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Rental Density Laws – Do They Help or Hurt?

On Monday, March 28, 2016, the City of Brooklyn Center introduced an ordinance that would limit the number of rental licenses issued for single family homes throughout the city. The proposal would cap the number of available rental licenses to 30 percent of the single family homes per block in R1 and R2 zoning districts.

Very few cities around the country have imposed an artificial cap on their rental properties in this manner. In Minnesota, five cities have enacted some type of rental density ordinance, including Mankato, Northfield, Saint Paul, West Saint Paul, and Winona. Each city allows a different percentage of rental licenses (10 percent West Saint Paul, up to 30 percent in Winona) and varies in enforcement and penalties for violations. With the exception of West Saint Paul, all the existing ordinances were borne out of clashes between university students and surrounding non-student residents.

Though cities may speciously argue they need to limit single-family rentals because they invariably lead to crime and deteriorating properties, the REALTORS® Associations of the Twin Cities, tenant-rights groups and other housing and property rights advocates are very concerned about the negative impacts rental density caps can have on local communities.

Rental Caps Harm Renters
A city that explores rental density caps does so under the assumption that renters cause problems. Rather than tackling property code violations through uniform enforcement or addressing criminal behavior of an individual, a city that simply shuts down the vast majority of potential rental properties implies that renters are inferior to homeowners, and that your status in the community is determined by whether you pay a mortgage or a monthly rent. This philosophy is discriminatory, and ultimately disproportionately harms single parents, non-whites and new Americans, and those of lower incomes, who are all more often renters than homeowners.(1) There is also an increasing number of young and/or mobile professionals, both Minnesota native and transplants, who desire to rent instead of buy a home because they have not yet planted roots and may move in the future. By enacting a rental density cap, the City of Brooklyn Center is putting up a sign that essentially says “Not Welcome” to all these communities of people.

Further, capping the number of rental properties that are allowed to exist in the city causes housing costs to increase. Limiting choice where there is demand will always drive costs upward. Rising unaffordability of housing perpetuates the cycle of harm to people of lower incomes who need safe and stable housing in the short term (through renting) – and eventually, with planning and work, today’s renters will become our future homeowners.

Surveys of renters(2) consistently show they have a strong desire to eventually own their homes. And they are more likely to buy in communities where they already feel welcome. Allowing fewer rental homes in the city will not increase the homeownership rate of our diverse and lower-income communities; it will merely make housing more expensive and harder to obtain. Brooklyn Center is closing its doors to many good potential residents, when instead it should be embracing everyone who wants the opportunity to join the community.

Rental Caps Harm Homeowners
When a city caps the number of rental licenses that can be issued on a block, or within a neighborhood, or even citywide, the ultimate result is that some property owners have their rights taken away. The City asserts that because a few landlords or tenants have behaved badly or failed to meet property codes, now 70 percent of the homeowners in the city must lose their right to rent. The City has failed to provide due process.

And unfortunately, rental density ordinances tend to add insult to already injured homeowners. It is a small minority of property owners who opt into professional landlording (though anyone who wants to should be able to do so). Many owners of single-family homes that convert to rental do so because of extenuating life circumstances. The military reservist who gets called to active duty. The senior woman who needs to move to an assisted living facility for health reasons. The family who has an once-in-a-lifetime job opportunity in a distant city. These are people who are likely already financially stretched. Yet perhaps they intend to one day return home to Brooklyn Center. Perhaps they want to hold on to their property for other emotional or financial reasons. In any scenario, the city’s prohibition on rental licenses arbitrarily prevents those homeowners from freely exercising their right to use their properties.

Rental Caps are Bad Public Policy
Simply put, when you own property, you are also granted rights inherent with that property. That includes: the right to use, the right to sell, right to mortgage, right to lease, right to give away, and right to enter; as well as the right to refuse to exercise any of these rights. While governments have the ability to enact limitations on those rights, they must be specific and demonstrate a clear benefit to the public safety and well-being. Brooklyn Center disagrees:

It is the city’s position that ordinances change and you actually don’t have a vested right to rent that property.
Troy Gilchrist, Brooklyn Center City Attorney (February 22, 2016)

Cities have the ability to enact zoning laws. And a key characteristic of local zoning power is the well-recognized principle that “zoning deals with land use, not the owner, operator, or occupant of the land.”(3) Zoning inherently pertains to land rather than to the landowner—it “deals basically with land use and not with the person who owns or occupies it.”(4) The purpose of zoning is to separate incompatible land uses, and to provide for an orderly and comprehensive scheme of land development within the community that facilitates the adequate provision of infrastructure resources and the overall comfort, convenience, and welfare of the community. The form of one’s interest in the property (i.e., owner or renter) is not relevant to the issue of its use. Courts have consistently interpreted “residential use” to mean the use of property “for living purposes, as a dwelling, or as a place of abode.”(5) 

Our residential zoning is designed for owner-occupancy.
– Curt Boganey, Brooklyn Center City Manager (March 1, 2016)

There is no evidence to suggest that an increased rate of rental properties directly contributes to negative property values or diminished community image. Many cities have significantly higher rates of rental occupancy with no negative impact. Brooklyn Center’s single-family rental properties make up a total of 6.4 percent of the city’s housing stock. By way of comparison, the City of Winona’s rental properties make up nearly 40 percent of their housing stock. And consider the City of Hopkins, which has seen no need to limit rental licenses at all despite having 60.2 percent renter-occupied housing citywide. Rental license caps are arbitrary. There is no data to support the theory that renter occupancy at 30 percent (or any other percent) of homes per block is a tipping point where quality of life and community decline as a result.

