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HomeMy WebLinkAbout[05] R1 Rental Housing Committee(.ITV OF ST. J[ISE:I'H Planning Commission Agenda Item 5 MEETING DATE: December 5, 2012 AGENDA ITEM: Rental Housing Committee Report SUBMITTED BY: Administration PREVIOUS PLANNING COMMISSION ACTION: The Planning Commission and City Council have discussed the need to review the current rental provision in the R1 Zoning District to determine if amendment is necessary. A rental housing committee consisting of Mayor Schultz, Noreen Loso, Netti Pfannenstein, Cory Ehlert and Diane Wieck was established by the City Council. BACKGROUND INFORMATION: The rental housing committee is recommending the Planning Commission and City Council accept a recommendation for possible amendment for the R1 Zoning District, conducting a public hearing to consider adding a new provision for rental. The proposed amendment would allow residents who are trying to sell their home to seek an Interim Use Permit after their home has been on the market for three months. The Interim Use permit would sunset in two years and not be renewable. The Committee would meet again in 18 months to determine the impact of the amendment. Draft language follows for consideration. ATTACHMENTS: Request for Council Action Draft Language for Amendment City Attorney Correspondence REQUESTED PLANNING COMMISSION ACTION: Consider the recommendation of the Committee and make a recommendation to the City Council as to whether or not the amendment so move to the public hearing stage. This page intentionally left blank Subd. 5: Interim Uses. The following are Interim Uses allowed by permit based upon the procedures and criteria set forth in Section 52.07.04 of this Code. a) Residential rental provided the unit is owner - occupied and provided the room(s) rented does not contain separate kitchen facilities and is not intended for use as an independent residence. For purposes of establishing if the property is owner occupied, the owner must be a natural person, and all owner occupy the property as their principal residence. The owners may not exceed two in number. For purpose of determining ownership, the owner /owners must provide a copy of a recorded deed or recorded contract for deed. A purchase agreement will not be accepted as evidence of ownership. In addition, The property must satisfy the parking requirements contained in this Ordinance. 2. The rental unit(s) must: A. Have a ceiling height of at least seven (7) feet; B. Contain adequate ventilation and fire escapes as determined by the Building Official; and, C. Meet all applicable rental codes as outlined in St. Joseph Ordinance 55 and Ordinance 55.06, Subd. 1. Section 52.27, Subd. 5 amended 4/08 b) Residential Rental provided the property owner is relocating and the dwelling has been actively for sale on the market for at least three months. For the purpose of determining applicability, the property owner must provide proof of listing. In addition, The property must satisfy the parking requirements contained in this Ordinance. 2. The rental unit(s) must: A. Have a ceiling height of at least seven (7) feet; B. Contain adequate ventilation and fire escapes as determined by the Building Official; and, C. Meet all applicable rental codes as outlined in St. Joseph Ordinance 55 and Ordinance 55.06, Subd. 1. This page intentionally left blank MEMO To: Judy Weyrens, City Administrator From: Thomas Jovanovich, City Attorney Date: November 9, 2012 Re: Legality of Rental Restrictions on Single Family Dwelling Units in the R1 District INTRODUCTION The City of St. Joseph would like to determine the legality of the existing rental restrictions in the R1 District, as well as alternative rental conditions imposed in the R1 District. Currently, the St. Joseph Zoning Ordinance prohibits non -owner occupied rental property in the R1 Zone. Ordinance 52 allows for rental of single - family dwelling units so long as the property is occupied by the owner and obtains an interim use permit to rent the property. To qualify for the owner - occupied interim use permit, certain criteria are required to be met. The residential rental unit must be owner - occuppied, the room(s) rented may not contain separate kitchen facilities or be intended for use as an independent residence, have ceilings of at least seven feet, contain adequate ventilation and fire escapes and meet all applicable rental codes outlined in Ordinance 55. Additionally, the property owner must be a natural person and all owners listed in the recorded deed must occupy the property as their principal residence. Because of the downturn in the economy, the depressed real estate market, and the change in student housing policies at the two colleges, the City is considering changes to the R1 District to allow non -owner occupied rentals in certain situations. Possible changes include the following: 1) creating two R1 zones: R1 -A would prohibit all non -owner occupied rental and R1 -B would allow non -owner occupied rentals. In the R1 -B zoning district, non -owner occupied rental would be allowed by issuance of an Interim Use Permit; and 2) creating a point or scoring system which would allow non -owner occupied rental in certain situations. For example, points would be awarded to an owner of a property who has his /her property listed for sale and the property has not sold after a pre- determined period of time. Points could also be awarded to any home owner who has lived in the property for a period of 5 years or more. Once a property reaches a pre- determined minimum of points, the home could be rented without the owner being present. There are a number of issues and reasons for re- examining the ordinance. Initially, the requirement for owner - occupied rentals was precipitated by the large number of students renting property in the City. This was causing problems with respect to trash and garbage in yards, broken glass, litter on roads, furniture in yards and right -of -ways, excessive car parking on streets, fire safety, noise, disrespect