Brenda Steinberg has lived in Minneapolis’ Como neighborhood since 1974, when owners lived in 27 of 29 homes on her street. Now, six do.

Carlos Gonzalez, Star Tribune

Neighborhood watch clubs are a thing of the past in Minneapolis’ Como neighborhood, where most of the houses now are rented to U of M students.

Carlos Gonzalez, Star Tribune

Homesteaders are giving way to renters in Twin Cities

  • Article by: RANDY FURST
  • Star Tribune
  • June 7, 2012 - 1:25 PM

There's no longer a block club on the street where Brenda Steinberg lives in southeast Minneapolis, near the University of Minnesota. A sign on the corner that celebrated the neighborhood's volunteerism is defaced with graffiti.

"I miss the children playing," Steinberg, 62, said about her street, the 1000 block of 23rd Avenue SE. "It's not the neighborhood I used to love."

When Steinberg and her husband bought their house in 1974, 27 of the 29 residences were owner-occupied, single-family homes. Today, she says, owners live in only six, while most of the rest are rented by university students. That dramatic shift away from homeownership in Steinberg's Como neighborhood reflects a broader phenomenon in Minneapolis and St. Paul. Investors are turning single-family homes into rentals to take advantage of a tight rental market. Foreclosures and changes in tax laws have also resulted in fewer owner-occupied homes.

Housing experts say the resulting drop-off in single-family homeownership can destabilize neighborhoods, as absentee landlords and their renters are less likely to keep up their properties, let alone join a neighborhood watch group.

In Minneapolis and St. Paul, the percentage of single-family homes that are not homesteaded has more than doubled -- rising from single digits in 2002 to 19 percent this year, records from each city show. Homesteading, a property tax relief program for owner-occupants, is a common measure of homeownership.

The shift away from homesteading "may be the new normal," says Cecile Bedor, St. Paul's director of planning and economic development.

"I don't think what you see in Minneapolis and St. Paul differs from major cities across the United States," she says. "There are more foreclosed properties, and there are more vacant properties."

A concentration of rented single-family homes "can reach a tipping point in certain neighborhoods," says Tom Streitz, Minneapolis' housing policy director. Surrounded by "a sea of rentals," some homeowners may sell or, if they can't, rent out their homes, he says.

One reason for the decline in homesteading is the surge in foreclosures that dropped prices enough for investors to buy up homes, especially in north Minneapolis, and convert them to rental property. In the past decade, 6,563 single-family homes in Minneapolis were converted to rentals.

While Minneapolis and St. Paul saw a steady decline in homesteads between 2002 and 2006, they grew about 4 percent metrowide, said Eric Willette, property tax research director for the Minnesota Department of Revenue. The growth was in Carver, Scott and Washington counties, he said. Since 2006, homestead growth has been flat across the metro area.

Some potential homeowners, nervous about the economy, have delayed buying a house. But the homesteading decline may also reflect legislative changes that make filing for it less enticing. While homeowners once saved thousands, the credit is now worth just a few hundred dollars for most people, making it less of a loss for the owner who rents out his house instead.

Foreclosures have hurt

Officials in Minneapolis and St. Paul say they are working hard to encourage single-family ownership, with incentives for buyers that include mortgages at below-market rates and forgivable loans. Inspectors in both cities have also stepped up efforts to ensure that houses for rent meet code.

The Dayton's Bluff and Payne-Phalen neighborhoods have seen St. Paul's biggest fall-off in homesteaded single-family homes, largely due to foreclosures, says Jim Erchul, executive director of the nonprofit Dayton's Bluff Neighborhood Housing Services. Many have been bought up by investors while others remain vacant, he says.

Eight of nine Minneapolis neighborhoods with the greatest increase in non-homesteaded property in the past decade are on the city's beleaguered North Side, which has suffered a high rate of foreclosed homes, now owned by investors.

But the Como neighborhood's drop in non-homesteaded houses appears to be driven by another factor: a surge in university students needing a place to rent. Investors see a big profit potential and the rents have risen astronomically, says Bill Dane, a housing attorney in the university's legal services department. He is active in the Como neighborhood.

Neighbors and officials have made major efforts in Como in recent years to slow or reverse the trend.

As part of the 2007 law that built TCF Bank Stadium, the Legislature created a University District Alliance that included the city, neighborhood groups and the University of Minnesota. One objective was to encourage single-family homeownership. It's had some success, but Council Member Cam Gordon, whose ward includes the university, worries that single-family homes are disappearing. "I think we are losing ground in recent years," he says. "The numbers are not moving in the right direction."

Wendy Menken, president of the Southeast Como Improvement Association, said that without enough homeowners in the neighborhoods, it's hard to get block clubs going as well as have "eyes on the street" to watch out for crime.

Students who live in a house for a year don't tend to think about the neighborhood's future, she says. "It doesn't mean the tenants are bad. To maintain a certain healthy community, we need to gain some balance."

Some of the homes on Brenda Steinberg's block, which are mostly rented to students, look disheveled compared with years ago when they were owner-occupied, she says. One house has a burlap bag for a curtain, another has broken blinds in the front windows, and a third has tree branches strewn in the yard and a retaining wall that needs repairs. Yet another house has a notice on the front door from the city inspections department, prohibiting occupancy because it was being rented out without a license.

On summer nights, Steinberg says, the block reverberates with noisy students, walking home from nearby bars. Sometimes, they take flowerpots off her front steps and smash them.

"In the wintertime, people don't shovel," she says. "The owners don't come and shovel, and the kids don't care about shoveling unless it's written into the lease."

Staff writer Jane Friedmann contributed to this report.

Randy Furst • 612-673-4224

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