Article by Elana Beiser
Cities around the United States are grappling with the surge in short-term rental properties, with critics saying the trend contributes to a nationwide housing shortage and erodes the character of residential neighborhoods. Noisy strangers come and go, often sidestepping the hotel occupancy taxes that generate crucial municipal revenue. Proponents say short-term rental platforms like Airbnb give travelers more choices at lower prices. Local property owners use short-term rental income to meet their own housing and other costs. The industry of buying, marketing, and servicing short-term rental properties provides jobs and investment opportunities.
The issue has been especially contentious in New Orleans, Louisiana, a city heavily reliant on tourism. The New Orleans City Council passed a series of ordinances and amendments to tackle the problem; for instance, in December 2019, the city restricted short-term rental permits in some districts to applicants who have a homestead tax exemption for the property, meaning that it is their primary residence. Out-of-state property investors sued, claiming, among other things, that this requirement violated the Dormant Commerce Clause, a doctrine based in the U.S. Constitution. The United States District Court for the Eastern District of Louisiana granted the city's motion for summary judgment, finding that the ordinance discriminated against interstate commerce, but only incidentally, and that the burden on interstate commerce did not outweigh the city's legitimate public interest in protecting the character of neighborhoods.
The plaintiffs appealed, marking the first time that the United States Court of Appeals for the Fifth Circuit--or any federal circuit court--addressed a requirement restricting short-term rental licenses to the applicant property owners' primary residence under the Dormant Commerce Clause. The Fifth Circuit agreed with the district court's finding that the statute was discriminatory, but found the lower court erred in applying the balancing test rather than asking whether the city could achieve its legitimate purpose through alternative, non-discriminatory means. The Fifth Circuit held that the city ordinance violated the Dormant Commerce Clause by discriminating against out-of-state interests and was therefore unconstitutional, vacating the lower court's decision of summary judgment for the city.
In reaching its conclusion, the Fifth Circuit failed to probe deeply enough into whether local residents and out-of-state property investors are substantially similar entities, a threshold question that warrants further discussion. The court also found that New Orleans has several alternative means to achieve its goals, but most of the suggested means are not viable; in fact, the city previously precluded one for fear of a different type of discrimination. The lack of a more thoughtful opinion is disappointing given the serious policy challenges that short-term rentals pose to New Orleans and other U.S. cities. Part II of this Note surveys the background of the Dormant Commerce Clause and its previous application by the Fifth Circuit. Part III explores the court's decision. Part IV analyzes the court's handling of the “substantially similar” threshold and its proposed alternative means for New Orleans to achieve its purpose. Part V concludes.
About the Author
J.D. Candidate 2024, Tulane University Law School.
Citation
97 Tul. L. Rev. 569