Many towns tightening ‘no rental’ rules
Houses on the market are sitting empty and their would-be sellers are desperate for cash – but many homeowners associations are banning rentals, citing neglect, misbehavior and crime among tenants.
Renters: neighborhood contagion or a lifeline to beleaguered homeowners?
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% 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, Calif., 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, Nev., had so much trouble with crime and vandalism, much of it attributed to renters, that it forbade new homebuyers 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, Miss., 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, 18 million housing units are sitting empty 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. 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, SmartMoney 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% 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 anybody could get an adjustable-rate mortgage, someone who couldn’t get approved for a mortgage seemed truly untrustworthy. This skepticism fueled a huge surge in restrictions, says 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 that 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% for each foreclosure within an eighth of a mile.
To avoid a similar fate, some neighborhoods are reconsidering their stance. In River Falls, a gated community in Roswell, Ga., where most homes sell for more than $500,000, rentals have long been limited to 7% of all units. But now prices are down 10% or more, and homes are languishing on the market. So the local board is exercising its discretion to grant “hardship exemptions” for owners who have to move, says board President Allan Price.
In Ohio, many associations are taking a similar approach, though few want to advertise it. The goal is simply to keep homes occupied. Price, a mortgage lender, says it’s not neighborly to enforce stern no-rental rules in these tough economic times. “We cannot turn our back on people and say, ‘You have to sell now and take a $100,000 loss,’” he says.
Still, that calculus doesn’t work out for every neighborhood. When Sun Meadows opened on the south side of Sacramento in 2004, the first wave of buyers into the 55-and-over development mingled affably in the evenings around the community pool, fitness center and putting green. “The first six months, it was paradise,” says Mitchell Geise, who paid $328,000 for his stucco, three-bedroom home. The market cooled before all 136 homes could be sold, however, so the developer began renting the unsold homes. Geise even became a landlord himself, when he bought a neighbor’s home out of foreclosure.
But the influx of renters proved to be the flash point for personality conflicts that soon split the community. One faction claimed the renters trashed the billiards room, while the other defended renters and pushed for them to have a greater say in setting the rules.
For Geise, the conflict reached its nadir when he got into a scuffle with a 69-year-old neighbor who was a leading anti-renter agitator. Today the two sides continue to squabble, and the conflict isn’t helping home prices: Two sales have fallen through after prospective buyers learned of the lingering discord. “This whole thing put the kibosh on the ability to sell here,” says resident Deborah Jessee.
One town’s battle over renters
One recent day, on a winding drive through the rain-swept streets of Madison, Mayor Mary Hawkins Butler illustrates her beef with renters. “See there? See what I’m saying?” she says, pointing to a 1960s ranch-style home that she says is a rental. The lawn edging has grown over the curb, and one of the window shutters has broken off and sits on the ground, propped up against the front of the house. “They don’t want to maintain the property,” Butler says.
She rolls the car forward and comes to rest in front of a similar home two doors down that Butler says is owner-occupied. The lawn is immaculate, with closely cut, bright-green hedges, and a wicker rocking chair adorns the front porch. An American flag flaps in the breeze above it. “Now look,” Butler says triumphantly.
To say that Madison is a master-planned community is true only if one acknowledges that Butler is the master. Dubbed Queen Mary by detractors, Butler has served as mayor for more than half her 54 years. Hers are the brains behind the Corinthian columns framing the pumps the Chevron station and the simulacrum of a long-leaf pine tree near the center of town -- actually a faux-botanical sheath for a cell-phone tower that Butler deemed unsightly. As of the most recent census, 94% of Madison homes were owner-occupied, compared with 65% nationally. There is not a single apartment complex in town. All of that, Butler says, is a key reason why home prices in this Jackson, Miss., suburb are more than double the statewide average. "We promote homeownership," says Butler.
But Madison has also seen a surge in foreclosures that have pushed down property values. “For Sale” signs are abundant, many augmented with desperate appeals like “Steal me!” “We’re in a terrible pickle,” says Carlton Melton, a retired school administrator who moved to Madison six years ago. His Northbay neighborhood, where he serves as president, contains a handful of vacant homes that have languished on the market, and last year the number of rentals spiked.
As tenants moved in, Melton for the first time didn’t know all his neighbors by name, and he wondered if it was still safe to let local kids trawl for catfish in the lake that abuts his backyard. Neither Melton nor Butler can cite any specific incidents of crime or rowdiness related to the new tenants. But after consulting with the mayor, Melton pushed through the resolution banning rentals. “It’s about having neighbors that you can count on and trust,” he says.
Caught off-guard by this move were Andy and Lorrie Bourland, who bought two houses in Madison with an eye to flipping the second home. When the housing market went south and the couple couldn’t find a buyer, they finally rented their second place to an endocrinologist and his family for $2,300 a month.
