Winona faces lawsuit over rental property cap

MINNEAPOLIS -- The city of Winona has been taken to court over a zoning law designed to slow the growth of rental properties in the college town.

The so-called "30 percent rule" was aimed at spreading out private sector student housing, which tends to be concentrated near the campus of Winona State University and Saint Mary's University. The college towns of Northfield and Mankato have similar caps on the books, which do not apply to existing rental property.

"The rule is a rental ban on renting out your home," said Anthony Sanders, an attorney with the Minnesota Chapter of the Institute of Justice, a libertarian non-profit based in Virginia.

Sanders and co-counsel Katelynn McBride are representing four homeowners in Winona for free, in a lawsuit challenging Winona's rental cap. The rule prevents homeowners from converting their houses to rental units if there's already a concentration of 30 percent rentals on that city block.

"If more than 30 percent of your neighbors on your block have rental permits, then you yourself cannot get a rental permit and are banned from renting your home," Sanders told KARE.

The thrust of the case is that one person's property rights should not be limited by the previous actions of his or her neighbors, which Sanders contends is a violation of the Minnesota Constitution's equal protection clause.

Ted an Lauren Dzierzbicki of Illinois purchased a home in Winona in 2007 for their daughter to live in while she was enrolled at Winona State. Their original plan was to rent part of the house to other students to help cover the mortgage, according to Sanders, but they ran up against the 30 percent rule.

"They went down to the city and asked for a rental permit, perfectly safe house, and the city said, 'Because your neighbors are renters, you yourself can't get a rental permit and you can't charge anybody rent to live there'," Sanders explained.

The Dzierzbicki's have been trying without success to sell the home since 2010, when their daughter graduated from Winona State.  The rental cap prevents them from renting it to other tenants, and effectively keeps them from selling to another landlord.

Another plaintiff, Ethan Dean, is serving with the military in Afghanistan. A fourth homeowner, Holly Richard, moved to South Dakota to pursue an advanced degree. Both have received temporary permits allowing them to rent their homes, but those licenses are set to expire in the spring of 2012.

West Saint Paul's 10 Percent Solution

The City of West Saint Paul has enacted the strictest cap in the state, a ten percent limit per block which will become effective in January.  It was an effort to curb the growth of rental property in a first ring suburb and encourage more owner-occupied residential development.

"We feel with over 42 percent multi-family we pretty much have our share of rentals in this city," Jim Hartshorn, West St. Paul's Community Development Director, told KARE Wednesday.

He said the issue was sparked by complaints from residents about rental properties that weren't being managed well. That was one of the reasons the city initiated a rental licensing program, which requires an inspection from a certified contractor.

"We realized we were getting quite a few calls to go inspect and write up some of these properties, and we had a hard time contacting a lot of the owners," he explained. "Most of them are absentee, out of state or out of city."

He said the wave of foreclosures that affected the entire region also made it tempting for banks and other mortgage holders to convert homes to rental properties, which can be challenging to reverse.

Hartshorn said the rental cap is like any other zoning power cities have to regulate land use.  Property owners encountering trouble selling a home will get a temporary relaxation in the rental ban.

"You would have two years to sell the home, so hopefully by then there's time to sell it. If you needed even more time you could apply for an extension."

The Institute for Justice lawsuit also contends that rental concentration bans are unneeded, because existing housing codes and noise abatement laws already adequately address the problems that often plague student rental properties.

Hartshorn disagreed, especially when it comes to the specific case of West Saint Paul.

"We have one code officer who responds to over one thousand code calls per year," he said. "That's one of the reasons we want to limit new rentals as much as we can."

The new rule will apply to new rental permit applications in single-family zones. It will not affect current rental homes, unless they lie vacant for more than one year, at which time the permit would be voided.

(Copyright 2011 by KARE. All Rights Reserved.)