"Preserving residential character." Four words, buried in a district court order, now stand between a lot of Hill Country buyers and their Airbnb business plan.
On June 18, 2026, the Fifth Circuit Court of Appeals affirmed the City of New Braunfels' ban on short-term rentals in residential zoning districts, closing out a six-year legal fight in Marfil v. City of New Braunfels. If you have spent the last year or two watching that case as a reason to hold off on a decision, that reason is gone. The ban is not pending. It is settled law, at least for now, and it changes how you should shop for a New Braunfels property if rental income is part of the plan.
The Case, Briefly
A group of property owners, led by Rafael Marfil, bought homes in New Braunfels residential zones after the city's short-term rental ban was already on the books, then applied for zoning changes so they could rent those homes out for less than 30 days at a time. The city said no. The owners sued, arguing the ban violated their due process and equal protection rights under both the U.S. and Texas constitutions.
The case bounced around for years. In 2023, the Fifth Circuit sent it back for discovery, which is a fairly technical win that a lot of secondary coverage misread at the time as a victory on the merits. It was not. It just meant the owners got to build a factual record. That record produced a detail worth sitting with: when the city was pressed during discovery to justify the ban on nuisance grounds, it turned out New Braunfels had issued zero nuisance citations against existing short-term rentals.
That fact did not save the case. In January 2026, the district court granted summary judgment for the city anyway, and this past June the Fifth Circuit agreed. The court's reasoning was not that short-term rentals cause problems. It was that Texas law does not recognize a protected property right to lease your home short-term, and that a city drawing a line between 29-day and 30-day rentals to protect residential character passes the low bar of rational basis review. The city does not have to prove the rentals are a nuisance. It only has to show the rule is not arbitrary.
That distinction matters for you as a buyer. It means the ordinance was never really about documented harm. It was about zoning, full stop, and the courts have now confirmed zoning gets wide latitude even without supporting evidence.
The Zoning Line Is the Whole Ballgame
Here is the practical result. Short-term rentals are barred outright in every residential zoning district in New Braunfels, no matter how the property looks, how close it sits to the river, or how strong the guest demand would be. That prohibition dates to the city's 2006 zoning ordinance and was expanded in 2011, and it is not changing through the courts anytime soon.
In non-residential districts, the picture splits into two paths:
- Most non-residential zones require a Special Use Permit before you can even apply for an STR permit. That process typically takes about three months and requires one hearing before the Planning Commission and two readings before City Council, with public notice sent to every property owner within 200 feet.
- Parcels zoned C-4, C-4A, or C-4B, the city's resort commercial districts, skip that SUP step entirely and move straight into the standard STR permit process.
Short-term rentals are also barred in the floodway, which is a narrower designation than the 100-year floodplain. A property can sit in the floodplain and still qualify, but if it falls inside the floodway itself, it is off the table regardless of zoning.
The upshot: before you fall for a listing photo of a riverside cottage, find out what's actually written on the property's zoning designation. That single line of code, not the square footage or the view, decides whether your rental plan is legal on day one or legal never.
What the Numbers Actually Cost You
If a property clears the zoning hurdle, the ongoing compliance costs are modest but specific enough to build into your underwriting.
| Requirement | Cost or Detail |
|---|---|
| Initial STR permit fee | $206 |
| Annual renewal fee | $128 |
| Commercial liability insurance | Minimum $500,000 per occurrence |
| Combined hotel occupancy tax | 13% (7% city, 6% state) |
| Fire Marshal life-safety inspection | Required annually before renewal |
| Tax filing frequency | Monthly, including $0 returns in months with no rental activity |
Since February 1, 2026, the city has processed hotel occupancy tax payments through a new portal called Rentalscape rather than its old system. Paying by ACH carries no fee. Paying by credit card adds a 2.75% merchant charge. If you bought a property that was already operating as an STR under the old system and the previous owner never migrated their tax account, you may be inheriting an administrative gap rather than a clean slate, so confirming the Rentalscape account status is worth doing during option period, not after closing.
The Detail Most Guides Skip
Here is the part that should reshape how you think about the whole category, even if you never plan to litigate anything.
The city's own discovery record could not produce a single nuisance citation against an existing short-term rental. Not one. And the ban survived anyway, because the legal standard does not require the city to prove actual harm. It only requires a plausible governmental interest and a line that is not arbitrary.
That tells you something practical about how enforcement works here. New Braunfels is not chasing STR operators because of documented neighbor complaints piling up in a file somewhere. It is chasing zoning compliance as a category, independent of whether any given rental is well run or a genuine nuisance. A quiet, well-maintained short-term rental in a residential zone gets treated the same as a chaotic one, because the enforcement trigger is the zoning designation, not the behavior. That is worth knowing if you are the type of buyer who assumes good conduct will keep you under the radar. It will not. The radar is the parcel, not the guest reviews.
Location Still Matters, Just Second
None of this means location is irrelevant once a property clears zoning. It means location becomes the second question instead of the first.
Among properties in eligible zones, performance still varies by sub-market. Gruene tends to hold up best across the calendar because its live music and historic district draw visitors outside peak summer months. River Road properties lean hard into the summer tubing season and see steeper drop-offs the rest of the year. Downtown, near Prince Solms Park and the Comal River, tends to attract a family-oriented guest base drawn to a calmer, spring-fed river experience. Canyon Lake properties, which sit further from downtown dining and nightlife, have generally landed in a mid-range annual revenue band, with lakefront and dock access pushing the higher end of that range for the right buyer.
The point is not to chase a specific number. It is that these differences only matter for properties that are already eligible to operate as short-term rentals in the first place. Comparing revenue potential across ineligible and eligible parcels is comparing two different products.
The 30-Day Workaround, and Its Real Limit
The one clean way around the residential ban is renting for 30 consecutive days or longer, which falls outside the STR ordinance's definition entirely. That is a legitimate, commonly used structure, but it is a different business than a weekend-turnover Airbnb. It trades higher per-night rates and hands-on hosting for lower turnover, steadier occupancy, and a tenant relationship that starts to resemble a lease. If your investment plan depends on nightly or weekend pricing, this workaround does not solve your problem. It just gives you a legal, longer-term rental option on a property that will never qualify for short-term use.
Frequently Asked Questions
Does this ruling apply to properties near Canyon Lake or elsewhere outside New Braunfels city limits? No. The ordinance and this ruling apply within New Braunfels city limits. Properties near Canyon Lake or along the Guadalupe River corridor that fall outside those limits are governed by Comal County rules instead, which can differ from the city's requirements. Confirm jurisdiction before assuming city rules apply.
If I buy a home in a residential zone, can I apply for a rezoning to allow a short-term rental anyway? You can apply, but the Marfil plaintiffs did exactly that and were denied before ever filing suit. City Council has discretion over these requests, and this ruling gives the city firmer legal ground to keep denying them in residential districts going forward.
What happens if I list a residential property on Airbnb or Vrbo without a permit? You are operating in violation of the ordinance. The city's penalty structure escalates with each day of violation and includes separate consequences for unpaid hotel occupancy tax, on top of the risk of losing any future path to a legitimate permit on that parcel.
If you are weighing a New Braunfels purchase against other Hill Country markets and want to know which zoning designations actually support your plans before you write an offer, that is exactly the kind of groundwork Ashley Lomas walks through with buyers every week. Let's Connect and figure out what your money can actually do here.
