City Council passes tighter restrictions on short-term rentals

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Michael Isaac Stein / The Lens

She wanted the council to institute a freeze on new commercial permits until the new rules take effect. The council didn’t publically consider that option at the meeting.

The New Orleans City Council on Thursday voted unanimously to enact two ordinances designed to significantly tighten the city’s short-term rental laws: adding a requirement that people who operate short-term rentals in residential districts live onsite, placing a cap on rentals in nonresidential districts and requiring short-term rental platforms — like Airbnb and HomeAway — to obtain permits in order to operate in New Orleans, among other provisions. 

The votes were the culmination of 15 months of work by the council, which has been trying to rewrite the laws since May 2018, when many of the current council members were first sworn in. 

“We’ve been having a conversation about how to regulate short-term rentals for over two years,” said Councilwoman Kristin Palmer, who has led the charge for reform. “It would be impossible to list out all of the CPC public hearings, community meetings, and thousands of individual conversations my colleagues, our staffs, and I have been a part of.”

The new rules will go into effect Dec. 1. They create new baseline rules for short-term rentals that are much more restrictive than those put in place when short-term rentals were first legalized in New Orleans in 2017 under former Mayor Mitch Landrieu. 

“I firmly believe that what is before us today has been carefully researched and crafted, and it is the best possible policy for the City,” Palmer said. 

One of the ordinances amends the city’s zoning law on where short-term rentals are allowed to operate. Some of the biggest changes there will be for residential short-term rentals. Residential rentals with absentee owners, or that were controlled by companies with dozens of properties in their portfolios, were widely seen as one of the most significant problems with the industry. 

After Dec. 1, residential permits will only be granted to owners with a homestead exemption, meaning they use the property as their primary residence. The ordinances also uphold a full ban in most of the French Quarter and create a new ban in the Garden District.

In statements after the votes, representatives of HomeAway and Airbnb, the two most popular short-term rental platforms operating in New Orleans, immediately criticized the ordinances. 

“The policies passed today take New Orleans in the wrong direction, harming local homeowners who’ve played by the rules and placing the remaining few under some of the highest tax burdens in the nation,” said an email from Philip Minardi of the Expedia Group, which owns short-term rental platform HomeAway.

Laura Spanjian, Airbnb Senior Policy Director, said that “the rules unfairly punish responsible short-term rental hosts who are contributing to the local economy.”

The second ordinance sets up new enforcement measures to ensure that these new rules are actually followed. A lack of stringent enforcement was one of the other major flaws that critics identified in the old laws. In June, The Lens reported on Ada Phleger, a resident who worked for months to get the city to revoke an apparently illegal short-term rental on her block. She eventually got so fed up with the system that she rented the Airbnb herself to prove it was improperly permitted. The city ultimately revoked the permit. 

One of the most important measures in the enforcement ordinance is the creation of a new platform permit for short-term rental platforms like Airbnb or HomeAway. There are conditions for maintaining the permit, such as refusing to list properties that don’t have permission from the city. If the platforms violate the rules, they could have their permits pulled.

Also at Thursday’s meeting, the City Council passed a resolution to add a ballot measure to the statewide election in November that, if approved by voters, would allow the City Council to levy a tax up to 6.75 percent for short term rentals. That revenue would be split — 75 percent would go to the city for infrastructure improvements and 25 percent would go to New Orleans and Co., formerly called the New Orleans Convention & Visitors Bureau.

The tax was brokered during this year’s legislative session by Mayor LaToya Cantrell, Gov. John Bel Edwards and the tourism industry as part of Cantrell’s so-called “fair share” infrastructure deal. 

The Cantrell administration initially predicted that the tax would generate $10.5 million for the city, which would require the size of the short-term rental market to remain about the same. Cantrell has not taken a position on the council actions to place more restrictions on short-term rental rules and tightening enforcement, which could shrink the market and, as a result, the tax collections. 

A Cantrell spokeswoman did not immediately respond to a request for comment, saying the mayor planned to release a statement later on Thursday. 

Some housing advocates have been critical of the tax for two reasons. First, they were hoping that new taxes and fees for short-term rentals would go towards affordable housing, not infrastructure improvements. The other complaint is that part of the revenue would go back to the tourism industry, which many believe get too much public funding as it is.

“We have a problem with devoting any short-term rental revenue to the tourism industry,” said Andreanicia Morris, the Executive Director of HousingNOLA, which publicly opposes the tax. 

The Ordinances

The first ordinance redefined both residential and commercial permits in terms of who can get them and where they can be. The ordinance casts off the old three permit categories — temporary residential, accessory, and commercial — and replaces them with four new ones — partial residential, small residential, large residential, and commercial. 

Some of the biggest changes are coming to residential short-term rentals. Vitally, there is no equivalent in the new permitting structure for the “temporary residential” permit. Temporary permits allowed people to rent out entire residentially-zoned properties for up to 90 days a year — enough days to host guests on nearly every weekend day of the year. 

“The Temporary Short Term Rental license was intended to be a minimally impactful short term rental type that is only utilized during major events, such as Mardi Gras, or Jazz Fest for permanent residents,” said a 2018 City Planning Commission study. “The lack of a permanent resident requirement, the generous 90-day limit, and the absence of density restrictions has led to a proliferation of temporary STR licenses.”

