February 25, 2016

Sally Silver

This meeting was announced as one devoted to the topic of rental license transfers but in fact was devoted to several topics: rental license transfers, incentive programs, and examination of maps and charts showing various housing violations, noise violations, over-occupancy violations, renting without a license violations, and locations of deed restricted houses. This was the last meeting where we explored given topics. I had expected at least one more. Our next three meetings will concern the actual recommendations this committee will make to City Council. However, the first of these on March 10th will afford the opportunity for committee members to request information about topics not yet explored. For instance, I would like to know more about ‘use variances.’ In general, because of time constraints, our committee has acted more to review ideas and materials developed in other venues rather than to assemble new data.

Most of the meeting on February 25th began with reviews of the packet materials (forwarded to you one week ago). Thus far we have discussed ways to deal with nonconforming rental houses and focused on two approaches: rezoning some areas with rental houses to make more than two unrelated tenants conforming (and therefore additions to those houses legal as well), and changing the language of our basic ordinance dealing with physical alterations permitted to nonconforming houses. I’ll give a brief rundown on the other topics we discussed:

Rental License Transfers or License Mobility: Currently, rental housing licenses are attached to the houses that have them. The idea behind rental housing license transfers is that rental housing licenses might be separated from a particular structure and have value in and of themselves. A house with a rental license might be worth more than an identical house without one because of its income generating capacity. The value of the license might be calculated as that difference. When buying rental properties for some projects, the city has valued the price/bed as about $45,000, for example.

However, it is legal for a non owner occupant to rent a house anywhere in the city except in overlay districts. So transferring a license for 2 unrelated people or a family to a different house would not make much sense. If a house is available that has no license, one could buy the house and get a license for 2. However, It DOES make sense if one could transfer a grandfathered license for more than 2 (say for 4 unrelated people) to a different house in a better location (say, closer to campus). However, this would require a zoning change to make more than 2 people legal in the house receiving the license for 4.

An idea proposed by Chairman Doug Jester would allow landlords to transfer licenses to ‘receiving areas’ closer to campus that would be ‘rooming house’ zones. He proposed that in those zones, you could make additions to a house or perhaps have more than two tenants ONLY IF the increase in tenancy and removal from non conforming status occurred through a transfer of a rental license from elsewhere. The underlying assumption here is that it is desirable to consolidate rental areas in some parts of the city and reduce them in others. Brian Hagan noted that doing this for only two unrelated was not economically viable because the maintenance costs for a single-family house remained constant but the income from two versus four tenants would not be profitable. This idea would not necessarily require the same person to own the original license in order to transfer it. He/she could buy the license from someone else in order to do the transfer.

Reduction of Rental Houses through Purchase and Resale

The purchase of houses with rental licenses for purposes of resale to owner occupants is not aimed directly at reducing nonconformities but to increase the ratio of owner-occupied houses to non rentals. A secondary effect might be to non conforming rentals where the house acquired had a license for more than 2 unrelated people or a family.

Avondale Square: I won’t go into detail about this project because the memo attached to the agenda for the February 25th meeting discusses the project. Basically, at considerable expense the city used federal and city funds to purchase houses south of Marble School in order to make room for a small development of single-family houses which were then deed restricted to prevent renting for a certain length of time. The city paid an average of $45,000/bed for rental properties. The city’s demand for these properties caused the owners to inflate their prices in some cases. In several cases there were property swaps. While this effort created a lovely section of our neighborhood, it will likely NOT be replicated soon because of its high cost. However, this project demonstrates the city council’s view that there was an imbalance in the ratio of rental and non-rental houses in neighborhoods close to campus in the early 2000s.

