Taxpayer funds built this $400-a-night Airbnb

New Orleans thrives on tourism. But some residents are saying the city's support of the industry has gone too far after revelations that a $400-a-night Airbnb was built with taxpayer funds.

Local news outlet The Lens tracked the trail of funding behind a three-bedroom shotgun house in the city's Treme neighborhood.

The house, on Dumaine Street, used to be a historic home on the site of the Department of Veterans Affairs hospital in the city. It was one of 80 houses that was moved to make way for the medical facility, costing $3.2 million in federal funds. Eventually, the house's owner, Providence Community Partners, tore it down without permission from the city, The Lens reported.

The house was rebuilt using public money designated for affordable housing. Then someone bought it for $180,000 before flipping it in May for $290,000. The man who purchased it owns at least 14 short-term rentals in the area. 

Those transactions were perfectly legal, a city council member said.

"There were no covenants or whether or not [the owner] could sell it in a certain time period," said Kristin Palmer, who represents New Orleans City Council District "C.""She did sell it legally."

Palmer last month proposed a 9-month moratorium on licenses and renewals for Airbnb properties to give time for a study on the effects the DIY hotels are having on New Orleans' housing stock. 

Many locals say the city already has a shortage of short-term rentals. In Treme, the oldest African-American neighborhood in America, about 6 percent of the housing stock is short-term, according to an analysis by The Lens and HuffPost. 

That's a significant slice of the most desirable real estate in a city that still hasn't rebuilt all the housing destroyed during Hurricane Katrina. More than a quarter of New Orleans' residents live in poverty.

"I think short term-rentals could be used as a catalyst for reinvestment and revitalization," said Palmer. "I think oversaturation can then be a detriment."