A New Orleans law restricting licenses for Airbnb-style short-term rentals to city residents unconstitutionally blocks out-of-state landlords from the vacation rental market in the popular tourist destination, a federal appeals court has ruled.
The prescription 2019 was passed by the New Orleans City Council in hopes of slowing the spread of “whole house” vacation rentals, amid complaints that rentals drove up real estate costs and tax assessments, that full-time residents moved out of historic neighborhoods, and that parties and vacationer noise often pushed the limits of New Orleans’ party reputation.
A key provision of the law states that a person can only obtain a short-term rental license for their principal residence – a residence for which they are claiming a Louisiana property tax exemption. The 5th United States Circuit Court of Appeals ruled on Monday that the provision unconstitutionally restricts interstate commerce.
The three-judge panel unanimously overturned a lower court judge’s ruling that upheld the law — although he agreed it restricted interstate commerce — because he said that ” the burden it imposed was not “clearly excessive in relation to the putative local benefits”.
But appeals court judges said the city should consider alternatives that don’t eliminate out-of-state landlords, such as higher taxes on short-term rentals, limits on the number of licenses issued in a given area or short-term requirements. -term rental owners hire an operator to stay on the property overnight “thus acting as the ‘adult supervision’ which the City ostensibly hopes the resident owners will provide,” Judge Jerry Smith wrote for the panel.
The effect of the ruling on similar residency conditions in other cities was not immediately clear. The decision is binding in the three states covered by the 5th Circuit – Louisiana, Mississippi and Texas – although it is considered a “persuasive authority” in other jurisdictions, Dawn Wheelan, an attorney for those challenging the New Orleans rules, said in an email Tuesday.
Smith’s opinion noted a California ruling upholding the city of Santa Monica’s requirement that someone live in a full-time short-term rental, “but that person need not be the landlord of ownership”, so out-of-state owners weren’t ruled out.
But, in New Orleans, landlords must take advantage of a Louisiana homestead property tax exemption — available only to residents — in order to obtain a short-term rental license. This is a way for the City to ensure that a property manager lives on site when it is rented. Without the exemption, it would be difficult to determine if anyone lived there, said Allen Johnson of the Faubourg Marigny Improvement Association, a group seeking to limit short-term rentals in a historic New Orleans neighborhood. “How are you going to get someone on the property?” Johnson asked.
Mayor LaToya Cantrell’s office did not immediately respond to an emailed request for comment Tuesday. City Councilman JP Morrell released an emailed statement promising to rewrite the law, which he said was flawed even before Monday’s ruling.
Short-term rentals “are destroying the fabric of our neighborhoods and forcing people to leave their homes, and I will strengthen regulations to protect residents and our city’s unique culture,” Morrell said. He gave no details.
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