Some Longboat commissioners want to re-examine the rental policies of our community, that were overwhelmingly supported by our residents in a referendum vote. These commissioners, in their zeal to increase tourism, want to relax the rental rules, to allow daily and weekly property rentals where only monthly rentals are currently allowed.
My question is, at what price to our community do we underwrite a few local merchants?
Renters: neighborhood contagion, or a lifeline to beleaguered homeowners?
edited from a Smart Money article
In growing numbers of American towns and subdivisions, that question has become anything but academic, as homeowners associations abruptly ban rentals. Blame it on the huge slump in the housing market. For owners who have to move or who own houses as investment properties, short-term rentals can bring in some cash and keep them from having to sell at a big loss.
But instead of greeting renters with hosannas, many towns and subdivisions are barring their doors, arguing that tenants usher in neglect, misbehavior and even violent crime. Almost 60 million Americans live in developments governed by homeowners associations, and by some estimates as many as 40 percent of those communities enforce restrictions that keep owners from becoming landlords.
Indeed, many associations are enacting even tighter anti-renter rules — even in the parts of the country hit hardest by falling prices. Often the backlash comes after the rowdy-tenant threat becomes a reality.
In Sacramento an active-adult community recently erupted into a geriatric war zone over rental rules after tenants got blamed for diapers in the pool and other transgressions. The city of North Las Vegas had so much trouble with crime and vandalism, much of it attributed to renters, that it forbade new home buyers from leasing out their homes within two years of purchase.
Other communities see the restrictions as a way to put a floor under falling prices: The mayor of Madison, WI, for example, began tightening that town's rules after the downturn started depressing prices.
The conflicts help explain one of the more bitter ironies of the real estate scene. Even though demand for rentals is at an all-time high, there are now 18 million vacant housing units in the U.S., according to the Census Bureau. More than a third of those properties are being left vacant by their owners intentionally, a trend that’s being exacerbated by local renting rules. To be sure, some communities are easing restrictions in a bid to lure buyers. But other subdivisions are digging in their heels even as homeowners beg for relief.
To see how the conflict is playing out, Smart Money caught up with owners in communities from the bubble markets of California to the stable South, on both sides of the tenant divide.
Why Are Renters Seen as Undesirable?
The idea that renters are about as good for a neighborhood as an infestation of termites has been around for a long time, particularly in upscale communities. In May, in a ruling that upheld rental restrictions, the Indiana Supreme Court observed that it is “undisputed” that “an owner-occupant is both psychologically and financially invested in the property to a greater extent than the renter.”
Thus, the thinking goes, renters are less likely to maintain and improve their homes. But proof that this phenomenon affects property values isn’t overwhelming. A California study found that homes fetched lower prices in communities where more than 30 percent of properties were renter-occupied, but that study dates from 1987. Whether governed by perception or reality, anti-renter sentiment is pervasive: Even Fannie Mae and Freddie Mac refuse to underwrite mortgages in condo projects where a majority of units are rentals.
During the boom years, antipathy toward renters was heightened by the easy availability of credit — when any monkey could get an ARM, someone who couldn’t get approved for a mortgage seemed truly untrustworthy. This skepticism fueled a huge surge in restrictions, according to Joseph Cusimano, a Cleveland attorney who represents almost 500 condo and homeowners associations.
Some policies limited the number of homes that could be leased within a subdivision, while others banned rentals altogether. The rules don’t discriminate between hardened speculators and owners who have more benign reasons for renting.
The Upside of Having Renters Around
While short-term residents may have their downsides, so does a street full of vacancies. More than 7.5 million homeowners are underwater on their mortgage, meaning they owe more than their house is worth. There’s little to stop such strapped owners from mailing the keys back to the lender — “jingle mail,” it’s called — and letting the property sink into foreclosure.
Numerous studies demonstrate the ruinous effect foreclosures have on home values; one, by researchers from the Georgia Institute of Technology and the Woodcock Institute, showed that a home’s value declines by about 1 percent for each foreclosure within an eighth of a mile.
New Barriers to Renting
The city of Madison, WI recently erected yet another set of barriers. Today anyone planning to rent out a home must pay a nonrefundable fee to the city, plus post costly surety bonds -— the latter process not unlike a prisoner posting bail. Although the ordinance specifically targets “absentee landlords,” in practice it punishes real estate investors of all stripes.
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