But then the homeowners association abruptly banned rentals, leaving them stuck with two mortgages. The couple argued that they would never have bought the second home if they’d known the association would enact such restrictions.
“You can’t change the rules after we’ve already anted up to play,” says Andy Bourland, a gambling lobbyist. They even filed a lawsuit, though they dropped it as costs mounted. Another landlord who ignored the new rule faced a nasty surprise: He was arrested. To back communities like Northbay, Madison had made it a criminal offense to violate homeowner-association covenants. (A judge eventually dismissed the charges.)
New barriers to renting
Butler and the city recently erected yet another set of barriers. Today anyone planning to rent out a home must pay a nonrefundable fee to the city and 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.
Fran Waldrup McDonald, who has lived in Madison her entire life, recently inherited two homes; she’d rather not sell, but she faces hundreds in fees if she rents. The city has threatened to fine her up to $300 per day if she leases out her properties without first paying the municipal fees. “I want Madison to be nice, and I want it to be clean. But this is not the way to do it,” she says.
McDonald is now trying to organize the landlords in Madison into a group that can fight the city over rental rules – sort of an anti-association association. Meanwhile, Northbay’s Melton says his community is sticking with its policy. Eventually, he insists, buyers will come back. “The solution for us is time,” Melton says. “This will shake out.”
I had to rent a house because I moved to a new city for a job. I attended my new subdivision's HOA meeting and they started to blame the renters for properties not taken care of. I spoke up and told them I am a Realtor and that I looked up those properties that seemed abandoned. I found out that they are owned by homeowners or investors. They are also pre- foreclosures and listed as short-sales.
I questioned the HOA… would they rather have restrictions on renting these homes or would they rather have a property that is rented with restrictions to the owners who must do their due diligence of background checks on renters and property managers. I told the HOA that having those units empty brings their property values down even worst than they are now. Plus leaves room for theft. The room got quite.The HOA manager finally agreed that some renters keep properties in good condition.
My family has been in real estate and the various shadow markets forever. Mom was an agent in the 60's. She bought a second as an investment and had tenants. We had various numbers and types boarders over the years to help with expenses. I've lived in different house share arrangements over the years.
Now I own investment properties.
Been a landlord for 9 years.
Well people, things ain't what they used to be. I absolutely think it’s the general decline in standards, personal responsibility, whatever you want to call it. A handshake used to be good enough. People were good for their word. Today? Foggettabboutit. My leases are 17 pages long and I’ve had people take one look and walk. Good riddance. Everyone has a sense of entitlement. Like you are stealing their money and making a fortune on their back. No sense of personal responsibility.
There are still good people out there. I take care of my properties. I don't abuse or gouge my tenants. I charge a fair rent and slowly build equity so that someday I can retire on the rental income. Providing rental housing is a needed service, an honorable profession and some tenants do understand and appreciate it. We had boarders who would help with anything. Spring cleaning, cut the grass, fix what got broken. Grateful we were willing to share our home in exchange for some pittance of board money compared to an apartment rent. With some careful screening I have found some of these people.
But I have to say that even my best tenants don’t have the old stuff. Always towards the end of the lease they have to be reminded that they have signed a contract and they will be held to it – the repairs have to be made, the unit must be spotless when you move out like it was when you moved in, you cannot use your security for the last months rent, etc.. Just asking politely and making a gentleman’s agreement doesn’t work anymore.
While I agree that HOA’s are a PITA, they exist with good reason. People got tired of being abused in their own neighborhoods and so they put an end to it. Good for them. If you don’ t like it, don’t buy into one. Can’t find the rental property you need? Look harder - like I have to look harder for good tenants.
Quite frankly I can see both sides of this issue.
Sure there are some tenants who don't take care of their home and/or apartment and there are those who are exceptional and take pride in where they lay their head, but as it's been said all it takes is one bad apple to spoil the bunch.
I'm ex military and now engaged to a sailor, we're transferred at least every three years and with our family size (5 in all) most apartments won't rent to us as we exceed the occupancy level if either of our college age children come to visit, so now we're on notice that not only can we not rent an apartment but now we may not even be able to rent a home?
Sure there are tenants who could care less about their rental property (i.e. home) but as the saying goes; there is none so blind as he who will not see. Sure I can understand a homeowner who needs to get the next mortgage paid and renting to someone, but don't lump all renters when the tenant happens to not be the "dream" tenant, only cares about where they lay their heads and thinks that any extra room gives them license to invite their friends to stay awhile.
If an HOA wants to restrict how many homes they wish to rent, that's all gravy but don't come whining when the house has been empty for 2 to 3 years and squatters have managed to climb the fence to occupy it. And please don't come begging for a "bail out" when the property values are in the toilet and the HOA treasure chest starts coughing up moths.
