When Cities Ban STRs Outright. The Federal Constitutional Challenges Mounting Against Total Short-Term Rental Bans in 2026

In February 2026, three LLCs and an individual investor filed a federal constitutional challenge against the City of Dearborn Heights, Michigan, over its total ban on short-term rentals. The lawsuit, filed in the U.S. District Court for the Eastern District of Michigan, alleges that Ordinance H-25-02 violates the Fifth Amendment’s Takings Clause, the Fourteenth Amendment’s Due Process Clause, and equal protection guarantees. I’ve been tracking STR regulation cases for years, and this one is notable not because it’s unusual, but because it’s becoming routine. That’s the real story.

Dearborn Heights isn’t an outlier. It’s a data point in a pattern that’s been building since late 2024 and accelerating through the first quarter of 2026. Cities that choose to ban short-term rentals entirely are finding themselves on the wrong end of federal lawsuits, and a few of those lawsuits are starting to produce results that should make every city attorney pause before drafting a total prohibition.

This article provides general information and should not be construed as legal advice. Consult a qualified attorney in your jurisdiction for advice specific to your situation.

What Happened in Dearborn Heights

On September 9, 2025, the Dearborn Heights City Council voted unanimously to ban all short-term rentals citywide. The ordinance defines short-term rentals as stays of 27 consecutive days or fewer and applies across every residential neighborhood in the city. There are no exceptions for existing operators, no grandfathering provisions, and no geographic carve-outs.

The penalty structure is aggressive: $5,000 per day for operating an illegal STR, plus $1,000 just for listing a property online. Council President Mo Baydoun framed the ban as a quality-of-life measure, stating that the ordinance “makes clear that short-term rentals will not be allowed in Dearborn Heights.”

The federal lawsuit that followed in February 2026 raises several constitutional claims. The plaintiffs argue that the total ban constitutes a regulatory taking (meaning the city has effectively seized the economic value of their property use without compensation), that the ban is arbitrary and irrational in violation of substantive due process, and that it unfairly singles out STR property owners for punitive treatment that long-term landlords and hotel operators do not face.

No ruling has been issued yet. But the legal theories being deployed in Dearborn Heights are the same ones gaining traction in courtrooms across the country.

The Three Legal Theories That Keep Showing Up

If you’re an STR investor watching these cases, you need to understand three distinct constitutional arguments. They’re related but different, and courts evaluate them separately.

Regulatory Takings (The Big One)

The Fifth Amendment says the government can’t take private property for public use without just compensation. That’s straightforward when the city physically seizes your land. It gets more complicated, and more relevant to STR owners, when a regulation eliminates so much of your property’s value that it functions as a taking without any physical seizure.

Courts use two frameworks here. The first is the Penn Central test, named after the 1978 Supreme Court case Penn Central Transportation Co. v. New York City. It weighs three factors: the economic impact of the regulation on the property owner, the extent to which the regulation interferes with “distinct investment-backed expectations,” and the character of the government action.

The second framework comes from Lucas v. South Carolina Coastal Council (1992), which holds that a regulation that deprives a property owner of all economically beneficial use constitutes a per se taking, meaning compensation is required regardless of the government’s justification.

For STR investors, the Penn Central test is where most cases land. A total ban doesn’t eliminate all use of the property (you can still live in it, rent it long-term, or sell it), so the Lucas “total wipeout” argument is a harder sell. But Penn Central’s investment-backed expectations factor is where plaintiffs are finding the most leverage, particularly when they purchased property specifically to operate as an STR in a market where that use was previously legal.

Substantive Due Process

The Fourteenth Amendment’s Due Process Clause prohibits the government from acting in ways that are arbitrary, capricious, or lack a rational basis. In the STR context, property owners argue that a total ban bears no rational relationship to the city’s stated goals (reducing noise, preserving housing stock, protecting neighborhood character) because less restrictive alternatives exist.

Picture this: You’re an investor who purchased a property in 2022, obtained all required permits, operated legally for three years, paid all applicable taxes, and then the city council votes to make your entire business model illegal overnight. The due process argument is that this kind of abrupt, total prohibition fails the basic rationality test when the city could have addressed its concerns through noise ordinances, occupancy limits, licensing requirements, or geographic restrictions.

