Fifth Circuit Rules Against New Orleans Residency Rule for Short-Term Rentals (August 2022)

From the record. This is a look back at August 2022. The desk wrote it on 11 October 2026 from sources published at the time; Stay Gazette opened in July 2026 and did not report this as it happened.

On 22 August 2022, the U.S. Court of Appeals for the Fifth Circuit ruled that New Orleans could not limit short-term rental licenses in residential neighborhoods to people who live in the home they rent. The three-judge panel held that the city's residency requirement, written into its 2019 rules and proved with a Louisiana homestead exemption, discriminated against out-of-state property owners and violated the dormant Commerce Clause of the U.S. Constitution.

The opinion in Hignell-Stark v. City of New Orleans, No. 21-30643, was written by Circuit Judge Jerry E. Smith for a panel that also included Judges Wiener and Southwick. It did not end the rule on the spot: the court vacated a lower court's judgment for the city and sent the question back. One week later, on 29 August 2022, the New Orleans City Council stopped taking new residential short-term rental applications for six months and set every existing residential permit to expire on 1 March 2023.

What the court held

The owners sued the city in November 2019, and three of their constitutional challenges were before the appeals court. The residency requirement was the one they won. The U.S. District Court for the Eastern District of Louisiana had agreed that the rule discriminated against interstate commerce but upheld it anyway, finding the burden was not clearly excessive next to the local benefits. The appeals court said the lower court was right about the discrimination and wrong about the test. The question it should have put was whether the city had reasonable alternatives that did not discriminate, and the panel found there were many.

The rule did more than make it harder for out-of-state owners to compete for short-term rentals in residential neighborhoods, Smith wrote. It kept them out of that market altogether.

The owners lost on another claim. Many had held licenses under the city's first licensing regime that were not renewed, and they argued that the failure to renew them violated the Takings Clause. The court held that they had no property interest in a renewal: the first regime had described a license as a privilege and not a right, and it had lasted only a year before the city began changing its policies, too short for custom to turn a license into property. A third dispute, over the city's limits on how license holders advertise, was left undecided when the panel dismissed the city's cross-appeal.

How the residency rule came about

Before short-term rentals became common, New Orleans did not allow homeowners in residential neighborhoods to rent out their homes for stays shorter than thirty days. In 2016 the city decided to offer licenses, and that regime took effect on 1 April 2017. One year in, a study the city commissioned from its Planning Commission found that the spread of short-term rentals had brought nuisances and a loss of neighborhood character, and it gathered anecdotal evidence that the market had made housing less affordable.

The city rewrote the rules in 2019. From then on, nobody could get a license to own a short-term rental in a residential neighborhood unless the property was also the owner's primary residence. The city enforced that by asking applicants for a homestead exemption on the property, which Louisiana law gave a homeowner only for a principal residence. In practice, The Lens reported, a person could have only one short-term rental in a residential neighborhood.

The options the judges listed

The city told the court the requirement served three interests: preventing nuisances, promoting affordable housing and protecting the residential character of neighborhoods. The panel accepted all three as legitimate. It said each could be pursued without excluding owners who live elsewhere.

For nuisances: step up enforcement, raise the penalties on owners, strip repeat offenders of their licenses, raise taxes on short-term rentals, or let an owner have an operator stay on the property at night.
For housing costs: raise the price of a license, or cap the number of licenses available in a neighborhood.
For neighborhood character: put a ceiling on the share of housing units used as short-term rentals.

Smith summed up the panel's view in two sentences: “The City has many options to address the problems caused by STRs in residential neighborhoods. But it chose one the Constitution forbids.”

A representative of the Faubourg Marigny Improvement Association, a neighborhood group that wanted short-term rentals limited, told the Associated Press that without the homestead exemption it would be hard to determine whether someone was living at a rental. “How are you going to enforce that someone is on the property?” the representative asked.

How City Hall answered

The ruling did not erase the 2019 rules. It allowed the owners to ask a district judge to do that, and The Lens reported that they made that request the week of the ruling. No order had come down by 29 August 2022.

