New Orleans short-term rental rule struck down by court

NEW ORLEANS (AP) — A New Orleans law restricting licenses for short-term Airbnb-style rentals to city residents unconstitutionally blocks out-of-state property owners from the vacation rental market in the popular tourist destination, a federal appeals court has ruled.

The 2019 ordinance was adopted by the New Orleans City Council in hopes of slowing the spread of “whole-home” vacation rentals, amid complaints that the rentals were driving up property costs and tax assessments, that full-time residents were leaving historic neighborhoods and that vacationers’ all-night parties and noise were often pushing the limits of New Orleans’ reputation for revelry.

A key provision of the law says that a person can get a short-term rental license only for their primary residence — a residence for which they claim a Louisiana homestead property tax exemption. The 5th U.S. Circuit Court of Appeals ruled Monday that the provision unconstitutionally restricts interstate commerce.

The three-judge panel unanimously overturned the decision of a lower court judge who upheld the law — despite agreeing that it restricted interstate commerce — because he said “the burden it imposed was not ‘clearly excessive in relation to the putative local benefits.’”

But the appeals court judges said the city must look at alternatives that don’t eliminate out-of-state property owners, such as higher taxes on short-term rentals, limits on the number of licenses issued in a given area or requirements that short-term rental owners hire an operator to stay on the property overnight “thus acting as the ‘adult supervision’ that the City ostensibly hopes live-in owners will provide,” Judge Jerry Smith wrote for the panel.

The ruling’s effect on similar residency requirements in other cities wasn’t immediately clear. The decision is binding in the three states covered by the 5th Circuit — Louisiana, Mississippi and Texas — although it will be considered “persuasive authority” in other jurisdictions, Dawn Wheelan, attorney for those challenging the New Orleans rules, said in an email Tuesday.

Smith’s opinion noted a California decision upholding the city of Santa Monica’s requirement that someone live at a short-term rental full time, “but that person did not need to be the owner of the property,” so out-of-state owners weren’t excluded.

But, in New Orleans, property owners must have a Louisiana homestead property tax exemption — available only to residents — in order to get a short-term rental license. It’s a way for the city to make sure someone responsible for the property is living on site when it’s being rented. Without that exemption, it would be hard to determine if someone was living there, said Allen Johnson of the Faubourg Marigny Improvement Association, a group seeking to limit short-term rentals in one historic New Orleans neighborhood. “How are you going to enforce that someone is on the property?” Johnson asked.

Mayor LaToya Cantrell’s office didn’t immediately respond to an emailed request for comment Tuesday. City Council member J.P. Morrell issued an emailed statement vowing 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 pricing people out of their homes, and I am going to tighten regulations to protect our city’s residents and unique culture,” Morrell said. He gave no specifics.