As for the complaints about the neighbors not mowing the lawn, and other petty, kindergarten complaints; I don't know my neighbor, what happen to taking the time to stop by with a housewarming gift or taking the time to see if the single mother needs a little help taking care of that lawn? I mean wouldn't it be nice to have your teenager out earning a couple of bucks, instead of you shelling it out.
I think I've just made myself sick reading not only this article but some of the responses following it. I think we, not as Americans, but as human beings have forgotten that everyone need a bit of help and that sometimes in order to get the response/action that we want, we have to give it.
If HOA's don't want renters, that is their right and their issues should be with the "homeowner" not the people helping out the homeowner, as should any elitist who agrees with the rasstard Queen Mary.
We moved across the country for my husband's work and decided to rent before we bought. Good thing we did. We take excellent care of the property, and also clean the yard weekly. The HOA here is fairly hardcore with most things, but with the housing crisis in the US they want the properties to be filled.
Houses sit too long and yougins start vandalizing....even in the nicest neighborhoods.
It is absolutely incredible that there is so much hostility directed towards renters. It is my opinion that an H.O.A is supposed to keep and maintain the community's standards,appeal and unity. Now a days it seems almost as if they believe they are the law. Although it is a given, there are now laws that uphold some of the H.O.A rules it shouldn't give them as much dictatorship over a entire community. The very same people who they call neighbors, community members and friends are some of the homeowners that are now struggling. There is no actual data stating that renters commit more crime or neglect at there place of residency that is current. In fact, I see more people who at one time were homeowners turned renters become common. Does this mean that they are more likely to commit crimes and neglect there place of residency? I think not!
Sometimes I genuinely wonder where the compassion and the pride for one's neighbor has gone. Everyone is feeling the strain of today's economy in someway, shape or form. Just remember if do what we've always done, we'll get what we've gotten.
As the vice president of our HOA for the past 5 years I can state with quantifiable data that 93% of the problems we have come from the 9 rental units in our 74 home HOA. These are directly the result in little or no upkeep and no respect for the rules set by the community. Since the increase of rentals from 1 to 9 we have had two stabbings, multiple car break ins, and actual SWAT team extraction of one house dealing drugs, and another under FBI surveillance, houses falling into such bad shape one has to have the rear deck removed for safety. The list goes on and on. Sorry but after saving my money to buy a house for years in less than 4 years the rental units have destroyed the neighborhood.
As one person stated they knew what the rules were coming in, they think they are above the law and chose to ignore them and everyone else's expense.
I wish we could find a way to out law rentals in our community!
Many communities have these "pocket Stalin's" to lord over you to waste your time and restrict your life. Older people after their divorce find the restrictions even more burdensome as they can't let their children live with them or their girlfriend etc.
As far as "cleaning" goes forget about it! I can't clean worth a nickle any way. Nor do I have the time to bother as the landlord's people come and clean anyway as a matter of course so why bother?
As a leader in a HOA I know by experience that Bad Renters that do not want to follow the HOA's rules are 10 miles of bad road. They usually don't want to follow the rules until their cars are threaten with towing or towed, they fill their 2.5 and 3.5 car garages with storage and expect to park their vehicles in front of No Parking at Anytime signs, especially in bad weather. Let their guests park in front neighbors garage doors, causing tremendous friction among neighbors.
Have garage sales even when expressly against the rules, over 90 % of their neighbors don't want the additional traffic and strangers driving cars and trucks on sidewalks because there too lazy to walk.
Property Insurers raise rates when renters are allowed, and cannot get the best coverage if HOA has renters. Why should the owners pay much higher insurance rates for renters and have less coverage too?
Had the County Sheriff ask HOA to evict a renter because of constant trips to a renter from martial fights and they weren't married.
Leaving trash out days before pickup, against the rules, then have the weather blow it all over the complex. HOA paid for the clean-up several times.
Very thankful our State law allows HOA to evict renters, limit renters, and add the cost of our legal fees to the enforcement of our rules when the Owner and Renters don't follow the published rules.
Renters that do not want to follow the rules and the leasers that conveniently that don't inform their renter of the rules and complain the rules are costing them money.
HOA Rules are for maintaining the home owner's values and saving everyone money.
My family owns a rental, we take the time to get to know our renters, as a precaution we add water softener when it needs to be and we change the water filter, in addition to that we mow the lawn. If something isn't working right with the appliances or the house itself we ask that the renters tell us and we work to get it fixed as soon as possible. I think one of the reasons that we haven't had problems with our renters is because we show that we care for the property that and we take the time to get to know them weather it is as simple as asking them to come over and grill out with us.