Cities should think twice before imposing rental restrictions.
As of this week, property owners in some parts of West St. Paul will not have the option to rent out their homes. Under a new ordinance that went into effect Jan. 1, the city is limiting rentals to prevent an increase in the number of run-down, poorly maintained properties.
But while the city's objectives are understandable, municipal officials overreach in restricting property rights in this way. In an already difficult housing market, capping rentals could also produce unintended consequences such as more vacant buildings and even fewer home sales.
Even as West St. Paul implements its rental cap, a court challenge to such policies is pending in another Minnesota town.
Homeowners in Winona are challenging an ordinance there that caps rentals at 30 percent, arguing that it is an improper government infringement of their property rights. Winona is one of several college towns with rental restrictions, also including Mankato and Northfield.
West St. Paul has compelling reasons to try to limit rental properties. With the continuing foreclosure crisis, city officials worry about empty houses turning into rundown rentals, so they adopted an ordinance designed to keep the city's 40 percent rental rate from rising.
The effort is intended to help stabilize neighborhoods and protect property values for single-family homeowners.
Under the new rule, rentals can comprise no more than 10 percent of the properties on any given block in the city. If a block already has 10 percent or more non-owner-occupied homes, other owners cannot rent out their houses.
Currently in West St. Paul, five blocks have more than 10 percent rental property. Those properties have been grandfathered in.
And in cases where a home will remain vacant unless the owner can sell to someone who wants to rent it out, waivers are possible. Homeowners can ask the City Council for a provisional rental license that gives them up to two years to be a landlord.
Yet a similar provision in the Winona law did not stop homeowners from filing a lawsuit
In support of the West St. Paul ordinance, one council member said that no one wants a higher concentration of rentals around them because it lowers the surrounding housing values.
That certainly can happen. And city attorneys in towns that have rental limits believe they are appropriate uses of the city zoning power.
But the three plaintiffs in the Winona case make strong arguments about how rental restrictions can put homeowners who need to rent in a bind. One cannot sell a home because potential buyers know it cannot be rented out.
Another has been unable to sell because of the difficult market and is prohibited by the ordinance from renting the property despite spending $30,000 upgrading it for that purpose.
"In a time of plummeting housing values and widespread foreclosures, the city of Winona is enforcing a law that makes the housing crisis ... even worse,'' the plaintiffs' attorney wrote.
A better way to maintain property values is to ensure quality rentals by setting and enforcing strong housing codes. Owners who become landlords should be required to keep their buildings up, screen their renters and make sure they don't create nuisance properties.
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