New Orleans' Short Term Rental Update

Earlier this week the U.S. 5th Circuit Court of Appeals released its opinion regarding a challenge brought by Short Term Rental (STR) owners on two issues.

• Whether an STR license creates a property right, such that loss of a license is a “taking:” The court held that a license does not create a property right, and therefore there is no claim for damages in the event of non-renewal or if the rules are changed. This holding affirmed the ruling of the lower court.
• Whether a homestead exemption requirement is a valid requisite for residential STR licenses: The court held that it is not. The requirement is a violation of the “Commerce Clause” which gives Congress the power to regulate business “among the several states.” The court reasoned that there may be reasonable objectives in instituting limits on short term rentals (the City stated it is necessary for preventing nuisances, promoting affordable housing, and protecting neighborhoods’ residential character). However, the provision of STR accommodations is a business, and the residency requirement facially discriminates against out of state market participants. It reasoned that there are many other ways the City’s goals could be achieved, and briefly discussed a few options; greater enforcement, increased fines, license revocations for repeat offenders, increased taxes, reduced housing regulations on affordable housing construction (to increase supply), and limits on number of licenses issuable. This holding vacated the ruling of the lower court.

What’s next?

In the short term, expectations are that the City will begin redrafting the STR rules. City Council Vice President JP Morrell has proposed a freeze on issuing permits while this happens. The next council meeting is September 1.

Long term: This remains an evolving situation. If the re-drafted rules continue to allow residential short-term rentals, they will likely include a larger pool of potential owners/property buyers. This could create more transactional activity in the Orleans Parish market.

You can read the full opinion here: https://www.ca5.uscourts.gov/opinions/pub/21/21-30643-CV0.pdf