TownGown World : Town and Gown University Communities 

Licensing rentals – Trends and breaking news in the USA
Bob Karrow
Feb 2008

If you live in a college town in the United States, rental licensing – like politics and religion – is one of the topics you steer away from polite company. People who live in and feel strongly about neighborhoods that are converting to student housing from predominately family will be ready to offer their thoughts. Local entrepreneurs who (rightly) see student housing as an investment with potentially high rates of return will be eager to argue their stands. It’s a hot button topic.

I’ve been following college town news in the US for more than 20 years. Within the last several years rental licensing issues have come up repeatedly in public and student news coverage. I’d like to try to present a broader view of the issue (from my perspective at least) in this piece.

First, when discussing licensing rentals, one needs to accept that any ordinances developed to address the topic must apply across the board to all residents in the community. What applies to one should apply to all. It’s the American way.

So what’s involved?

First, public safety issues: In the US, communities have the power to insure that renters are living in safe, well-maintained housing. We have building codes for that. They may address the minimum square footage required in bedrooms, or the number of parking places required for a specific number of renters, or that hardwired smoke alarms are installed in any rental property. In college towns this last item is particularly germane, since the majority of fires in student housing that injure or kill college student each year are in off-campus rentals, and in may communities 50 percent or more of enrolled students are housed in off-campus, privately owned rentals.

Second, the number of unrelated occupants allowed to live in a dwelling unit. This runs the spectrum. Some college towns have no limit in their ordinances, some limit the number to no more than two unrelated people. In a variation on this, Greenville, NC, in 2005 changed zoning in some areas of the city to allow no more than three unrelated occupants in some areas near the university, while allowing higher numbers of unrelated persons in other specific areas.

While the US Supreme Court has sided with municipalities’ power to set such limits, the actual wording of ordinances that attempt to do this is key. Non-traditional families are much more common now than 50 years ago, and cities must craft the wording of such ordinances so that they are not impacting individuals who have chosen to share their lives in a long-term commitment.

Third, the distance between or percentage of rental properties allowed in a specified area.
In college towns, this is a rather recent occurrence. There are a number that have attempted to take this approach, however. Duluth, MN, in September 2007 put in place an ordinance that does not allow licensing of any new rental property within 300 feet of any other rental house. Also in Minnesota, the city of Winona passed an ordinance to limit rental properties to 30 percent on any block.

What makes for the controversy surrounding licensing rentals in college towns?

For many years after college enrollment began to swell in the US following WWII, private investors were able to purchase homes in older neighborhoods near campuses as the owners aged-out, or left the area for some version of the suburban dream. Students rentals are a reliable income source. In many communities conversion to rentals happened in areas that were no longer as desirable to post-war families. The student population needed housing. University budgets were being cut, and residence halls were not being constructed. Older homes no longer were fashionable and cities had no problem with licensing them for larger number of occupants.

That scenario has changed in the last 20 years. More people are recognizing the quality of life possible in neighborhoods where residents can walk to many of their daily destinations. Now, cites are experiencing an increased call for "walkable" areas. Places where people live, work and play.

Chris Leinberger, a visiting fellow at the Brookings Institution in his new book "The Option of Urbanism," city core neighborhoods are critical for economic stability. His research suggests that 30 to 40 percent of Americans want a walkable alternative to the  suburban lifestyle.

In following news in US college towns over the last decade I have seen a marked trend toward rental licensing and occupancy limits. During that time sources like Forbes Magazine have run articles on the appeal and affordability of college town to business start-ups, people in their earning years looking for a better quality of life, and retirees. Live Rich in College Towns was a 2005 Forbes headline.

Walkable neighborhoods in college towns now are in demand by a significant percentage of the home buying public. That’s a huge change in the last 20 years.

So market forces (home buyers/owners vs. investors) now are colliding.

Cities are attempting to deal with demands of their citizens.

Times are changing.

Across the US, universities are building student residences after a nearly 40 year hiatus. Amenity-filled student housing complexes off-campus are a hot investment area for publicly-traded real estate investment trusts – a market force that has only truly come into play within the last decade. Larger proportions of today’s students are not interested in renting the older homes that housed their parents in their college years.

We can expect that the US will continue to see increasing numbers of college towns striving to encourage home ownership in near-university areas. Rental licensing in college towns, in various forms, is here to stay.

Implementing the limitations that licensing brings with it will not be easy.

Duluth, MN, mentioned earlier in this article, is dealing with the fallout of licensing. The recently elected mayor last August was one of the key players in putting in place the new rules that do not allow new rental licenses to be issued within 300 feet of an existing rental. The ordinance was prompted by demands from homeowners in city areas that were rapidly being converted from single family to student rentals.

On January 19, the Duluth Tribune ran an article saying, “On Friday, Ness used his first news conference as mayor to call the consequences that have come from the ordinance “unacceptable.””

What changed? It turns out that although the ordinance rightly grandfathered existing rentals in the impacted areas, many rental property owners had not licensed their property or had allowed the license they did have to lapse. That, it turns out, meant that a large number of existing student renters would be forced out of their homes. Not a good outcome. So, the Tribune goes on, “Ness said that the city will no longer enforce that part of the ordinance until June 1.”

Cites obviously need to explore the impact of proposed ordinances.

Cities also need to enforce valid ordinances if they are to be effective.
Greensville, NC, also mentioned earlier, has done that. In January 2007 the city took two local student-rental owning couples to court for renting to more than three unrelated occupants. “Landlords, city reach settlement on over-occupancy suit,” was the headline in the January 19th Greenville Reflector. The article goes on to say, “A judge ordered the parties to seek mediation, which started in September and concluded with a Jan. 4 agreement and related consent judgment by Pitt County Superior Court Judge Rusty Duke.
The consent judgment calls for the defendants to pay $8,000 in fines and also sets out a shortened process for bringing action against the landlords in Superior Court in the case of future violations.”
Both Duluth and Greenville, if you aren’t familiar with them, are appealing cities with a large university presence. Greenville appears to be on the road to creating and sustaining family-oriented near-university neighborhoods. Duluth certainly will, in time, reach that point as well, given Minnesotan sensibilities.

Licensing rentals in university communities is just one way of building strong town/gown relationships. Change can be difficult, but communities that offer walkable neighborhoods for families as well as students close to respected institutions of higher education certainly will be on the forefront of providing the “option of urbanism” that studies are showing draws potential residents to an area. (Return to Licensing HMO's Discussion )