Key Takeaways

  • The 5th Circuit ruled Texas property owners have no constitutionally protected right to operate short-term rentals
  • Cities can restrict STRs in residential zones under rational-basis review without facing constitutional challenges
  • Investors buying in STR-restricted zones acquire no vested legal right to operate, even historically

A six-year legal battle over short-term rental property rights has ended with a major warning for short-term rental investors across Texas.

The 5th U.S. Circuit Court of Appeals ruled on June 18 that property owners do not have a federally protected constitutional right to operate short-term rentals, according to the “San Antonio Express-News.”

The case, Marfil v. City of New Braunfels, was brought by six property owners and an LLC who argued that the city’s ordinance — which banned STRs in certain residential zoning districts since 2006 and was expanded in 2011 — unconstitutionally stripped them of their property rights.

One plaintiff, Rafael Marfil, had purchased a single-family home with the intention of renting it to park visitors.

Together, the plaintiffs asserted that the “right to lease” is an “inherent liberty and property right.”

However, in December 2024, District Judge Alan Albright ruled in favor of the city on all claims. Plaintiffs appealed this decision to the U.S. Fifth Circuit Court of Appeals in New Orleans.

In the end, the three-judge panel upheld New Braunfels’ restrictions, finding that the Texas city has a legitimate interest in protecting the residential character of its neighborhoods.

The court also ruled that treating short-term rentals differently from longer leases passes the Constitution’s rational-basis test, a legal standard that gives local governments broad room to defend zoning rules.

Related: Alabama city approves 190-unit cap on short-term rentals

The court further held that an ordinance “explicitly intended to enhance property values, promote economic development, and provide identity and a sense of community” concerned purposes that “easily serve” as legitimate justification for a municipal zoning ordinance.

“Finding no reversible error, we AFFIRM the judgment of the district court,” the court concluded.

What this means for STR operators and investors

The court explicitly held that Texas law does not recognize a protected property interest in leasing a home on a short-term basis.

Buyers who purchase property in a zone where rentals are already restricted cannot later claim a vested constitutional right to operate, regardless of how long short-term rentals existed nearby.

The 5th Circuit’s ruling aligns heavily with recent Texas appellate decisions in Grapevine, Dickinson, and Fort Worth, suggesting the legal consensus in the state has hardened considerably against constitutional STR challenges.

The city’s attorney confirmed in an email that the ruling allows New Braunfels to “continue to fully enforce its ordinance.”

With the appeals court having now ruled twice in this case and a second panel reaching the same conclusion as the trial court after full discovery, a petition to the U.S. Supreme Court remains the only avenue left for the plaintiffs — and the STR investment market will be watching every step.

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