Overview
The short-term rental (STR) housing market in the United States includes more than 2.4 million properties and 785,000 hosts. As of 2022, the estimated global $109.76 million market for STR properties projected continued growth. Though slower than predicted, in part due to the expense and decline of a travel boom following the pandemic, it also coincides with increased local legislation regulating the STR market.
Apartments make up a smaller percentage of STR property types. It’s in larger cities - like New York and San Francisco - where apartments make up most housing options, or in desirable tourist destinations where we have seen court cases involving apartment community owner-operators and third-party hosting platforms. Local jurisdictions enacting new or stricter STR regulations cite housing affordability, overcrowding and safety concerns. In turn, many localities have enacted licensure and reporting rules, zoning regulations or additional insurance requirements.
While no state has an outright ban, every state has an ordinance regarding STR and most allow local jurisdictions to enact their own ordinances for regulation, registration and safety purposes. States such as Arizona do not allow strict prohibition, and instead allow local regulation based on safety, public welfare, zoning and licensure with state-mandated limits on associated fees and registration requirements. Phoenix enacted the allowed regulations in 2023, initiating a permitting process and implementing restrictions, including prohibited use of accessory dwelling units (ADUs) as STR properties and civil penalties for first and subsequent violations. Like in Arizona, new and amended legal requirements are cropping up at the local level across the country. As a result of increased regulation, owners, operators and third-party hosting providers have been parties to many lawsuits challenging standard practices and new requirements.
The following sections detail brief case studies of new STR requirements owners and operators are facing throughout the country.
Reporting Requirements
Many states define a STR as any rental with a term shorter than 30 days and allow local jurisdictions to enact zoning regulations and licensure requirements. For example, in New York, the Multiple Dwelling Law defines a permeant residence as thirty (30) consecutive days. It also introduced a bill to create a statewide STR registry following the enforcement of New York City’s law, which was subject to ongoing litigation until 2023. A 2018 filing for an injunction against the New York City ordinance cited the city’s reporting requirements would require third-party hosting companies to give private customer data and financial information to the city every month and claimed the required disclosure violated the first and fourth amendment and the Stored Communications Act.
Parties came to a settlement on the matter, resulting in the dismissal of the case and the city amending the law, changing the reporting requirement from monthly to quarterly. Also in response to the city’s occupancy concerns, the law was amended to apply only to residences rented in their entirety or by three or more occupants. New York City finalized the law in 2021 and required online hosting platforms to verify a listed property is legally registered with the city. A subsequent lawsuit was dismissed in August 2023, stating it was not unreasonable for third-party hosting companies to comply with the new law by verifying hosts have properly registered with the local agency.
Communications Decency Act
California’s state code also defines a STR as a rental with a term of less than 30 days and includes cancellation and refund protections for transactions on third-party hosting sites. Many cities, such as Anaheim, have reversed STR bans and instead implemented strict regulations for licensing, permitting and use of hosting services. A few others, including Carmel-by-the-Sea maintain a strict ban prohibiting any rental shorter than 30 consecutive days.
In the Central District of California, an attempted punitive class action complaint by an operator alleged a third-party hosting site, over the course of several years, entered into subleases in violation of the operator’s lease agreements despite notice to cease and desist. Defendants sought dismissal on the grounds the claims were barred under the Communications Decency Act (CDA). The CDA, designed to regulate material on the internet, also defines and provides immunity for hosts with regard to third-party content on their sites. The filing also alleged plaintiffs failed to state a claim for which relief could be granted, or to alternatively strike the class definition. A similar challenge against the City and County of San Francisco was denied in 2016. However, the material facts of that case involved challenging the legality of San Francisco’s STR ordinance and seeking an injunction barring enforcement of the ordinance making it a misdemeanor to provide booking services for unregistered rental units. When San Francisco rolled back its prohibition in 2015, the new local ordinance detailed requirements for hosted and un-hosted listing (resident not staying in the same residence as the renter), insurance requirements and limits for renters to not earn more than their monthly rental amount in income. Here, the Central District ruled the CDA barred this claim because the third-party site did not create the STR listings, rather it relied on information provided by the hosts, therefore not making them an information content provider.
