Whaddaya mean no rentals allowed?
March 13th, 2009 | by mbhunter |Say you live in a subdivision. You bought your brand-spanking-new house only a couple of years ago. Today, you cannot afford to carry the house for whatever reason (job loss, move, can’t refinance, etc.)
“No problem,” you think to yourself. “I’ll just find a renter for it until the market turns around enough so that I can sell.”
Not so fast: Your homeowners’ association, or maybe your city, won’t let you rent it.
In the wake of lots of homes quickly becoming unaffordable by their owners, cities and HOAs have tightened no-rental rules, forcing homeowners either to occupy their home, or leave it vacant until it’s sold. Rules in some communities may have changed after observing a correlation between increased renter occupancy and disturbances, deterioration, and crime. Meanwhile, the mortgage payments for the strapped homeowners still come out each month, unabated, until they don’t. Then the home is foreclosed on. Joy.
I generally think HOAs have very little purpose in life except to provide an outlet for busybodies. Yet, if I support being able to work to my best interest, I have to let them do likewise. If the purpose of an HOA is to maintain common property, and hold up the valuations of the properties under its watch, then promoting owner occupancy rather than tenancy is what it should do. The fact that this is a reaction to large numbers of tenants coming in is a separate issue.
Banning rentals in this environment is a community’s way of buying time. The hope is that the curb appeal of the community can be salvaged, or even maintained, by sticking it to the homeowners who got caught with an upside-down house. (”You may get foreclosed on, but at least our subdivision won’t be degraded to a row of rentals.”) I can see that once a subdivision gets a lot of rentals in it, it’s hard to turn it around. So this is a legitimate concern for the people who don’t intend to move.
Nonetheless, I think this will backfire on communities. There’s only so much time that can be bought this way. There are still many, many adjustable-rate mortgages that will reset. The foreclosure bailout is a drop in the bucket. Holding a homeowner’s feet to the fire and preventing her from renting out her house will increase the likelihood that she’ll be foreclosed on. Some would-be buyers are investors, and they’ll be reluctant to buy if they can’t use the property as easily to produce income. Though rentals aren’t desirable, vacant houses are less desirable, and more attractive still to vandalism and squatting. Insurance against loss on these houses is prohibitively expensive, if it can be gotten at all.
This may turn out to be a huge, horrific game of musical chairs. Make it difficult for homeowners to stay afloat, and you (a community or a subdivision) may either get more foreclosures and more vacant properties, or fewer foreclosures and more owner-occupants. It all depends on when the music stops: strapped homeowners run out of money. Or, you might opt out of this game, and accept renters into your community. The cost of doing this is knocking down the desirability of your community a notch or two.
In any case, it will be exciting how it plays out. (”Exciting” doesn’t always mean “fun,” unfortunately. A rollar coaster is exciting, until it derails, and then it gets really exciting.)
6 Responses to “Whaddaya mean no rentals allowed?”
By ChristianPF on Mar 13, 2009 | Reply
that is pretty interesting – I think this whole difficult real estate market is going to turn lots of things upside-down. All the foreclosures (and in the nice part of town) is going to lead to some mix ups of demographics a bit…
By Best CSS Gallery on Mar 13, 2009 | Reply
Well, interesting indeed how it will come out
By mapgirl on Mar 13, 2009 | Reply
A rental is WAYYYYYY better than a vacant property. I don’t see why cities aren’t allowing them. I can understand why an HOA doesn’t like it for a large condo b/c it reflects poorly on them if they aren’t owner-occupied, but I think that’s stupid too if the building is half empty and owners can’t even afford their HOA fees.
I agree, in the long run these restrictions are a bad idea.
By Alison@This Wasn't In The Plan on Mar 15, 2009 | Reply
When we moved into our house, we had sign a paper saying that we understood that there were a large number of rentals in our neighborhood (invester-owned). Two years later, we’re fairly certain that if we could do it all over again, we would have turned around and ran away when we first saw that form.
But, I can see the flip side as well. There’s one vacant house in our neighborhood that has been vandalized, but several others that are in fine condition. Come to think of it, the condition of that particular vacant house is similar to some of the rentals around here.
This policy could definitely go either way, but based on my experiences, I’d choose to live in a neighborhood full of vacant and/or “for sale” signs over one that was full of “for rent” signs.
By repossessiongirl on Mar 18, 2009 | Reply
Hey there – I can see the problem – we have similar ones over here in the UK. Being a landlord, I ensure that I maintain good relations with all of my tenants. I also mail the neighbours round each property and ask them to inform me of any unsavoury behaviour. I do not want my buy to let emporium ruining someone else’s dear green place.
I think that all landlords have enormous civic responsibility. they should not just be in it for the greenbacks.
By personal finance deals on Mar 19, 2009 | Reply
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.