Residential or Commercial: Legal Ambiguity in Short-Term Rental Regulation

by Katie Bunch, Associate Member, University of Cincinnati Law Review Vol. 94

I. Introduction

Zoning and land use regulations concerning short-term rental platforms like Airbnb and Vrbo have become a legal issue across the United States.¹ Airbnb and Vrbo are platforms that give travelers or renters an experience to stay in a home rather than a hotel room and offer hosts a portion of that revenue to help pay for their mortgage or rent.² Short-Term Rentals (“STRs”) are defined as tenancies of 30 days or fewer, but states and localities have the freedom to more narrowly define STRs if they choose.³ The rapid expansion of STRs has challenged traditional zoning frameworks, which were designed to regulate clearly defined residential and commercial uses.⁴ These regulations often involve balancing property owners’ rights with community interests, like maintaining residential character, addressing housing shortages, and mitigating neighborhood disruptions.⁵ At the same time, courts have struggled to apply zoning principles consistently, leading to varied and sometimes conflicting outcomes across jurisdictions.⁶

This Article examines the gap between the rapid growth of STRs and the limitations of existing zoning frameworks. Part II provides background on STRs, including their characteristics and municipal concerns related to housing availability, neighborhood disruption, and the classification of STRs. Part III argues that traditional zoning categories–residential and commercial–are insufficient for addressing the hybrid nature of STRs, leading to inconsistencies in regulation and judicial interpretation. It then proposes solutions, including the adoption of standardized STR definitions within zoning codes, operational regulations to mitigate neighborhood impacts, and balancing frameworks like those adopted in Idaho and Indiana that weigh community interests against property owner rights. Part IV concludes by emphasizing the need for municipalities to modernize their zoning approaches to accommodate evolving housing uses while maintaining predictability, fairness, and enforceability.

II. Background

STRs are properties that are rented out for fewer than 30 days, usually serving as a vacation home or temporary housing.⁷ STRs offer alternatives to traditional hotels, often at a lower cost.⁸ These properties have become an investment opportunity for many people, with over 2 million properties listed on platforms like Airbnb and Vrbo across the United States.⁹ Although it is widely accepted that municipalities can restrict the placement of large, multi-room hotels in single-family residential areas, that same concern often does not extend to STRs operating next door to one’s family home.¹⁰

As the appeal for STRs is actively growing, so are the concerns of city governments with problems such as rising rents, neighborhood disruptions, housing shortages, and the loss of local tax revenue from traditional housing.¹¹ Additionally, courts often face challenges in achieving consistency and predictability in how STRs are classified, as outcomes frequently depend on the specific language of the ordinance.¹² The regulation of STRs under modern zoning law involves navigating a complex interplay of legal, social, and economic considerations.

A. Zoning Law

The landmark case of Village of Euclid v. Ambler Realty Co. allowed the United States Supreme Court to recognize the powers municipalities possess in relation to zoning.¹³ The Court upheld the division of a municipality into distinct zoning districts, each designated for specific uses such as residential, commercial, or industrial purposes.¹⁴ For example, the Euclid ordinance classified districts into six use categories, with restrictions on the types of buildings and activities allowed in each district.¹⁵ Additionally, the court upheld the exclusion of apartment houses, business establishments, and industrial uses from residential districts, reasoning that these exclusions were rationally related to preserving the character and safety of residential neighborhoods.¹⁶ The Court also approved regulations to prevent overcrowding and emphasized that courts should defer to legislative judgment if the validity of a zoning classification is “fairly debatable.”¹⁷ Building on this doctrinal foundation, municipalities now apply these established zoning principles to regulate evolving land uses, including STRs.¹⁸

Zoning laws play a critical role in regulating STRs by determining where and under what conditions such uses are permissible within a municipality.¹⁹ This power is fundamental in modern cities and their development and is considered a legitimate exercise of the state’s police power.²⁰ Zoning ordinances must be reasonable and with “a substantial relation to the public health, safety, morals, or general welfare.”²¹ Since STRs fall somewhere between residential and commercial uses, cities have responded with a variety of regulatory efforts aimed at limiting their impact.²² These laws aim to balance the interests of property owners, neighbors, and the broader community by addressing how STRs coincide with the character and purpose of specific zoning districts.²³ The regulation of STRs under zoning laws in the United States varies by jurisdiction, with statutory provisions addressing the extent to which municipalities may regulate or restrict such rentals.²⁴

