Galveston got a reprieve from having to deal with legislative restrictions on the local regulation of short-term rentals with the deaths in committee of House Bill 3778 and Senate Bill 1888.

Local people who opposed those bills are almost certainly correct, however, that similar bills will come up again during the next legislative session, driven as they are by corporate rental brokers such as HomeWay.

The good news in this is the two dead bills were not absolute bans against regulating short-term rental properties. In fact, the bills called for regulations similar to Galveston’s in several important ways.

They allowed cities to require short-term rental operators to register their properties, designate an emergency contact, open them for inspections and maintain property and liability insurance, to name a few.

The bills would have given cities powers to bring monetary sanctions against bad actors among short-term rental operators and would have gotten the Texas Comptroller of Public Accounts involved in policing collection of hotel occupancy taxes.

The main difference was that the bills prohibited cities from imposing rules more restrictive than the state law, which for Galveston would have meant the end of a neighborhood opt-out provision allowing residents to ban short-term rentals through a petition of at least 75 percent of property owners.

That would have been a big loss for the three island neighborhoods — Colony Park, Cedar Lawn and Adler Circle — that have achieved the bans, but wouldn’t have meant sweeping change.

The state laws also would not have cut the power of homeowner and condominium associations, and the like, to ban short-term rentals.

Galveston has about two years before it needs to worry about what the legislature might do to its ability to regulate short-term rentals, but there’s a deeper and far more complicated aspect of that industry that needs immediate thought.

It has become clear that the rental housing market on the island has changed markedly in the past several years. The cost of rent has risen to the point that it’s reasonable to wonder whether the island will be able house a resident workforce at all.

In 2017, the U.S. Census Bureau estimated that of 20,644 occupied housing units on the island, 11,858, more than 57 percent, were occupied by renters. Many of those renters were part of a resident workforce employed by operations including everything from hotels and restaurants, to public schools, the police and fire departments to this newspaper.

The renters were people doing everything that needs to be done in a functioning city.

The Park Board of Trustees estimates there are 3,400 short-term rentals on the island, 2,700 registered and an estimated 700 flying under the radar, which means about 30 percent of island’s traditional rental housing has been transformed into short-term rentals.

There’s no doubt that the rise of short-term rentals is among the main things driving rent inflation as owners have opted to make in a weekend or two what they once made in a month.

It’s important to keep track of what might happen in Austin, but a far more important and thorny question is what, if anything, can be done to mitigate the effects short-term rentals will have on the island housing market no matter what happens in the legislature.

• Michael A. Smith

Michael A. Smith: 409-683-5206; michael.smith@galvnews.com

(2) comments

Bailey Jones

Your analysis misses the other fundamental fact about Galveston housing - there is a lot of it sitting idle. Directly adjacent to our house are 9 unoccupied houses. One is currently for rent - and in such a bad state that it could only be used for low income housing, 2 are being renovated to be sold to new owners. 4 were for sale, but taken off the market by the owners who couldn't get what they wanted for them, and now sitting, sulking. One is being held by a family that can't afford to renovate but also can't stand the thought of selling grandma's home. The other two probably just need to be torn down. This pattern repeats all over the east end. There is plenty of housing stock available for both short term and long term rentals. What there isn't, is the will to do something with it. What we're seeing in our neighborhood is a mix of housing strategies. STR entrepreneurs have come in and renovated a handful of homes that are now the nicest on the street. A few house flippers are renovating other homes to be sold to new residents. Much of what remains is in bad shape, unsuitable for anything but low income rentals. Owners are caught in the economic reality that the cost of improving property can't be recouped without either selling, or raising the rent, or going the STR route.

michaelsmith Staff
Michael A. Smith

I agree that is the case. The U.S. Census in 2017 estimated 32,000 housing units in Galveston, of which more than 11,000 were vacant. More than 35 percent is high and can’t help influence the market. That percentage has been about the same since 2010, however, as rent has gone up. In fact, the rental vacancy rate has fallen by 5 points, to about 12 percent from about 17 percent in 2017. The total stock of housing is down, or was in 2017, according to the census, so there is a lot of pressure on prices.

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