In Clark County, Nevada, this argument produced real results. U.S. District Judge Miranda Du issued a preliminary injunction on December 17, 2025, blocking the county from enforcing its STR licensing and penalty scheme. The court found that Clark County required STR operators to obtain licenses but failed for years to provide a functional way to actually obtain them, yet continued to issue daily fines, declare properties public nuisances, and record liens against homes. The county voted unanimously in January 2026 to appeal, but the injunction remains in effect.

Equal Protection

The equal protection argument asks a simple question: Why are STR property owners being treated differently from other property owners who engage in similar activities? Hotels rent rooms for less than 30 days. Bed-and-breakfasts accommodate short-term guests. Long-term landlords rent to tenants who may cause the same noise, parking, and neighborhood disruption complaints that cities cite when banning STRs.

When a city bans STRs but exempts hotels, B&Bs, and corporate housing (as Dearborn Heights does), it creates a classification that plaintiffs argue lacks a rational basis. The city is essentially saying that renting a residential property for 28 days is a public nuisance, but renting a hotel room for one night is a legitimate business. That distinction becomes harder to defend when the properties in question are located in the same neighborhoods.

The Scorecard: Where These Challenges Have Won and Lost

The track record of federal constitutional challenges to STR bans is mixed, but the trend line has shifted noticeably toward property owners over the past 18 months.

Recent Wins for Property Owners

Glen Ellyn, Illinois (2025): This is the case that got the attention of STR attorneys nationwide. In Blakelick Properties LLC v. Village of Glen Ellyn (No. 25-cv-04569, N.D. Ill.), Judge Sharon Johnson Coleman granted a temporary restraining order in May 2025 and a preliminary injunction in December 2025, blocking the village from enforcing its STR ban. The court found that the plaintiff was “likely to succeed on the merits” of a Penn Central regulatory taking claim, accepting that the ban prevented the property from being used in an “economically feasible manner” and that the owner had reasonable investment-backed expectations to operate STRs based on conditions at the time of purchase.

Clark County, Nevada (2025): As noted above, Judge Miranda Du issued a preliminary injunction halting enforcement of STR licensing and penalties. The ruling was grounded in due process rather than takings, but the practical effect was the same: the county could not enforce its restrictions while the case proceeded.

New Orleans, Louisiana (2022): The Fifth Circuit Court of Appeals struck down New Orleans’ rule barring out-of-state property owners from obtaining STR licenses, ruling that it unconstitutionally restricted interstate commerce under the Dormant Commerce Clause. Judge Jerry Smith wrote that “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.” That ruling is binding in Louisiana, Mississippi, and Texas.

Where Cities Have Prevailed

Santa Monica, California (2019-2020): The Ninth Circuit upheld Santa Monica’s home-sharing ordinance against challenges from Airbnb and HomeAway, and the U.S. Supreme Court declined to hear the case in May 2020. Santa Monica’s law isn’t actually a total ban, though. It restricts whole-home rentals but allows home-sharing when the primary resident is present. Courts have generally been more sympathetic to cities when regulations are restrictive but not prohibitive.

Lafayette, Louisiana (2026): A federal magistrate recommended dismissing a constitutional challenge to Lafayette’s residential STR ban in February 2026, citing lack of standing for individual plaintiffs and failure to state a claim for the LLC plaintiffs. The case is a reminder that filing a federal lawsuit is one thing; surviving a motion to dismiss is another. The quality of the legal team and the specificity of the constitutional arguments matter enormously.

Pending Cases to Watch

Dearborn Heights, Michigan: The February 2026 federal challenge to the total citywide ban is the freshest case on the docket and the one most squarely raising the question of whether a complete prohibition (not just a restriction) can survive constitutional scrutiny.

Dearborn, Michigan: Filed just weeks before the Dearborn Heights case, in January 2026, this separate federal lawsuit involves five individual property owners and six LLCs challenging Dearborn’s ban on STRs in residential neighborhoods (Ordinance 24-1845). Two federal constitutional challenges in the same Michigan county within a month is not a coincidence. It’s a pattern.

Maui, Hawaii: Multiple lawsuits filed in December 2025 challenge Maui County’s Bill 9 phase-out of approximately 7,000 short-term rental properties. Plaintiffs allege a “total denial of plaintiffs’ viable economic use” rising to the level of an unconstitutional per se regulatory taking. If the Lucas total-wipeout framework applies anywhere in the STR context, Maui’s elimination of 7,000 permitted properties is a strong candidate.

