With foreclosures still hitting the housing market hard, at least one metro city is so wary about empty houses turning into rundown rental properties that it plans to limit the number of rentals allowed on each block.

Those types of rules are already established in Minnesota college towns such as Winona and Mankato, but as metro areas seek to try them, it could lead to a battle: property owners who can't sell their vacant houses and say they could face foreclosure if they can't rent them out vs. cities that say too many rentals can drag down everybody else's property values.

"Our concern is that Fannie and Freddie are going to start dumping bundles of properties," said West St. Paul Mayor John Zanmiller, referring to the federal housing finance agencies. The rental limit will "ensure that there are not huge clusters of rentals popping up in one particular block or in one particular area of the city."

But homeowners in Winona are already challenging that city's ordinance in court, even as West St. Paul prepares for its new rule to become law on Jan. 1.

"Renting your property is a legitimate and historical property right," said Katelynn McBride, attorney for the Institute for Justice Minnesota Chapter, which represents the plaintiffs in the Winona case.

"We believe that the government cannot arbitrarily restrict the property rights of some for the benefit of others," she said.

Winona's ordinance limits rentals to 30 percent of the houses on a block. In West St. Paul, the limit will be 10 percent.

West St. Paul officials say they turned to the rental limit to help stabilize neighborhoods and protect property values for single-family homeowners. They say they're trying to keep the city's 40 percent rental rate from rising in the face of a growing tide of foreclosures and vacant houses.

The cap is intended to get the city over the hump of the housing crisis, Zanmiller said. "We anticipate that when our vacancies and foreclosures go down that this won't be necessary."

City Council Member Jim Englin said too many rental properties can crush a neighborhood. "If I have three renters around me and you are telling me my housing value doesn't go down, you are wrong."

But Rick Duffy, a West St. Paul resident and Realtor who is renting a house in the city with his fiancée, said a cap on rentals may make it hard for retirees to sell homes. And, he said: "It just fundamentally doesn't feel right. I don't think it is a fair statement that renters degrade a neighborhood."

A detailed map showing the status of each West St. Paul block is to be posted on the city's website by year's end. Five blocks now exceed the 10 percent limit, and those properties will be grandfathered in, Zanmiller said.

Council Member Darlene Lewis voted for the ordinance but noted that there are about 250 vacant houses in the city. "My concern is if people are not allowed to sell to someone who wants to purchase it as a business investment and rent it out, that it's going to stay vacant."

For that circumstance, the ordinance allows homeowners to ask the City Council for a provisional rental license that gives them up to two years to rent while trying to sell the house. A similar exception in Winona didn't stop the homeowners from suing.

Mostly college towns

Such ordinances are unusual for cities such as West St. Paul, but they're more common in college towns. Mankato, Northfield and Winona, for instance, all have enacted a limit on rental properties.

Winona's goal is to prevent a concentration of rentals and assure that owner occupancy remains a viable option, said Winona City Attorney George Hoff.

He considers the limits an appropriate exercise of the city's zoning power. "All property rights within this country are subject to reasonable regulations," Hoff said.

McBride said the rental caps are unique to Minnesota and the suit seeks to establish that they are unconstitutional.

"In a time of plummeting housing values and widespread foreclosures, the city of Winona is enforcing a law that makes the housing crisis in the city even worse," McBride said in her legal brief.

The plaintiffs in the Winona case are all examples of the law of unintended consequences. Ethan Dean, Holly Richard and Ted and Lauren Dzierzbicki have mortgages on their houses -- and reasons why they or their family members can't live in them.

Dean is a police and corrections trainer for the U.S. Department of Defense. He served four tours in Iraq and is currently in Afghanistan.

He owns a well-kept Victorian house near the university and has lived in it twice between missions. He has been trying to sell it for more than two years and is renting it out now under a temporary city permit that will expire in April.

People have expressed interest in buying the house as a place for their son or daughter to live while going to school "but nobody will buy it because they can't rent it," Dean said.

Richard is a Winona State University grad who bought a house in Winona when she became a teacher at the University of St. Mary. But she left town to pursue a doctorate and hasn't found a buyer for her house.

The Dzierzbickis live in Cary, Ill. They bought a house in Winona for their daughter while she attended Winona State, and they have been unable to sell it since her graduation this past spring. Although they spent $30,000 to upgrade the house for safe renting, the city wouldn't let them rent rooms to students when their daughter was there, and it's standing empty now because of the rental restriction, Ted Dzierzbickis said.

"I have a very strong personal belief that the city is overstepping its bounds by telling us we can't rent a property that we own."

Laurie Blake • 952-746-3287