to adjoining property owners, vandalism, trespassing, and high occupancy. However, the colleges now require students to live on campus and the need for student housing has greatly diminished. Additionally, because of the depressed economy and home market, homeowners who must leave the City for any number of reasons are finding it difficult to sell their property. These owners are requesting that they be allowed to rent the property. In fact, one attorney has contacted the City Attorney and stated that his client will be leaving the City during the fall of 2012, and that if his client is not allowed to rent the property, he will initiate a lawsuit against the City on the grounds that the owner - occupied rental requirement is unconstitutional. ISSUES Whether the current ordinance which prohibits non -owner occupied rental property in the R1 Zone is enforceable under existing Minnesota and federal law? 2. Whether the changes the City is considering for rental in R1 District are allowed under Minnesota and federal law? ANSWER With respect to Issue No. 1, the City will most likely be able to enforce the ordinance against a legal attack. However, in order to withstand a legal attack, the City must establish (with facts or studies to back it up) that the ordinance regulating the use of the property has a rational basis related to promoting the public health, safety, morals or general welfare and that it is applied in a uniform manner. Currently, the ordinance is applied in a uniform manner and applies to all property owners within the entire District. In addition, the City must show that there are no other means to protect the public health, safety, morals, and general welfare, other than through enforcement of the ordinance. With respect to Issue No. 2, the City's consideration of splitting the R1 District into two subzones, one of which allows non -owner occupied rentals, and one which does not require an owner - occupied rental, creates a situation in which the ordinance may be subject to legal attack. This type of ordinance appears to be arbitrary in the sense that it treats residents within the two R1 Districts differently. Courts have been more willing to overturn such ordinances if there is unequal treatment of residents within the same District. There is very little case law interpreting ordinances which prohibit rentals in single - family resident districts. However, lawsuits attacking such rental restrictions in single - family districts will likely increase because of the depressed housing market and economy. The last section of this memorandum will discuss such a lawsuit working its way through Minnesota courts. DISCUSSION Zoning regulations limit the ability of landowners to use their property in any manner they wish. While both the state and federal constitutions provide protections to landowners from government seizures of land (takings), the courts have long upheld zoning regulations as a reasonable use of a government's police power to protect the health, safety and welfare of the pubic. However, there are still some federal and state constitutional restraints on city zoning authority. The adoption or amendment of a zoning ordinance is considered a legislative decision of the city council. Courts normally give legislative decisions great deference and weight, but the court will on occasion set aside or intervene in city zoning decisions if two important constitutional restraints in the federal and state constitution are violated. First, the courts may overrule a city zoning decision, when it determines that a zoning ordinance is unsupported by any rational basis related to promoting public health, safety, morals, or general welfare. Usually, in these cases the court finds that the City's actions were arbitrary and /or capricious. Second, when a zoning ordinance denies the landowner practically all reasonable use of the land, the court will find a "taking" of the land without just compensation; the court may order the city to pay compensation to the affected landowner. A. The Ordinance Must Have a Rational Basis. Under the federal and state constitution, zoning authority must be used in a manner that is reasonable and free from arbitrariness or discrimination. A city zoning decision is reasonable (not arbitrary), when it bears a reasonable relationship to the purpose of the zoning ordinance. Zoning ordinances may be found to be unreasonable when they appear arbitrary. When a zoning classification treats similarly situated individuals differently, there must be rational reason for the unequal treatment that bears a relation to the purposes of the ordinance (protection of the health, safety and welfare of the public). If no such reasonable or rational justification can be found, the court may decide that the city has been arbitrary. In the case of St. Joseph, the City must articulate a rational basis or reasons to support either the current zoning restriction or the proposed restrictions. Reasons that may be used to support the ordinance would include: 1) prevent disruption of surrounding neighborhoods due to increased traffic and parking (off - street parking requirements may reduce congestion on city streets, thereby improving safety and aesthetics); 2) reduce noise and people, which may interfere with the character of the district; 3) the possibility that rental properties would decrease values of adjacent property for single- family use; 4) neighbors and other residents in zoning district have bought and built homes in reliance on the existing ordinance; 5) decreased single family homes negatively affect community involvement; and 6) to preserve the community's character and aesthetic appearance. However, a person challenging the ordinance may argue that the ban on non -owner occupied rental dwellings does not promote the health, safety, morals or general welfare and instead does the opposite. The party challenging the decision must establish that there was no rational basis for the restriction within the ordinance. Accordingly, the City should revisit