The council did not wait for one. In a statement the AP reported on 23 August 2022, Council member J.P. Morrell vowed to rewrite a law he said was flawed even before the ruling. Short-term rentals, he said, “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,” according to the AP.

On Monday 29 August 2022, at a special meeting, the council adopted a motion that stopped the city taking applications for new residential short-term rentals for six months. A note published by a New Orleans law firm described the vote as unanimous. The motion also declared that all current residential permits would expire on 1 March 2023, whatever expiration date was printed on them. The law firm's note said hundreds of property owners held residential licenses that would lapse on that date. Morrell said the aim was to have every permit under the same regime once a new law was finished.

The Lens reported that the moratorium was meant to prevent an influx of new short-term rentals while the council wrote rules for the third time since 2016. The council planned for six months, with the option to extend, and Morrell said in a press release that the new rules would be more restrictive.

The council also introduced an ordinance requiring short-term rentals to post conspicuous signage with their permit information. WWNO reported that enforcement had been a key problem since 2019, with an unknown number of unlicensed rentals operating.

The Gazette Verdict, looking back

The first people to pay for this ruling were the hosts who had followed the 2019 rules. The court sided with owners who live elsewhere, but it handed them no permit: it sent the case back, and a week later the council froze new residential applications. The resident hosts, hundreds of them by one law firm's account, saw permits they already held given an end date of 1 March 2023. New Orleans had hung its residential system on one test, a homestead exemption, and when that test failed in court nothing stood behind it. The judges had named the replacements: neighborhood caps, a higher license price, heavier penalties, higher taxes. Each costs a host money or a place in line. The point for a host anywhere: a permit that rests on a single legal theory is only as safe as that theory.

The other side

The city's defenders had a serious case. The homestead exemption was a check officials could verify on paper, and the Faubourg Marigny group's question to the AP, how anyone would enforce that someone was on the property without it, had no ready answer in August 2022. The judges' alternatives leaned on enforcement, which WWNO reported had been a key problem since 2019. Seen that way, a six-month pause that put every residential permit on the same clock was the careful move. It kept an influx of new rentals out while the council wrote rules meant to survive a court, and it treated resident and absent owners alike.

What it meant for hosts

At the end of August 2022, the ruling had changed the legal ground and the council had changed the calendar. What a host had to do depended on the permit.

A host with a residential permit still held it, but the permit now ended on 1 March 2023 regardless of the date printed on it. The rules that would replace it had not been written, and a council member had said they would be more restrictive.
An owner who wanted a new residential permit could not apply for six months, and the pause could be extended.
An owner living outside the city gained a ruling, not a license. The 2019 rules stayed on the books, pending an order from a district judge.
A host with a commercial permit, in a commercial or mixed-use zoning area, was not affected.
Every operator had reason to expect more enforcement. A signage ordinance had been introduced, and Morrell had said the freeze could buy the Department of Safety and Permits time to clear a backlog of illegal rentals.

The AP reported that the panel was unanimous and, citing the attorney for the owners who challenged the rules, that the decision was binding in the three states the Fifth Circuit covered: Louisiana, Mississippi and Texas. A city there with a permit rule built on owner residency had this opinion to answer.

Sources

U.S. Court of Appeals for the Fifth Circuit, Hignell-Stark v. City of New Orleans, No. 21-30643 (opinion) (22 August 2022).
Associated Press (via KVIA), New Orleans short-term rental rule struck down by court (23 August 2022).
WWNO New Orleans Public Radio, New short-term rental applications on pause as New Orleans Council decides next steps (29 August 2022).
The Lens, Council temporarily bans new short-term rentals as it rewrites regulations (29 August 2022).
Sternberg, Naccari & White, New Orleans City Council Upends Residential Short-Term Rentals (29 August 2022).

Fifth Circuit Rules Against New Orleans Residency Rule for Short-Term Rentals