Further, the problems Brooklyn Center cites as compelling reasons to enact a rental cap are not occurring on all, nor even a majority, of their 746 single-family rental homes. Perhaps the big question here is why the City is incapable of addressing code violations and criminal behavior on such a small percentage of homes?

Ask for the Council’s NO vote on the Rental Density Ordinance on April 25
The City Council will hold a second reading and public hearing of this proposal on Monday, April 25 at 7:00 p.m. Plan to attend the hearing and speak to the council about this issue. Or you may call the City at (763) 569-3300, or email the City Council via the City Clerk Sharon Knutson and the City Manager Curt Boganey.

Contact MAAR’s VP of Public Affairs with any questions about rental regulations in the Twin Cities.
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1) Joint Center for Housing Study at Harvard, “America’s Rental Housing – Meeting Challenges, Building on Opportunities (Demographics of Renters),” 2011

2) National Association of REALTORS® “Housing Opportunities and Market Experience Surveys,” 2015

3) RATHKOPF’S THE LAW OF ZONING AND PLANNING § 2:16 (Zoning regulates the use of land—Identity or status of land users) (hereinafter “RATHKOPF”) (citing cases in Connecticut, Iowa, Louisiana, Maryland, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, and Washington).

4) See FGL & L Prop. Corp. v. City of Rye, 485 N.E. 986, 989 (N.Y. 1985). 

5) RATHKOPF § 1:12. 

Apps to Simplify Your Next Tax Season

SimplifyTax

Apps to simplify your next tax season

There are many exciting parts of managing your own business, but tracking tax deductions may not be one of them. Each year, your accountant expects certain items to be documented and organized to some extent. Everyone has a different bookkeeping style, but if you’re struggling to keep track of paperwork you might want to try a new system.

Logging mileage is one of the more tedious administrative tasks. If you’re manually logging every trip you, consider an automated system like MileIQ which captures every mile you drive using an app on your phone.

Receipts are not always the easiest items to file. If you’re looking to go paperless, Scannable might be a good fit. It’s the newest app from Evernote, and makes saving and sharing scans easy. Just aim the camera and it identifies business cards, receipts and other paper items.

Deductr 2 is an app that will help you track income, expenses, receipts and mileage. It creates a profit & loss report, tax summary, mileage summary and more.

We hope these apps will work well for your business and make your next appointment with the accountant a success.

How to Download an App
1. Create an Apple ID
2. Sign in on Your IPhone
3. Browse the App Store to find MileIQ, Scannable or Deductr 2
4. Once you find the app, download and install
5. Go to the homescreen to find the new app

February News Release

Buyer and Seller Activity Increase as Spring Market and Warm Weather Arrive

February Pending sales rose 6.7 percent while new listings increased 3.0 percent. The all-too-familiar supply crunch continued as inventory levels fell 19.4 percent to 10,953 active properties. Prices continued their steady climb back towards 2006 levels. The median sales price gained a sustainable 3.7 percent from last February and is now at $207,395. Median list price, by contrast, has already reached and exceeded its previous record, perhaps an indication that the median sales price could do the same this year.

Compared to last February, sellers accepted offers closer to their list price, as the percent of original list price received at sale was up 1.2 percent to 95.3 percent. Those offers also arrived more quickly compared to last year. Cumulative days on market declined 9.4 percent to 96 days, which is a brisk pace for a winter(ish) month. Absorption rates closely mirrored active listing levels as months supply of inventory fell 28.1 percent to 2.3 months—the second lowest figure on record, behind only January 2016. Generally, five to six months of supply is considered a balanced market. While the metropolitan area as a whole is favoring sellers, not all areas, segments or price points necessarily reflect that.

“This spring market will be a telling one for a number of reasons,” said Judy Shields, Minneapolis Area Association of REALTORS® (MAAR) President. “Many would-be buyers are waiting on sellers. Early indicators such as mortgage applications suggest demand is only likely to strengthen. The uncertainty comes on the supply side, but there’s a good chance we’ll see more inventory this year.”

It’s important to assess specific area and segment performance, since no single property spans the entire metro area nor all market segments and price points. The percentage of sales that were foreclosure or short sale fell to 16.2 percent while traditional pending sales rose 8.0 percent. Single-family homes continued to dominate sales volume, even though townhomes had the strongest increase over the last 12 months. Previously-owned sales increased 15.5 percent over the same period, compared to a 6.1 percent increase for new construction. Sales activity in the $150,000 and below range declined 9.4 percent while activity in all other price ranges is rising.

Nationally, job and wage growth trends remain encouraging. The unemployment rate continues to decline and we’re steadily producing sufficient private jobs to absorb newcomers to the labor force. Wages are growing at their fastest pace in years—an encouraging sign that should offset declining affordability brought on by rising prices and interest rates. Locally, the latest Bureau of Labor Statistics figures show the Minneapolis-St. Paul-Bloomington metropolitan area had the second lowest unemployment rate of any major metro area at 3.1 percent compared to 4.9 percent nationally. Mortgage rates are still below 4.0 percent compared to a long-term average of about 8.0 percent. Rates actually went down after the Federal Reserve’s December hike, though marginally higher rates are expected this year.

“Warmer than average temperatures have enabled home shoppers to start hunting early this year,” said Cotty Lowry, MAAR President-Elect. “Buyers appear ready for another blockbuster year, putting the charge on sellers to meet all this demand. Those considering a move would be wise to consult with a professional to better understand their position in the marketplace.”