A federal court of appeals in the U.S. has struck down a New Orleans’ law that states only property owners who live in the city can obtain short-term rental (STR) licenses. The judges overseeing the appeal claimed that the law discriminates against out-of-state property owners, making it unconstitutional.
The New Orleans city council introduced the law, along with a series of other STR restrictions, in August 2019. The decision to implement new laws came after a 2018 report commissioned by the city revealed that STRs, such as Airbnbs, were driving locals out of the city by raising property prices and taxes, diminishing the character of historic neighbourhoods, and contributing to excessive noise and partying.
The restrictions introduced limited the number of STRs allowed in commercial properties; banned most STRs from historic neighbourhoods, such as the French Quarter; and mandated that individuals would only receive a short-term rental license if it was their primary residence.
The city implemented the primary residence law to ensure that there was a responsible adult onsite to deal with any inappropriate behaviour.
A group of STR owners opposed the primary residence law, filing a lawsuit against the city in a district court. After hearing the group’s argument, the judge determined that the city’s law was justified. The group then appealed the decision in the Court of Appeals for the Fifth Circuit, where the judges overturned the previous ruling, saying it was discriminatory and therefore unconstitutional.
The Court of Appeals for the Fifth Circuit covers Louisiana, Mississippi, and Texas, making the decision binding in all three states.
In the court’s decision, judge Jerry Smith determined that the law interfered with interstate commerce, writing: “If there are ‘any available alternative methods for enforcing [the government’s] legitimate policy goals,’ the law is unconstitutional.”
Smith went on to outline a number of alternative methods for policing short-term rentals without discriminating against out-of-state property owners. “The city could step up its enforcement efforts, increasing the chance that owners face punishment for disorderly guests and strengthening their incentive to monitor their rentals. It could also increase the magnitude of penalties it imposes on owners for guests who violate quality-of-life regulations. That would similarly give owners stronger incentives to prevent nuisances and help to fund increased enforcement. The city could even strip repeat offenders of their STR licenses, thus eliminating the STRs most likely to negatively impact their neighbours,” he wrote.
Smith added that New Orleans could also increase taxes on short-term rentals, and require a supervising adult to live onsite (not necessarily the owner).
New Orleans will now have to change the existing law to allow out-of-state property owners to apply for a STR license.
In response to the ruling, New Orleans’ Mayor, LaToya Cantrell said in an email: “My office remains committed to protecting New Orleans’ historic neighbourhoods and the residents who have spent decades building these strong communities. While regrettable, it is important to note that the ruling does not affect the city of New Orleans’ ability to regulate short-term rentals. My office looks forward to working with all stakeholders to develop regulations that will continue to protect the residential character of our neighbourhoods and the people who call these neighbourhoods home.”