On May 24, 2018, the City Council put a moratorium on that type of license in many parts of the city. At the time, temporary permits made up the majority of the city’s 4,210 active short-term rental permits, according to the study. The moratorium was passed at the first meeting after five new members of the City Council took office in 2018, some of who ran campaigns with the promise of short-term rental reform. 

The new residential permits are divided into three categories, all of which require a homestead exemption. Partial unit residential permits will allow the owner to rent up to five guest bedrooms in the same “dwelling” where the owner actually lives. A small residential permit allows an owner to rent out one separate “dwelling unit” on their property. This would allow the owner of a double shotgun to live in one half and rent out the other. 

Last, a large residential permit allows the owner to rent out up to three dwelling units on the property they live on. This would allow the owner of a four-plex to live in one unit and rent out the other three. 

For commercially zoned properties, there is only one short-term rental permit. There will be a 25 percent cap on the proportion of a single commercially zoned building that can be occupied by short-term rentals. There are some parts of the city that will be exempted from this cap, including a portion of Bourbon Street and the stretch of Canal street between the Mississippi River and Rampart Street.

The second ordinance passed on Thursday deals with enforcement mechanisms. Aside from setting standards and fees for owner permits, it also sets up a new operator permits — for operators that don’t own the properties but run the short-term rental business — and platform permits for platforms like Airbnb and HomeAway. 

The council hopes this will force short-term rental management companies, such as Sonder or Heirloom, and online platforms to share some of the culpability when a short-term rental is operating illegally. The lack of cooperation and data sharing from platforms in particular has been identified repeatedly as one reason why the city’s enforcement is lackluster. 

“The platforms have gone to great lengths to avoid meeting their end of the bargain,” said a February memo from the Department of Safety of Permits. “Their actions may be legitimately characterized as deliberate data obfuscation, refusal to provide required data, and a total failure of cooperation with any enforcement mechanisms pursued by the City against platform users who violate the law.”

The ordinance doesn’t add requirements that platforms share detailed customer data, which would allow the city to more easily confirm if local Airbnb users are licensed. Instead, the platforms will have to self-regulate and take down listings whenever the city asks. If they are caught listing unpermitted homes, they risk losing their licenses. According to Palmer, similar measures have been successful in San Francisco.

Questions remain on commercial rentals 

The new language on residential short-term rental licenses had broad support in the council. But proposals applying to commercial districts have recently been thrown into question

Councilwoman Kristin Palmer, who has led the charge to place more restrictions on short-term rental rules, proposed a 25 percent per-building cap. Council members Jason Williams, Helena Moreno and Joe Giarrusso had considered introducing an amendment to remove that cap. The proposed amendment, however, was never formally introduced, and the 25 percent cap passed. 

With all of these approved changes, there is only one major reform measure that is still up in the air. Palmer, along with affordable housing advocates, has long argued that large, commercially zoned apartment buildings should have to add one affordable housing unit for every short-term rental they operate. 

The city recently hired HR&A Associates, a real estate consulting firm, to study the feasibility of such a rule. In a draft study first reported by The Times-Picayune/ New Orleans Advocate, the firm found that a one-to-one match would be cost prohibitive for many developers, and said that if the city wanted to institute a “unit match,” they recommend requiring one affordable housing unit for every six short-term rentals. That would only produce 57 new affordable housing units, according to the report. 

The Lens reported that HR&A had worked for Airbnb at least four times since 2012, creating glowing economic impact reports about the local financial benefits the company brings. The day after that was published, Councilwoman Palmer sent out a press release saying the council was unaware of the past work and that it raised questions about the impartiality of the study’s findings. 

The lead consultant for the study from HR&A defended the study to The Times-Picayune / New Orleans Advocate, saying that none of the people who worked on the New Orleans study had worked on the Airbnb projects. 

Ultimately, the Council didn’t feel ready to move forward with a decision on the potential matching requirement. 

“I believe much of our work has just begun,” Palmer said, adding that she was still “committed to affordable housing and better leveraging” short-term rentals. 

Some advocates and residents remain concerned about what will happen in commercial districts between now and Dec. 1, when the cap will become law. Buildings that exceed the cap before Dec. 1 will be grandfathered in because of the city’s non-conforming use laws. Residents like Jack Steward worry that big companies like Sonder will use the next four months to open commercial short-term rentals and beat the cap. 

“Is this going to be a gold mine rush to get your permits in before December 1st?” asked resident Jack Steward at Thursday’s meeting.

Council members and officials from the city’s Department of Safety and Permits said that the city needed time to prepare for the new rules and to create the bureaucracy necessary to enforce them. Department of Safety and Permits Director Zachary Smith stressed that the commercial permit rules that will exist until December are the same that have existed since short-term rentals were legalized. 

“We obviously don’t know the market will do,” he said. “But these have always been the rules on the books.”

Still, the prospect concerns affordable housing advocates like Breonne Dedecker, the program director of the Jane Place Neighborhood Sustainability Initiative, a vocal opponent of short-term rentals.  

She wanted the council to institute a freeze on new commercial permits until the new rules take effect. The council didn’t publicly consider that option at the meeting. 

“City council just did a bait-and-switch on commercial STRs,” she told The Lens. “Promising to grandfather in all commercial STRs before putting the 25 percent cap per building in place in December will just create wave of speculation in our commercial districts over the next four months.”

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