New Orleans STR changes could lead to opportunities or headaches

[Logan Macrae]

New Orleans City Counsel is currently proposing banning short-term rentals in all residential areas of the city. This move comes after a federal judge placed a restraining order on the city's previous change to short-term rentals. The previous change restricted short-term rentals to one per city block via a lottery system with the possibility of two additional exemptions. There are also rumors that the city counsel is looking to increase fines of violators starting at $10k for first violations. 

So what would these changes do to the real estate market here in New Orleans? I believe this will affect the current housing supply in a positive way for buyers. If City Counsel's proposed ban were to go into affect, I think we will see both short and medium term changes. In the short term, the market will see more long term rentals available which will drive down overall rents. In the medium term, depending on how much the increased supply of rentals is able to drive down rents, we might start to see more investors selling their properties. 

Overall, the market is always trying to seek an equilibrium of buyers and sellers both being able to freely find their ideal homes and this move would probably bring down record home prices. 

What do you think?

[Michael Baum]

Not surprising I guess. Big city. Too bad as it is a popular place to visit. Seems crazy to me to restrict the ability to have people stay near the action. I wonder how much influence the hotel lobby has in the city?

[John Underwood]

So the city council there obviously doesn't care for STR's and its not going to get better.

The smart money is pivoting to LTR's or selling and investing elsewhere. 

[Braden Smith]

Quote from @Logan Macrae:

New Orleans City Counsel is currently proposing banning short-term rentals in all residential areas of the city. This move comes after a federal judge placed a restraining order on the city's previous change to short-term rentals. The previous change restricted short-term rentals to one per city block via a lottery system with the possibility of two additional exemptions. There are also rumors that the city counsel is looking to increase fines of violators starting at $10k for first violations. 

So what would these changes do to the real estate market here in New Orleans? I believe this will affect the current housing supply in a positive way for buyers. If City Counsel's proposed ban were to go into affect, I think we will see both short and medium term changes. In the short term, the market will see more long term rentals available which will drive down overall rents. In the medium term, depending on how much the increased supply of rentals is able to drive down rents, we might start to see more investors selling their properties. 

Overall, the market is always trying to seek an equilibrium of buyers and sellers both being able to freely find their ideal homes and this move would probably bring down record home prices. 

What do you think?

I agree with your sentiment and the market is already showing signs of this. There are many more active and available rentals in the market right now, especially in Orleans Parish. This increased supply may lead to reduced rental rates if the demand stays flat. I have also noticed many properties being listed for sale that were bought within the last couple of years, so I think many STR owners are being forced to sell as they overpaid for properties banking on the higher STR revenue.

[Damon Aniton]

I purchased a duplex in January with the thought of renting 1 unit as an LTR and making the 2nd unit as an STR to cover the difference but still be able to stay in the property when I come in town. Thinking/expecting that by March they would start issuing permits again.

I kept the unit for fun and going back and forth through about June. It became evident then the city was going to ******** their way through this process for an unknown amount of time. At that point I made a pivot. Even as a regular rental I would make a good amount of money over my PITI so I said screw it.

What ended up happening was I got it rented as partially furnished with utilities for $2800.  Fast forward that seems to be what more and more STR hosts are doing.  Not sure if they are renting but I see more and more furnished rentals pop up for that $2800 mark.  I think this will work out for a small number of owners but fizzle out fast.

The rest will be left holding the bag.  They will either sell or convert to regular rentals for much less monthly profit.

[Konstantin Ginzburg]

@Logan Macrae

I think it is difficult to say what will happen but there are many options. I am in New Orleans so am paying close attention to the situation. I think there may be an effect on rents and property prices but I do not think it would be very drastic so I don't think there will be a large surge of properties hitting the market due to this. Regardless of what the city council decides, historically they have proven unable to enforce their decisions so there will still be a supply of illegal STRs operating in the city. Many of the legal STR owners are only renting out a single room in their primary residence so forcing them out of business through regulation will not add additional rental stock to the market although it may force them to potentially sell. Others who own an STR, may accept the lower revenue and pivot to an MTR or LTR model but the demand for rentals is so high at the moment that I think the prices may lower to an extent but I do not see them crashing. I have noticed that rentals have decreased a little over the last few months and finding a tenant has been slightly more challenging but the overall rental rates are still far higher than they were just 2-3 years ago due to the substantial price inflation that had been occurring to rental prices over that course of time. There is also the possibility that the issue continues to return to court and the issue is perpetually delayed while it is stuck in legal limbo.