B. State Case Law

Many municipalities have enacted zoning ordinances that explicitly prohibit or restrict STRs in residential zones.²⁵ For example, in Wortham v. Vill. of Barrington Hills, the Illinois Appellate Court upheld a zoning code provision that prohibited STRs in the R1 residential district, finding that such rentals constituted impermissible commercial uses.²⁶ The court reasoned that because property owners received payment in exchange for providing overnight accommodations, STRs were a business activity and violated the zoning code’s restrictions on commercial uses in residential areas.²⁷

Similarly, in Rosenblatt v. City of Santa Monica, a plaintiff alleged that an ordinance prohibiting STRs of 30 days or less violated the Commerce Clause by regulating and burdening interstate commerce.²⁸ The Ninth Circuit upheld Santa Monica’s ordinance prohibiting STRs of 30 days or less unless a primary resident remained on-site, emphasizing the city’s interest in preserving residential housing and neighborhood character.²⁹

On the contrary, in Russell Twp. Bd. of Trs. v. 7722 Fairmount LLC, the Ohio Court of Appeals found that STRs could qualify as a permissible “home occupation” under local zoning regulations.³⁰ The court applied principles of statutory construction in favor of property owners and noted ambiguities in the zoning resolutions definition of “dwelling unit.”³¹ This case highlights the importance of specific zoning language and the need for strict construction of zoning restrictions.³²

Other state courts, such as in Idaho and Indiana,³³, have upheld more stringent holdings and have provided balancing frameworks between STRs and zoning regulations.³⁴ In Idaho Ass’n of Realtors, Inc. v. City of Lava Hot Springs, the Idaho Supreme court emphasized that municipalities may regulate but not outright prohibit STRs.³⁵ The court acknowledged the importance of balancing the property rights of owners with safeguarding neighborhood and historic integrity.³⁶ Indiana law, under Burns Ind. Code Ann. §36-1-24-10, permits municipalities to regulate STRs for specific purposes, such as public health and safety, noise control, and nuisance prevention.³⁷ However, enforcement must be consistent with how similar non-short-term rental properties are regulated. This statute also provides exceptions, allowing municipalities to prohibit STRs for certain uses, like housing sex offenders or operating adult entertainment establishments.³⁸

Overall, emerging state law and cases demonstrate that while STRs have rapidly grown as a popular alternative to traditional housing or lodging, their integration into existing zoning law is unsettled. Based on the foundational principles established by Village of Euclid, municipalities possess broad authority to regulate land use,³⁹ however, the classification of STRs as either residential or commercial continues to create legal ambiguity.⁴⁰ Outcomes often depend on the precise language of local ordinances,⁴¹ and the balance between protecting property rights and preserving community character.⁴² As a result, STR regulation varies significantly across jurisdictions.⁴³

III. Discussion

A. STR Classification

Because STRs do not fit neatly within traditional residential or commercial zoning classifications, there have been inconsistencies in both regulation and judicial interpretation. STRs combine elements of both residential and commercial categories: they involve the use of property for residential purposes, while also functioning as an income-generating, housing accommodation. This dual purpose complicates STRs classification and forces municipalities and courts to fit STRs into categories that do not fully encompass their nature and purpose. Because of this, many municipalities may define and treat STRs differently depending on ordinance language or local priorities.

To address this issue, municipalities should adopt explicit, standardized definitions of STRs within zoning codes, recognizing them as a distinct category of land use rather than classifying them as purely commercial or residential. Establishing a separate classification would allow municipalities to regulate STRs based on their actual characteristics and impacts, rather than relying on traditional uses in an evolving society. This approach would provide clearer guidance to courts to promote greater doctrinal consistency.