the issue of its ban on non -owner occupied ordinances to determine whether such a ban currently is needed because the colleges now require students to live on campus. The City must also be able to show evidence that there are no other traditional police powers that may be used to respond to the concerns enumerated above. A person challenging the ordinance may argue that appropriate police protection, requirements for parking, and rules for noise and trash are sufficient to address the matters of health and safety rather than the ordinance prohibition. B. The Zoning Ordinance Cannot Deny All Reasonable Use of the Land. Both the U.S. Constitution and the Minnesota Constitution forbid taking private property for public use without just compensation. Zoning regulations may be considered "takings" if a regulation goes too far. This is generally termed a "regulatory taking." Generally, a zoning scheme will constitute a regulatory taking only if it denies the landowner all economically viable or beneficial use of property or, stated differently, all reasonable use of property. However, not all diminution of property values will be considered a taking. Zoning often has the side effect of increasing the value of some property while decreasing the value of other property. To be ruled a regulatory taking, the regulation must be so severe as to render the property practically useless for the purpose for which it is zoned. For example, a regulation that would prohibit a residence in a strictly residential zone. In these cases, the court will order the city to pay the affected landowner compensation for the land lost to the regulatory taking. A court would not likely find that the current ban on non -owner occupied rentals constitutes a regulatory taking since the residence still maintains value as a non - rental residential home. However, the City still must show that there is a rational basis for the ordinance's prohibition which is related to the public health and safety. CURRENT PENDING LITIGATION IN MINNESOTA DEALING WITH RENTAL OF PROPERTY IN RESIDENTIAL DISTRICTS. There is a case being litigated in Winona, Minnesota which addresses the same issues St. Joseph is facing with respect to rental property. This section will deal with the history of that pending litigation. Unfortunately, the lawsuit has not been decided at this time. However, the issues being addressed by the court will likely impact the type of zoning restrictions cities may place on residential districts. Winona's current rental ban is being litigated. Under the rental ban, the government gives only 30% of homeowners on any given block permission to rent out their homes. Whether someone gets a license is luck of the draw. The Institute for Justice (IJ), a public interest law firm that fights for property rights nationwide, has teamed up with a group of Winona homeowners to challenge the law. The lawsuit seeks to answer this question: May the government arbitrarily restrict the property rights of some but not others? :l The IJ is arguing that the ordinance is not enforceable for the following reasons: 1) the rental ban violates the Minnesota constitutional right to equal protection by treating owners who want to rent and are located in a 30 % block differently from owners who want to rent and are not in a 30% block (identical homes across the street from each other are either free to be rented out or forbidden from doing so based on whether the ban has been met on that block); 2) the ban irrationally deprives homeowners of the fundamental right to rent out their homes and thus violates the Minnesota Constitution; 3) the ban denies homeowners' procedural due process rights by delegating to private citizens (other renters who secured permits) decisions regarding who may rent their homes and who may not; and 4) Winona's rental ban is an illegal use of the city's zoning power as delegated to it by the Minnesota Legislature. Articles indicate that the Winona ban is affecting hundreds of Winona homeowners. Some of these homeowners have put their homes on the market hoping to sell them, but the economic climate has made it difficult, if not impossible, to sell. They now want to rent out their homes to help make the mortgage payments. However, homeowners that live on blocks where at least 30% of the block was already granted licenses (or grandfathered in), they cannot. If Winona does not lift the ban, some of them face foreclosure. These articles note that life circumstances change and because of the economic downturn, many homeowners are struggling to sell their homes at a reasonable price. Renting is the next -best option for those who do not want to lose a significant amount of money, or worse, lose their homes entirely. The IJ is arguing that renting a home is a legitimate part of property ownership and Winona is denying homeowners that right, which violates the Minnesota Constitution of fundamental property rights. The IJ states that the denial of homeowners to rent out one's home violates the guarantee to be secure in one's property and arbitrarily restricts some peoples' property rights for the benefit of others. Also, they claim Winona's ban is especially harmful to property rights because the law restricts the percentage of homeowners that may possess a permit, not the percentage that may actually rent out their homes. Some homeowners possess permits but have never rented out their homes and have no plans to do so. This deprives neighbors on the same block the ability to rent out his home when he genuinely needs to do so. The IJ argues that when it comes to exercising its power over private property, government must limit what it does to actions designed to protect the public's health and safety. They argue that renting out a home poses no health or safety threat nor would it degrade the value of the neighboring properties. The IJ also argues that this law doesn't just violate homeowners' right to rent out their property, but also hurts renters because the ban means fewer places for renters to live and higher rents. Finally, they are arguing that it is not the government's place to interfere with a private transaction. 