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Investing in the New Orleans short-term rental market

The latest development in a civic battle that has for years pitted neighbor against neighbor and
locals against out-of-towners is a bombshell with the potential to completely reconfigure New
Orleans’ hotly contested short-term rental market. A three-judge panel in the 5th U.S. Circuit
Court of Appeals this week ruled New Orleans’ ban on out-of-state short-term rental operator
licenses unconstitutional because it restricts interstate commerce, potentially opening the door
for an influx of nationwide investors.

Whether you’re a homeowner in New Orleans who short-term rents out a spare bedroom or a
full-time operator with multiple commercially zoned properties—or just someone considering
investing in property that has the potential to be rented out on a short-term basis—this landmark
ruling will affect your investment. How exactly remains to be seen, as city officials grapple to
create a legal framework for the ruling. Here are some things to keep in mind as we navigate
these uncharted waters.


The ruling will not immediately affect current short-term rental operators
Operators licensed under the rules passed in 2019—which mandated short-term rentals in
residential areas be owner-occupied, bans them in the French Quarter and Garden District and
limits them in mixed-use and commercial buildings—may maintain their licenses. But the city will
not issue new permits for short-term rentals until officials come up with new laws.
This is good news if you’re already a short-term rental operator. If you’re considering becoming
one, it gives you time to assess the real estate market—with the caveat that this ruling has the
potential to unleash “a complete gold rush on short-term rental permits,” Councilmember JP
Morrell said.


What will the new regulations look like?
What those laws will look like is anyone’s guess, but it is likely they will seek to impose
regulations with end goals similar to those the City Council created in 2019. In order to maintain
affordable housing for locals and preserve the city’s historic neighborhoods, those rules sought
to stem the tide of whole-home rentals in residential areas, which created a housing shortage as
landlords learned they could potentially earn more by renting to tourists than local tenants, and
out-of-state operators sought to invest in short-term rental properties in the hot destination. Only
residents with Louisiana homestead exemptions could get short-term rental licenses if they lived
in residential areas.


“The city doesn’t just make it more difficult for (out-of-state owners) to compete in the market for
STRs in residential neighborhoods; it forbids them from participating altogether,” Circuit Court
Judge Jerry Smith wrote in the decision, which said the ban on out-of-state owners was
discriminatory.

Now that the ban on out-of-state investors is lifted, City Council officials could cap the number of
short-term rental licenses issued in each neighborhood. They may also consider strengthening
penalties associated with loud, nuisance guests in otherwise quiet residential areas, Smith
suggested.


What is the best course of action for potential investors?
Wait and see. Not only is there a freeze on new permits, there’s also a lot of uncertainty around
the new legal framework and what it will mean for investors and homeowners. Furthermore, as
the pandemic proved, short-term renting is not a low-risk strategy. During the stay-at-home
order in 2020, with travel and tourism completely shut down, operators lost revenue as short-
term properties stayed empty.


Ultimately, it’s always a good idea to invest in New Orleans, a global destination with a unique
culture that’s been a solid bet for hundreds of years. But don’t let a federal ruling be the
impetus. Instead, take your time, visit New Orleans and experience its neighborhoods, nooks
and crannies for yourself (if you don’t live here already). Then, when you’re ready, become a
part of its unique culture of hospitality.

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