Third-party hosting platforms also filed suit, claiming the Santa Monica law violated the CDA. However, in this case, the Court of Appeals for the Ninth Circuit relied on the 2016 opinion regarding the San Francisco STR ordinance from the Northern District of California and ruled the CDA did not apply as Santa Monica’s ordinance applied only to listings of unregistered properties. The court also denied the argument that the new ordinance amended the city’s land use plan, which would require the land use commission’s approval citing the STR regulation.
Commerce Clause
While Santa Monica has a ban on vacation rentals, its Home Sharing Program allows for rental terms less than 30 days for part of a long-established primary residence when approved by the city. When Santa Monica enacted the Home Sharing Program in May 2015, a homeowner in the city of Santa Monica, who previously rented their home on a hosting site, filed a claim that the STR ordinance violates the Commerce Clause. The Commerce Clause, which gives congressional power to regulate commerce with foreign nations, between states and with Indian Tribes, provides protections from over regulation of interstate trade. The appellate panel denied the claim, stating the local law did not restrain interstate commerce, even if booking and payment of rental transactions occurred out-of-state. This case was appealed to U.S. Supreme Court, who reviewed and denied the petition for writ in the spring of 2020 thus upholding the lower courts’ rulings and the city ordinance.
The Fifth Circuit came to a different ruling regarding a claim that the City of New Orlean’s STR law violated the Commerce Clause. In 2019, property owners filed suit against the city, stating the primary residence requirement for STR permits restricted interstate commerce. On appeal, the court struck down the local ordinance requiring Louisiana residency to apply for a permit in a residential neighborhood citing there were other effective, nondiscriminatory options for the city to meet its goal of limiting nuisance and maintaining integrity of neighborhoods. Instead, the city’s amended law includes an operator permit with accompanying safety requirements and a limit to the number of licenses issued in each neighborhood.
Zoning and Land Use
Like the claim that the Santa Monica STR law was effectively an unapproved amendment to its land use plan, zoning and land use regulations are frequent challenges to STR ordinances, such as in Miami. Miami’s 2017 zoning ratification made STRs, residential rentals of less than one month, illegal in a specific area comprised mostly of single-family and duplex homes. Though the trial court initially granted the third-party hosting company/defendant’s injunction, the city appealed the case to the Court of Appeals for the Third District Court, which overturned the decision, citing the Miami zoning resolution applied to the original 2009 city ordinance, which predated the 2017 state statute.
Most recently, in May 2024, the governor of Hawaii signed the state’s new STR law, which sought to clarify the argument of preemption and gave counties the authority to determine if they want to allow STR’s to control land use and transient accommodations. This updated state law follows a 2022 lawsuit against the City and County of Honolulu where the District Court of Hawaii granted an injunction against a new law to increase the minimum STR period from 30 to 90 days when existing operators sought to continue legally renting properties established prior to the 2022 law. The court ruled existing legally operated properties could continue their business, and the new law would apply to properties established after passage of the new legislation. The City of Honolulu maintained the 30-day minimum, yet other new restrictions, including prohibition in certain tourist frequented zoning areas applied.
As states leave short-term rental regulations up to localities, enacting at most ban prohibitions or rental term definitions, local jurisdictions will continue enacting new or stricter laws to address their housing affordability, overcrowding and safety or neighborhood integrity concerns. Challenges to legislation, whether based on the CDA, Commerce Clause, land use or zoning protections or other means remain case specific, determined bycertain wording of or requirements set forth in new or updated local laws. Most courts now rely on these previous court rulings and require localities to review or edit their ordinances when requirements are determined to be overly burdensome or violate operator rights. Owner-operators working in this market need to take care to adhere to all permitting or licensure requirements, track ongoing zoning regulations, and understand all rental reporting and insurance requirements. Though evolving, localities in desirable markets are trending along the same lines for increased regulation.