boulder for example, anyone renting their home out for less than 15 nights a year is exempt from Boulder’s VRBO regulations. This would allow people who want to clear out and rent their Zilker condo or home home just once a year for ACL Fest to be able to do so without having to conform to the VRBO regulations (though the comptroller may still want to get paid a hotel tax). I know there actually are people who opt in to this sweet “payday” every year, but have no desire to be in the VBRO business per se.

These are just my guesses and I’ll be following this and attending all the meetings as it unfolds.

As with many things, the Internet has made this business more possible to more people than in the past. Also, Austin has become a serious entertainment destination due to the amount of live music nightly, the number of big events such as ACL Fest and SXSW, and numerous other lesser known events that draw fairly large numbers of visitors to Austin.

Also though, as was pointed out by many of the owner/operators of VRBO homes, a large number of the clientelle is not entertainment related. Many families come to Austin for weddings and other events. Some talked about high tech workers who take frequent recurring assignments in Austin. One has had a high tech guy stay 1 week 6 different times in the past 6 months. He’d simply rather not stay in a hotel and wants to do his own cooking. Another woman had brought her autistic child to Austin for a 6 week therapy, and having a home environment to stay in was very important to her and her child.

So, VRBO homes in Austin serve a very apparent and legitimate market need. Do I want one next door to me? No, I’d rather not. Do I want them to be banned? No, that would be stupid. Austin would be dumb to interfere with this legitimate market niche. Hopefully as the process continues, a solution can be found that doesn’t hinder or hamper the clean operators but puts into place minimal and reasonable regulations sufficient to protect the rights of home owners who are next to or near these homes.

Posted by Steve
5 years ago

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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