The Two-Front War: Preemption as a Parallel Track

While property owners fight STR bans in federal court, state legislatures are opening a second front that may make some of these lawsuits unnecessary.

In the first quarter of 2026 alone, three states moved aggressively to strip cities of the authority to ban or severely restrict short-term rentals:

Indiana (HEA 1210): Signed by Governor Braun on March 12, 2026, and effective July 1, this law prohibits cities and counties from capping the number of residential rental properties. Health and safety regulations are permitted, but only if they apply uniformly to both short-term and long-term rentals.

Idaho (HB 583): Signed by Governor Little on March 16, 2026, Idaho’s law is one of the most sweeping STR preemption statutes in the country. It prohibits local governments from imposing owner-occupancy requirements, day caps, proximity restrictions, additional parking or insurance mandates, mandatory reporting, and licensing or permit requirements specific to STRs.

Arizona (HB 2429): Arizona already had a statewide STR preemption law, and HB 2429 (which passed the House on March 10, 2026) modifies the existing framework by expanding local enforcement tools for problem properties while preserving the core prohibition on total bans.

The preemption wave matters for the constitutional litigation landscape because it changes the calculus for both sides. Cities in preemption states can no longer enact total bans at all, which eliminates the need for federal lawsuits. But in states without preemption (like Michigan, where both the Dearborn Heights and Dearborn cases are pending), the federal courts remain the primary arena.

For a deeper look at how the preemption movement is reshaping the legal landscape, see our analysis of the 2026 preemption wave. And for the Texas-specific track, our coverage of the Dallas STR ban at the Texas Supreme Court shows how litigation plays out at the state level rather than in federal court.

What STR Investors Should Know Right Now

If you own or are considering purchasing STR properties in a market where a total ban exists or is being considered, here is what the legal landscape tells you in practical terms.

Document everything. The Penn Central investment-backed expectations factor is where most successful takings claims gain their footing. If you purchased a property to operate as an STR, keep records of when you bought it, what the regulatory environment was at the time, what permits you obtained, what revenue you generated, and what representations (if any) the city made about the legality of your use. If a ban passes and you end up in court, this documentation becomes the foundation of your case.

Understand the difference between a ban and a restriction. Courts have been much more skeptical of challenges to regulations that restrict STRs (permit requirements, occupancy limits, geographic zoning) than challenges to outright prohibitions. The Glen Ellyn and Clark County cases both involved what courts characterized as unreasonable government action, not mere regulation. If your city is considering a total ban rather than a regulatory framework, the constitutional arguments are significantly stronger.

Assess the preemption landscape in your state. Before spending money on federal litigation, check whether your state legislature is moving toward preemption. In Indiana and Idaho, the legislative path has already eliminated the need for most STR-related lawsuits. Several other states are considering similar bills. The legislative route is faster, cheaper, and more comprehensive than a federal case that could take years to resolve.

Get a real attorney, not a template. The Lafayette, Louisiana dismissal is a cautionary tale. Filing a federal constitutional challenge is expensive and technical. Standing requirements, ripeness doctrine, and the specifics of how you frame your takings claim all matter. The investors who are winning these cases (Glen Ellyn, Clark County) hired attorneys who understood property rights litigation at the federal level. I’ve reviewed enough STR ordinances to know the difference between a well-drafted complaint and a protest filing (yes, there is a difference), and so do federal judges.

Consider organized challenges. Individual property owners face standing and resource challenges that organized groups do not. The Greater Las Vegas Short Term Rental Association’s success in Clark County, the multi-plaintiff coalition in Dearborn, and the class action approach in Maui all demonstrate that collective action produces better legal outcomes than solo efforts.

We do our best to keep our regulatory guides accurate and up to date, but ordinances change and we are only human. Always verify current requirements directly with your local municipality before making business decisions.

Run the Numbers Before You Run to Court

Whether you’re evaluating a property in a ban-prone market or assessing the legal risk of a restriction that’s already in place, StaySTRA’s analyzer tool gives you the revenue and occupancy data you need to make informed decisions. Pair the legal landscape with actual market performance data before committing capital or legal fees.

For market-specific data, check our location pages covering STR performance across the country.