Campus Village II (beginning 2006): This effort did not originate with the city. When Campus Village East Lansing sought to build their second housing project on Michigan Avenue, the complaints of Chesterfield Hills neighbors led to a deal with the developers. This was aided by city staff and use of tax increment financing for the project. The developers bought up several rental properties from willing sellers in the neighborhood to build goodwill. Either the developer or buyer would rehabilitate each house for resale. Landlords who sold their houses did not take an equity stake in the new project to offset income losses as had been expected. This raised the cost of the project. Of the seven houses acquired, 2 remain unsold. The houses sold were mostly deed restricted. Counting rehab costs, these all sold at a loss. Of course, this occurred in part during the recession.

While this project cannot be counted a big success, it does point to the possibility of using leverage of some sort to induce developers to buy up rental properties in order to attain a development goal. I can imagine allowing extra height on apartment building, for example, in exchange for the developer buying up several rental houses for resale. This also demonstrates that under some conditions it is possible to find ways to induce landlords to sell their properties. I would note that a number of developers are also landlords.

Iowa City “UniverCity” Program. This ongoing program in Iowa City includes outright purchase of rental properties by the program using assorted city, HUD, University of Iowa funds and selling to certain income-qualified households. About 60 houses have been successfully bought, rehabbed, and sold through the program. Thus far all but one house has sold for the cost of acquisition. Rehab costs averaging about $50,000 have not been recovered, but the program is very successful. Our city staff notes that much of this success may be due to the lower unemployment rate in Iowa City versus East Lansing. Nonetheless, the city staff thinks this might be a possibility for East Lansing, but probably also involving transfer of rental licenses.

It is interesting here to note that Iowa City and the University of Iowa have felt the need to increase the number of owner-occupied houses close to campus. This is not the concern only of East Lansing’s older neighbohoods.

Maps and Charts

Noise and PACE Citations

Committee Vice Chairman, Brian Hagan, had requested that the staff provide information about noise and PACE violations over the past few years, ideally comparing them to similar information from the era when Ordinance 900 was passed. One of the reasons that law passed was because single-family rentals were associated with more citations of these types than apartments or owner-occupied houses. However, the charts and maps provided did not include those comparisons, probably because there was not time to do that type of research. Those charts can be seen if you look at the agenda for February 25th.

Notable is that noise citations scarcely exist in the owner-occupied part of central Bailey (between Bailey and Gunson) and areas east and west are primarily associated with non conforming rental properties (which describes most of the rentals in those parts). There are more PACE violations in the owner-occupied section when compared to noise violations, oddly concentrated along the 600 blocks of Orchard and Kedzie. But generally, the same pattern persists. The chart also shows a relatively high rate of violations for Type IV rentals (single-family, absentee owner) compared to conforming rentals, but much more difference in PACE violations compared to noise violations. Group Housing such as sororities and fraternities were often worse on a per dwelling measure, but lower/dwelling for apartments (Class V). This table, though very limited in scope, would seem to lend credence to the argument that rental houses are responsible for more noise and PACE violations than owner-occupied houses and conforming rentals.

Ways to Limit Rentals

Deed Restrictions

There are several ways that deed restrictions are placed on property that limits or prevents those properties from having rental licenses:

1) Houses bought and sold to low and moderate income groups through the city’s nonprofit housing corporation (now Capital Area Housing Partnership) place a restriction on the house deed for a given number of years that prevent renting the house. One purpose of those non profits was to improve the balance in the affected neighborhoods between rental and non rental housing.2) Houses that have been overoccupied where the owners prefer to give up their licenses to paying fines that can be very high. )
3) Deeds restricted through covenants – but there are few of these. 4) Deeds restricted through special projects such as Avondale Square and Campus Village II.

There are quite a few of these scattered around the Bailey neighborhood.

Overlay Districts

These restrict rental to owner-occupied houses and in some cases do not even permit owner-occupied rental. I would argue that the wide popularity of these districts, even in areas with few rental properties such show that many citizens believe that East Lansing has adequate rental housing in the form of single-family rentals.

Other Ways to Restrict Additions to Houses

The Historic Districts do not forbid additions to rental houses, but these must conform to the guidelines set out by the Historic District Commission and the Secretary of State’s Office, and require ‘certificates of appropriateness’ and hearings before the commission.