MN Rental Caps - Background

Litigation Backgrounder

Slamming the Door on Rental Bans

 Winona Homeowners Stand Up for Their Property Rights


The Issue in a Nutshell

In America, renting your property is a legitimate and historical use of property ownership.  Americans have always been able to rent out a home they own, whether it was to help fund an investment or to help make ends meet.  But government officials in Winona, Minn., are imposing a ban on the number of homeowners who can rent out their properties, harming both homeowners and renters alike.  Not only is this policy unwise, it is also unconstitutional.

Under this rental ban, the government grants only 30 percent of homeowners on any given block its permission to rent out their home.  Whether someone gets a license is the luck of the draw.  In areas with few renters, some get new licenses.  In areas with more renters, no one gets a new license.

The ban is affecting many of Winona’s homeowners, like Ethan Dean, Holly Richard and Ted and Lauren Dzierzbicki.  Each put their homes on the market hoping to sell them, but the economic climate has made it difficult to sell.  Instead of letting the unused homes sit empty, they want to rent them out to help them make the mortgage payments.  But since Winona has imposed the ban and they live on blocks where 30 percent of the homeowners on the block were given licenses, they cannot rent their homes. If Winona does not lift the ban, some of them even face foreclosure.

In addition, being able to rent a home increases its value, but Winona law undermines property values at a time when property values are already falling.

Denying property owners the right to rent out their home violates the Minnesota Constitution’s protections of our fundamental property rights. That’s why on October 25, 2011, the Institute for Justice teamed up with Winona homeowners to file suit and fight the city’s rental ban.

The case has national implications for property rights because it seeks to answer an important constitutional question:  May the government arbitrarily restrict the property rights of some but not others?

 

Introduction

For centuries, people have been renting out their property.  In America, renting your property is considered a legitimate use of property ownership.

Ethan Dean is a homeowner in Winona, Minn., who is currently serving as a U.S. advisor in Afghanistan.  But Ethan may soon find himself in dire financial straits because the city of Winona is denying him a fundamental property right:  the right to rent out his home.  When it comes to exercising its awesome power over private property, government must limit what it does to actions designed to protect the public’s health and safety.  Allowing a homeowner to rent out his or her home poses no threat, benefits both the homeowner and the renter alike, and the government has no business interfering with that private transaction.

Ethan finds himself in this nightmare situation because the Winona government imposes a cap on the number of homeowners who may rent out their homes on any given block. Winona amended its zoning laws so only 30 percent of homes in each block may receive a rental permit, which is required for a homeowner to rent his or her home. That means if 30 percent of one’s neighbors have already secured rental permits, the next homeowner who seeks such a permit will be turned away even if their neighbors with permits live in their homes and don’t rent them out.

Winona passed its rental ban law in 2005, known locally as the “30 percent rule,” and effectively eliminated the rights of hundreds of Winona residents.  Life circumstances change and because of the economic downturn, many homeowners are struggling to sell their homes at reasonable prices.  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.

To protect the rights of Winona homeowners, the Institute for Justice Minnesota Chapter filed a lawsuit in Minnesota’s Third Judicial District Court for Winona County to strike down the city’s rental ban as unconstitutional and to allow Winona homeowners to rent their homes.

 

Rental Ban Laws:  Where Did They Come From?

Although the concept of the government regulating rentals is not new, a permanent ban on any type of renting for a percentage of homeowners on certain blocks, like in Winona, is uncharted territory.

So far, rental bans like Winona’s are unique to Minnesota, existing only in the cities of Winona, Mankato, Northfield and West St. Paul.[1] Rental bans, however, are spreading quickly. West St. Paul passed its ban in September 2011.  Stopping the spread of such rental bans in their infancy in Winona and elsewhere would equal a major victory for property rights and show cities across Minnesota and nationwide that they cannot exercise their zoning power to unconstitutionally limit the rights of homeowners.

The most common rental restrictions beyond rental bans are restrictions on short-term renting. One of the more recent laws was enacted in New York City in May 2011 when the city imposed a ban on renting to anyone for less than 30 days.[2] Many cities around the United States have made it illegal to rent out a vacation home.  These laws are especially prolific in Hawaii where Hawaii residents have been prohibited from renting out their homes for a period less than 30 days without a permit since the 1980s.[3]

Governments have imposed harsh rental restrictions upon homeowners but not to the extent that Winona has.  Although New Yorkers and Hawaiians are severely encumbered by laws prohibiting them from renting their homes out for less than 30 days, 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.

 

Winona’s Rental Ban Origin and Practice

Winona is a small town in southeastern Minnesota and home to Winona State University.  Tensions developed between residents and the students, leading the city to explore ways to keep the university’s growing student population away from residential neighborhoods.  In 2005, Winona passed its rental ban law.[4]

Several studies have explored addressing concerns created by renters in university communities, but none of these studies mentions a Winona-style rental ban as any of the prospective solutions,[5] making the law truly the first of its kind.

