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City Code Limiting Short-term Rentals Ruled Unconstitutional

November 15, 2022

Overview

A recent decision by a federal court of appeals found a New Orleans’ city code limiting short-term rentals of residential properties (such as AirBnB, Vrbo, Vacasa, etc.) to only landlords who lived inside the city was unconstitutional.

In Hignell-Stark v. City of New Orleans, 46 F.4th 317 (5th Cir. Aug. 22, 2022), the Court held the city ordinance was an undue burden on interstate commerce. A state or city law that discriminates against interstate commerce is unconstitutional unless there is no other way to enforce the government's legitimate policy goals.

In this case, the city “doesn't just make it more difficult for [non-resident owners] to compete in the [short term rental] market…it forbids them from participating altogether." The city responded that (1) the law was intended to make sure a responsible adult lived on the property full-time; (2) residents from outside the city could operate short-term rentals in nonresidential zoned areas; and (3) the law not only burdened interstate commerce, but it also prohibited Louisianans who didn't live in New Orleans. The Court found none of these arguments were relevant.

The city urged three objectives justified the law: preventing nuisances, promoting affordable housing, and protecting neighborhoods' residential character. The Court found the nuisance and residential character goals could be achieved by enforcing existing nuisance laws, increasing penalties for nuisance violations, increasing taxes on short-term rentals, or by requiring a representative of the landowner to be on the property (or in the city) during night hours. There were many ways to increase the supply of affordable housing without prohibiting interstate commerce.

BOTTOM LINE: State and local laws that discriminate against non-residents – in the context of real estate rights and commerce – are subject to constitutional attack and face a high hurdle to prove the state, city, or county really had no other choice.

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