Image: Home for rent © David Joel, Photographer's Choice, Getty Images

As the number of renters trends up, a few cities have started enacting "rental density" limits that restrict the number of rental properties in a given area. For example, in West St. Paul, Minn., an area that's been severely battered by foreclosures and falling home values, a law permitting no more than 10% of homes on a block to be rentals went into effect on Jan. 1.

They argue that neighborhoods can hit a tipping point at which the number of renters pushes down housing values, decreases property upkeep and negatively affects community involvement. But opponents say that there hasn't been much study of those assumptions and that limiting rentals creates its own problems.

The data so far have been less than conclusive. A 2003 study (.pdf file) in the Journal of Housing Research, for example, reported a possible link between high homeownership rates and higher home values, although researchers noted that confounding variables make it hard to estimate cause and effect. Back in 1987, a team of researchers from the Urban Institute looked at whether having too many rentals hurts values and found that homes in places where more than 30% of properties were renter-occupied sold for less money. And a 1997 study in the journal Environment and Behavior indicated that homeownership by low-income families had a positive impact on their participation in neighborhood and block association meetings.

But a team at MIT concluded in April 2005 that the introduction of large-scale, mixed-income rental developments in single-family neighborhoods did not affect surrounding home values.

Despite conflicting reports, several municipalities have enacted the rental restrictions, including the town of Madison, Miss., which in 2009 banned all rentals. In West St. Paul, Mayor John Zanmiller defended the city's recent 10% limit to the Minneapolis Star-Tribune, saying, "Our concern is that Fannie and Freddie are going to start dumping bundles of properties." The rental limit, he added, will "ensure that there are not huge clusters of rentals popping up in one particular block or in one particular area of the city."

But rental limits could actually cause more neighborhood blight than they solve. Take the case of Honey and Bryan Stempka, 36 and 31, who bought a three-bedroom house in the university town of Mankato, Minn., in 2008 for $145,000. Earlier this year, they moved to northwestern Pennsylvania to be closer to family, but the Minnesota house won't sell. Normally, they would look for a renter, but they can't because of a local rental-restriction ordinance. With many of her neighbors mailing in their keys and walking away, Honey Stempka says they're trying to do the right thing but aren't sure how much longer they can continue to make payments on a vacant house.

Some homeowners are fighting back and filing lawsuits contending that restrictions like that in West St. Paul are intrusive and may drive more of them into foreclosure. "Renting your property is a legitimate and historical property right," a lawyer for one of them told the Star-Tribune.

One middle-ground option is a provision adopted in West St. Paul that grants two-year "rent licenses" to homeowners who are trying to sell. But even that ignores the bigger picture: Homeownership is trending downward, and giving people more flexibility in their housing choices could be good for a recovering economy since it helps them move to where the jobs are. In the past, strong housing codes, noise limits and public nuisance ordinances have all helped keep home values up and landlords in line -- but they require the willingness to enforce them.

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