Not unreasonable to ask them to cut it down IMO.I would sue private nuisance and injunction from maintaining a private nuisance, and for interfering with prospective economic advantage (scaring away potential tenants with prospect of dwelling and car damage).Start with a nasty-gram from lawyer since you already asked and was turned down. 

We are aware that the yard is large enough to accommodate additional dwellings according to local building codes.We are seeking advice on whether there might be any issues with building additional dwellings given our current loan.

Now known as a popular city for young professionals and tourists, Austin has many new residents who formerly dwelled in California — an often comical reality in the city as cultures have melded over the years.

Virtually none of my units meet the current rules but all are legal because they were legal when windows were installed.   “(1) An enforcement agency, until January 1, 2030, that issues to an owner of an accessory dwelling unit described in subparagraph (A) or (B) below, a notice to correct a violation of any provision of any building standard pursuant to this part shall include in that notice a statement that the owner of the unit has a right to request a delay in enforcement pursuant to this subdivision:(A) The accessory dwelling unit was built before January 1, 2020.

We have insurance to cover dwelling.

It seems as if you have at least 2 children, id suggest looking at duplexes with 3 beds, or a larger home with an ADU (Attached dwelling unit) that you can rent to alleviate the mortgage payments. 

However, the inspector mentioned that the 2nd and 3rd floors are labeled as "Artist Dwellings," though he wasn’t sure what that fully entails.He suggested applying for a special permit to present the space as artist studios or dwellings, with the hope of eventually converting them into long-term rental (LTR) apartments under that designation.

Montgomery County update their laws regarding ADUs recently, which definitely opened up more opportunities for house hackers and investors alike.ADU regulations generally apply when you have a completely separate dwelling unit on your property — think a basement with its own entrance, kitchen, bathroom, etc.

Hopefully, new legislation will change things to entice more carriers to the state.I suggest you reach out to your local insurance broker (where you plan to invest) and explain what you are looking for in a rental dwelling policy. 

Any use that leases living space for less than 30 days cannot be considered a residential dwelling.