5 The City of Winona stated it wanted to preserve "community character, ", protect inner city neighborhoods from heavy concentrations of rental housing ", and stop the "spread of rental units throughout the city ". The IJ argued against this rationale stating that the decision to impose the 30 % rule was not reached through studies nor backed by research on the impact the ban would have on property rights. It was strictly by the whim of those in authority and an exercise in the arbitrary and unconstitutional use of government power. The IJ stated that the task force and the city council failed to consider that a measure so extreme as a rental ban is not necessary to address the concerns that homeowners have with renters. Instead, traditional state police powers may be used to respond to unruly parties, unsafe buildings and other problems that some renters can generate. These articles note that the concept of the government regulating rentals is not new, however, a permanent ban on any type of renting for a percentage of homeowners on certain blocks is unchartered territory; but a trend that is spreading quickly. The writers go on to explain that the most common rental restriction beyond rental bans are restrictions on short-term renting (New York and Hawaii), and cities around the U.S. have also made it illegal to rent out a vacation home. One writes, "Governments have imposed harsh rental restrictions upon homeowners but not to the extent that Winona has" noting "Winona residents who do not already have rental permits but live on blocks where more than 30 percent of their neighbors do cannot rent out their homes at all ". Because rental bans are a recent development, IJ believes that a victory against the city of Winona will send a message to cities across Minnesota and nationwide that rental bans are unconstitutional and no city should attempt to impose them. The Winona case is currently scheduled for a summary judgment motion before the Court in Winona County, Third Judicial District on January 23, 2013. The Court will then have 90 days to issue an order. It appears this lawsuit seeks to establish that it is not only unconstitutional to apply a rental ban in an arbitrary manner as it allows some but not all property owners to rent their homes, but also that it is unconstitutional in general to deprive a homeowner the ability to rent his home as it is a fundamental property right and presents no health or safety threats. The City of St. Joseph may want to obtain the summary judgment memorandums from the District Court. These memorandums will be available on approximately January 8, 2013. Winona is not the only Minnesota City to pass rental ban laws. Mankato, Northfield and West St. Paul also forbid many from renting their homes. These ordinances are called rental density bans. In Mankato, the ordinance states that no more than 25% of the lots on any block shall be eligible to obtain a rental license or to be licensed as a rental property. In Northfield's R -1 and R -2 districts, not more than 20% of the houses on a single block shall be granted rental housing licenses. In St. Paul, the rental density ordinance provides that no more than 10% of housing per block within the single - family residential districts may be rented as non -owner occupied dwellings. The ordinance also requires renters to use professional rental companies if they are granted rental permits and require background checks on the owner(s) of the property. However, St. Paul's ordinances also allow for a two year "rent license" to homeowners trying to sell. St. Paul's arguments in support of their ordinance restrictions include an argument that neighborhoods can hit a tipping point at which the number of renters pushes down housing 0 values, decreases property upkeep and negatively affects community involvement. Those opposed are arguing that there hasn't been an adequate study of the city's assumptions, no ban allows people more flexibility in their housing choices which could be good for a recovering economy, and strong housing codes (noise limits and public nuisance ordinances) can keep home values up and accomplish the same thing the city is trying to accomplish. CONCLUSION It is clear that the law with respect to prohibitions on rental units in single - family dwelling areas is in a state of flux. This is caused by the downturn in both the economy and housing markets which results in the need for people to rent their homes while they are pending a sale. St. Joseph may want to consider initiating another study to support the current ban on rental housing in the R1 District. If it changes the ordinance, it must provide a study to support the City's new restrictions on rental property. This study must also address the issue as to why traditional police powers are not sufficient to address the issues of parking, trash in yards, litter on roadways, loud parties, and vandalism and trespassing. Lastly, a portion of the approach the City is currently studying may avoid some of the constitutional pitfalls discussed above. 1) Creating two R1 zones may be problematical under an equal protection argument. If the City takes this approach, it must show that there is a rational basis for treating the two zones differently. 2) The safest approach is for the City to create a temporary hardship license for a non - owner occupied rental in the R1 District. This type of rental license could be issued if a property owner who must move out of the City cannot sell their home within three to six months after listing. The temporary hardship rental license could be issued for a one -year period or a two -year period. There should be some limitation on the length of the temporary hardship rental license because a landowner could simply avoid the prohibitions of the ordinance by listing the property at an artificially high price which is above the property's true market value. This page intentionally left blank