B. Local Ordinances

Current case law has demonstrated that the legality of STRs often turns on the wording of the local zoning ordinance. Common words or phrases that often decide STR cases are terms like “dwelling” or “transient use.” Some courts may read “dwelling” narrowly to mean a place used for long-term residential purposes, while others may take a broader view and allow short-term occupancy. The same is true for the phrase “transient use.” Because of this, small differences in wording can lead to different results among courts. This leaves both property owners and municipalities without clear guidance and makes enforcement more difficult.

One way to address this issue would be for municipalities to define these terms more precisely within the ordinance itself. For example, instead of relying on a general definition of “dwelling,” an ordinance could specify that a dwelling is a unit occupied for more than a set number of consecutive days, such as thirty days, and classify anything shorter as a short-term use. Similarly, “transient use” could be defined based on the duration and frequency of rentals, such as rentals of fewer than thirty days or properties rented more than a certain number of times per year. Municipalities could reduce ambiguity by defining these terms and providing measurable criteria.

Additionally, many concerns cited by municipalities, such as noise, parking, or overcrowding, are not solely issues of land use classification, but rather issues of how a property is actually being used. It is also important to address the underlying problems that municipalities seek to mitigate aside from the STRs classification. To effectively regulate STRs, it may be necessary for municipalities to supplement these zoning ordinances with additional operational regulations that could target the inherent consequences of STRs. Such measures may include licensing or registration requirements, parking regulations, or noise ordinances. It would also be a benefit to a city government if it was able to have compliance measures in place from platforms like Airbnb or Vrbo to improve enforcement and monitoring. By combining land use controls with operational regulations, municipalities can develop a more comprehensive approach that addresses both where STRs are located and how they function within communities.

C. Balancing Frameworks

In addition to modifying existing zoning ordinances and adding operational ordinances, a balancing framework, shown in Indiana and Idaho legislatures, also poses a possible solution. This framework enables municipalities to regulate STRs by weighing community interests against property owners’ rights, rather than relying on zoning categories. This would evaluate the impact of the rentals while ensuring regulations are proportional to the harm caused. By considering factors like frequency of rental, owner occupation, and how heavily it is used, cities could tailor restrictions to address problematic cases without restricting low-impact use.

In practice, balancing frameworks give municipalities the discretion to impose regulations that address specific local concerns while preserving property owners’ rights. This can include measures such as permitting STRs only under certain conditions, requiring registration or licensing, or limiting rentals in areas where they would conflict with the intended character or history of a neighborhood. Rather than applying an outright ban, municipalities could assess the actual effects of the rental. For example, cities could look at the STRs impact on nuisance concerns or public safety and adjust regulations accordingly. By structuring rules around those concerns, a balancing framework allows targeted regulation to align with municipal objectives, legal concerns, and zoning approaches.

A balancing framework could potentially raise concerns for municipalities based on how it is implemented. Because a framework like this requires a case-by-case evaluation instead of traditional zoning categories, it could require additional administrative resources for monitoring and enforcement. This could be difficult for smaller local governments with limited staff or funding. This approach could also create variability in how these rules are applied if clear standards are not developed in advance. Even with these limitations, both Indiana’s and Idaho’s approaches reflect a willingness to allow regulation tied to specific facts rather than categorical bans. This reinforces a trend toward permitting flexible regulation of STRs within existing zoning authority.

IV. Conclusion

The rapid growth of STRs has exposed limitations within traditional zoning frameworks that were not initially designed to regulate hybrid property uses. As demonstrated, the classification of STRs as either residential or commercial has produced inconsistent regulatory approaches and unpredictable judicial outcomes. These challenges highlight the need for municipalities to adopt more precise and adaptable regulatory strategies to respond to the changing landscape of modern property use. By implementing standardized definitions, incorporating objective criteria into zoning ordinances, and supplementing land use regulations with operational controls, cities can more effectively address the specific impacts associated with STRs. Additionally, balancing frameworks provide a model for aligning community interests with property owners’ rights. As STRs continue to evolve, zoning law must similarly adapt. Ultimately, a more flexible and modern approach to zoning may be necessary to reflect how properties are being used today and to provide clearer, more consistent outcomes.

Cover Photo by Sean Foster on Unsplash

Katie Bunch

References

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29
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31
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33
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43
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