Single-family homes in Minneapolis and nearby cities are turning into rental properties at such a fast clip that public officials are alarmed.
For rent: A lot more single-family homes in MInneapolis
By STEVE BRANDT, Star Tribune
April 16, 2008 at 8:01PM
The change means homeowners are more likely to have renters for neighbors. It also brings worries that the housing stock will wear out faster and neighborhoods will be more transient. It requires more city inspections to prod landlords to keep up their properties.
"It'll take us a decade to dig out of this, even if we have the tools," Minneapolis Council Member Gary Schiff said Tuesday.
Non-homestead property traditionally has made up less than 8 percent of the Minneapolis single-family housing stock.
But in a six-year trend that predates the recent wave of foreclosures, that's shot up to 18.6 percent. That's 6,400 more rental homes.
"It just precipitously jumps," said Hennepin County Commissioner Mark Stenglein. "I think that's alarming."
Some inner-ring suburbs, such as Brooklyn Center and Brooklyn Park, also note jumps in single-family rentals, and other data suggests a similar trend in St. Paul.
The change coincides with a change in state property taxes that lowered the tax burden on single-family rental homes, according to Minneapolis Assessor Patrick Todd. Others attribute the change to investors seeking alternatives to the stock market or homeowners simply not bothering to file for homestead status due to a diminished state credit.
Some City Council members called the increase shocking at a briefing on the city's 2008 assessments this week.
Schiff fears that having more rental properties means more wear-and-tear for the city's housing stock, which he calls one of Minneapolis' prime assets. He said that renters tend to move more frequently, weakening neighborhood ties.
The proliferation of rental property requires more licensing inspections. The city recently imposed a $1,000 fee on housing converted to rental use to pay for immediate inspections. The city has also moved to inspect problematic rental properties annually, reducing checks for those without problems.
In north Minneapolis, where foreclosures are highest, council members have warned of an even bigger wave of home purchases by rental investors. One company, Danna Investors, said it has already purchased about 40 properties there. Company official Julia Rozhansky said the investor group hopes to accumulate up to 300 North Side properties for rentals. Stenglein said he's concerned whether the company can manage that many.
The 2001 Legislature gave a property tax break to owners of single-family rental property. That significantly reduced the gap between what they and homeowners pay. Realtors argued that renters and homeowners shouldn't be taxed at different rates.
Minneapolis assessors argue that move encouraged investors to buy single-family homes. "Now you have investors competing with single-family home buyers," Minneapolis assessing manager Scott Lindquist said.
The effective property tax rate has narrowed significantly over the years, according to the Minnesota Department of Revenue. Statewide, single-family home rental owners paid 79 percent more property tax than homeowners in 1996; the gap is 15 percent now.
Todd predicted that the share of single-family rentals will continue to grow with foreclosures. The phenomenon has spread across the entire city, although it is most concentrated on the North Side.
North Sider Roberta Englund said she thinks that federal rental subsidies paid under the Section 8 program fueled the growth of single-family rentals. Englund, the chief staffer for two North Side neighborhood organizations, said some rental owners may claim homestead status, mainly intended for owner-occupants, even if they're not entitled.
Ramsey County didn't have comparable figures to Minneapolis on Tuesday. But looking at all residential property, including condos, townhouses and duplexes, the number of homesteads in Ramsey County slid by 3.6 percent between 2001 and 2007.
Homesteaded properties were down 6.4 percent in St. Paul, compared to a 3.5 percent drop in the same period in Minneapolis. Those drops came despite new construction.
In Brooklyn Center, the share of single-family homes that aren't homesteaded rose from 5.5 percent in 2005 to 11.4 percent for 2008.
Steve Brandt • 612-673-4438
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STEVE BRANDT, Star Tribune
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