Prior to the ban, homeowners who used to rent their property could easily obtain a rental license by complying with safety requirements in the rental code.[6] The new rental ban, on the other hand, mandates that no more than 30 percent of the properties on any given city block in Winona may have rental licenses, even if the home has been deemed perfectly safe.[7] Even worse for those who now seek to start renting out their homes, on blocks that were at 30 percent or exceeded 30 percent when the rule came into effect in 2005 (existing rental licenses were grandfathered in[8]), permits are eligible for renewal at expiration after five years[9], thereby creating a situation where those who seek to enter the rental marketplace may be permanently banned by the government.

As soon as 30 percent of the properties on a block obtain rental licenses, no other property on that block may receive a government-issued rental license.[10] Homes with roomers or boarders living in the home with an owner require a rental license and count toward the 30 percent just as entire-home rentals do.[11] Take the following example to understand how this works in practice.  If a Winona block has ten houses on it, but none of them have rental licenses, anybody on the block may apply for a license and obtain one because the block is at zero percent rental license capacity—below the 30 percent limit.  A homeowner who happens to live on a block where all of the properties but hers—nine of out ten, in this case—were rental licensed prior to 2005, is simply out of luck.  All of her neighbor’s properties are grandfathered in, pushing the block above 30 percent.

The rental ban already affects many Winona homeowners and has the potential to affect thousands.  More than 100 blocks are currently at 30 percent rental license possession or greater and if the ban remains in effect, those numbers will only increase as more and more homeowners get rental licenses and more and more blocks meet the 30 percent limit.

The Winona task force, which conceived of the 30 percent rule in 2005, 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.”[12] 

The decision was not reached through studies nor backed by research on the impact the ban would have on property rights.[13] It was strictly by the whim of those in authority and an exercise in the arbitrary and unconstitutional use of government power.

What the task force and the city council failed to consider is 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.[14]

 

Arbitrarily Restricting a Fundamental Property Right

Whether you may rent out your home in Winona is now based on a completely arbitrary government-imposed and government-enforced percentage.  It all depends on when you tried to get a rental permit and whether you happen to live on a block where other homeowners have already gotten one.

The right to rent out one’s home is a fundamental property right and demonstrates the essence of what being a homeowner means.  Winona’s denial of that right violates the Minnesota Constitution’s guarantee to be secure in one’s property and arbitrarily restricts some peoples’ property rights for the benefit of others.  Homeowners’ right to rent should not depend on whether they were lucky enough to obtain a rental license before their neighbors.

Winona’s rental ban is especially harmful to property rights because the law restricts the percentage of homeowners that may possess a permit, not the percentage of homeowners that may actually rent out their homes.[15] Several Winona homeowners possess rental permits but have never rented out their homes and have no plans to do so.[16] This creates a situation where neighbors get rental permits yet never rent out their homes, depriving a neighbor on the same block of the ability to rent out his home when he genuinely needs to do so.

 

Winona Homeowners Fight Back

Ethan Dean is currently overseas serving as an U.S. advisor in Afghanistan.  Ethan owns a three bedroom house near Winona State University.  He may not rent it out because his block is above the 30 percent rental license limit.  In fact, his block was at 78 percent when the rental ban was enacted, but his neighbor’s permits were grandfathered in.  Ethan cannot sell his house because anytime someone expresses interest, they quickly back out after learning the house is not rental-certified.  Ethan was granted a temporary permit to rent his home out through May 2012, but by law he may not rent it beyond that.  He is desperate to rent it out after that date and is at risk of foreclosure if he is not permitted to do so.

Holly Richard purchased her Winona home when she worked at St. Mary’s University.  She then moved to pursue a Ph.D. in English in South Dakota and is preparing to have her first child.  Holly cannot sell her home because it is on a block where 30 percent of the homes are already licensed to rent thereby reducing its attractiveness to potential buyers.   She is currently renting her home to a family under a temporary permit that expires in April 2012.  She wishes to continue to rent her home out.  Without rental income, Holly cannot afford to pay both her mortgage in Winona as well as the mortgage on her current home in Vermillion.  She also may face foreclosure if she cannot rent.

Ted and Lauren Dzierzbicki purchased a house in Winona for their daughter to live in while she attended the university and invested thousands of dollars and time in its upkeep over the years.   After their daughter graduated from college, they put the house on the market but cannot sell the house and they may not rent it out because all of the houses on their block have been grandfathered in as rentals.

Ethan Dean, Holly Richard and the Dzierzbickis refuse to let Winona violate their constitutional guarantee to be secure in their property by forbidding them from renting out their homes and they have joined with the Institute for Justice Minnesota Chapter to challenge the law and have Winona’s rental ban declared unconstitutional.

 

The Legal Challenge

The Institute for Justice Minnesota Chapter intends to prove that Winona’s rental ban violates the Minnesota Constitution and that the city of Winona has exceeded the zoning power granted to it by the Minnesota Legislature.

First, Winona’s rental ban violates Minnesotans’ constitutional right to equal protection by treating owners who want to rent and are located in a “30 percent block” differently from owners who want to rent and are not located in a “30 percent 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.

Second, Winona’s rental ban irrationally depriving homeowners of the fundamental right to rent out their homes and thus violates the Minnesota Constitution.

