This is from Reason Magazine's Brickbats column:

Reason

Don't Give Me Your Tired, Your Poor (8/21) The Escondido, California, City Council has voted to begin drafting a law prohibiting landlords from renting property to anyone who can't prove U.S. citizenship. Council members say the law would help reduce overcrowding in residential neighborhoods. But landlords say it will set them up for potential lawsuits under federal and state fair housing laws.

Actually, the council is not asking landlords only to rent to US citizens, that would be highly unusual. The council is asking them not to rent to illegal immigrants. Lawful permanent residents are fine. [Escondido votes to draft ban on renting to illegal immigrants, By David Fried, NCTimes.com, August 16, 2006 ]

A commenter on the story pointed out that even HUD doesn't consider it discrimination to ask if someone is in the country legally. They will only call it discrimination if they feel you're treating illegal Swedes better than illegal Muslims or Mexicans.

Screening and Rental Procedures

It is unlawful to screen housing applicants on the basis of race, color, religion, sex, national origin, disability, or familial status. In the wake of the attacks of September 11, 2001, landlords and property managers have inquired about the legality of screening housing applicants on the basis of their citizenship status. The Act does not prohibit discrimination based solely on a person's citizenship status. Accordingly, asking housing applicants to provide documentation of their citizenship or immigration status during the screening process would not violate the Fair Housing Act. In fact, such measures have been in place for a number of years in screening applicants for federally-assisted housing. For these properties, HUD regulations define what kind of documents are considered acceptable evidence of citizenship or eligible immigration status and outline the process for collecting and verifying such documents.* These procedures are uniformly applied to every applicant. Landlords who are considering implementing similar measures must make sure they are carried out in a nondiscriminatory fashion.Rights and Responsibilities of Landlords and Residents in the Wake of the Events of September 11 - HUD