Third, Winona’s rental ban violates 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.

Fourth, Winona’s rental ban is an illegal use of the city’s zoning power as delegated to it by the Minnesota Legislature.

Because rental bans are a recent development, IJ-MN 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.

 

Litigation Team

IJ-MN Staff Attorney Anthony Sanders will lead the litigation team, assisted by IJ-MN Staff Attorney Katelynn McBride.

 

The Institute for Justice Minnesota Chapter: A History of Protecting Private Property

The Institute for Justice litigates in support of constitutionally enshrined individual rights, including the right to own private property free from unreasonable governmental interference.  IJ’s headquarters and state chapters have scored significant victories on behalf of individuals and businesses throughout the nation. IJ-MN is currently fighting for property rights in Robert McCaughtry, et al. v. City of Red Wing, where the Institute is challenging rental inspection laws requiring landlords and tenants to submit to involuntary inspections without probable cause in order for landlords to receive licenses to rent their properties.  IJ-MN also represented St. Paul- based Advanced Shoring Company in its successful fight against the St. Paul Port Authority’s attempts to take the property through eminent domain for private gain.

Founded in 1991, the Institute for Justice represents ordinary Americans nationwide whose rights are being violated by the government.  In addition to the cases discussed above, IJ has scored several major victories in courts of law or in the court of public opinion to advance property rights, including:

Kelo v. City of New LondonThe Institute for Justice’s first battle against eminent domain abuse before the U.S. Supreme Court may have been lost in a narrow 5-4 decision, but the popular backlash since Kelo has secured the passage of eminent domain reform better protecting property rights in 43 states.

City of Norwood v. Horney—The Institute for Justice earned a unanimous Ohio Supreme Court decision that rejected the U.S. Supreme Court’s Kelo’s economic development justification for eminent domain proceedings.

Brody v. Village of Port Chester—The Institute for Justice vindicated a property owner’s right to procedural due process in an eminent domain proceeding that seized his building without meaningful notice or an opportunity to challenge the taking.

Casino Reinvestment Development Authority v. Coking—IJ represented an elderly widow preventing a state agency that sought to take her property so it could hand it over to Donald Trump for his unrestricted private use.

For more information, contact:

Shira Rawlinson
Communications Coordinator
Institute for Justice
901 N. Glebe Rd # 900
Arlington, VA 22203-1854
(703) 682-9320 ext. 229

srawlinson@ij.org

 



http://www.northlandsnewscenter.com/news/video/With-300-Foot-Rule-Gone-More-Rental-Activity-in-Duluth-123671204.html. Additionally, East Lansing, Michigan, home of Michigan State University, has passed a law empowering its city council to place total bans on renting in certain districts. [1] East Lansing Zoning Ordinance, § 50-774, 50-777(7).)

[2] N.Y. Mult. Dwell. Law § 4(8) (2011).

[3] See, e.g., Kauai Zoning Code at Sec. 8-17.1.

[4] Winona Zoning Code § 43.58.2(A)(6).

[5] Analysis of Issues Regarding Student Housing Near the University of Florida, Duncan Associates, April 2002 (discussing occupancy limits, parking control, party patrols, permit fees and other measures of handling rental issues but not mentioning any sort of rental ban); Ngai Pindell, Home Sweet Home? The Efficacy of Rental Restrictions to Promote Neighborhood Stability, 29 Saint Louis University Public Law Review 41 (2009) (mentioning short-term vacation rentals, private covenants, procedural rental requirements, requiring owner occupancy and other measures to limit rentals, but not mentioning any sort of rental bans); Jack S. Frierson, How Are Local Governments Responding to Student Rental problems in University Towns in the United States, Canada, and England?, 33 Ga. J. Int’l & Comp. L. 497 (2005) (focusing on rental occupancy laws and not discussing rental bans).

[6] Winona Housing Code at § 33A.03 (b).

[7] Winona Zoning Code at § 43.58.2(A)(6).

[9] Winona Housing Code at § 33A.03 (c).

[10] Id.

[11] Winona Zoning Code at § 43.58.2(A)(6) “including rooms in which roomers and/or boarders are taken in by a resident family.”

[12] Winona Parking Advisory Task Force Meeting Minutes, August 23, 2005, Page 2.

[13] Winona Parking Advisory Task Force Meeting Minutes, September 1, 2005, Page 2.

[14] Winona Housing Code at § 33A.  The Winona Housing Code has many requirements for maintenance of a safe and sanitary property which address many concerns that homeowners have with renters.  It requires repair of deteriorated walls, roofs, floors and windows; provides an action for nuisance such as overcrowding a room with occupants, or uncleaniness, and mandates that each landlord provide adequate parking.  Enforcement of these housing code provisions would solve many of the concerns that homeowners have with renters.  Further, basic criminal law, of course, already prohibits vandalism and unruly behavior.

[15] Winona Zoning Code at § 43.58.2(A)(6) (“…no more than 30 percent (rounded up) of the residentially-zoned lots on any block shall be eligible to obtain certification as a rental property).


 

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