HRA Meeting Date: March 6, 2025
To: Members of the Housing and Redevelopment Authority
From: Melissa Hanson, Housing Coordinator
Jake Reilly, Community Development Director
Risi Karim, Assistant to the City Administrator
Mike Morehouse, Building Official
Title
Presentation on proposed rental ordinance changes to be considered by Council.
Body
Action Requested: The HRA will receive a summary presentation on proposed changes. While a recommendation from the HRA is not required, it would be appreciated and shared with the Council. The HRA is being asked to make a motion of support for the attached ordinance changes.
Summary Report:
The City of Northfield continues to be a growing community and, much like the rest of the country, the City is seeing an increased demand for all types of rental housing and a limited supply of housing of all types.
Background:
To ensure safe and healthy housing for all, the City initiated review of the City’s rental housing licensing program in 2019, which evolved to include amending other related ordinances, including strengthening of the city’s nuisance codes and enforcement tools. Those amendments were considered by the HRA in March 2022 and adopted in April 2022 in Ordinance No. 1031. To develop the ordinance, staff worked with consultants from WSB and city attorneys from Flaherty & Hood, P.A. to:
• Assess the weaknesses and strengths of the current rental housing licensing program.
• Identify goals for the new version of the program.
• Review successful programs in other cities.
• Revise the City Code to accomplish the changes.
• Develop supporting documentation for the program.
During this assessment and revision process, the group identified a lack of flexible enforcement tools as one of the significant weaknesses of the current program. In response, the project’s scope expanded to include a review of the City’s nuisance codes and enforcement tools. Since the revisions in April 2022, the rental housing licensing and inspection program and related nuisance ordinance and code enforcement program has been an asset and benefit to the City. Through that same process, a second phase of updates and housing-related ordinances was identified. The policies/ordinances requested for consideration in the Phase II recommendations included:
• Addressing the limitation on rental properties in certain areas of the city,
• Defining short-term rentals and adopting a licensing process and related ordinance regulating short-term rentals,
• Review successful inclusionary housing ordinances in other cities,
• Consider adopting a tenant protection ordinance; and
• Review successful source of income protections in other cities.
At the August 1, 2024, HRA meeting, Staff introduced concepts and language associated with the above concepts. In November, 2024, additional information was prepared and shared with the HRA board. Based on the feedback received, staff has prepared the first two ordinances to be moved forward to the Planning Commission and City Council:
• Addressing the limitation on rental properties in low-density neighborhoods
• Address Short-Term Rentals
Limits on rental properties in low density neighborhoods
To address the limitation on rental properties in low-density neighborhoods, staff has prepared updated language to an existing City ordinance, Ord. No. 883, adopted August 18, 2008. A version with changes shown in strikeouts (removed text) and underlines (new text) and a clean version are attached.
In the mid-2000s, when both colleges were struggling with housing all admitted students on campus, the City adopted a policy limiting college rentals in the low-density neighborhoods (zoned R1) surrounding the colleges. During the past five years, both St. Olaf and Carleton Colleges have made concerted efforts to house 95% of their respective student populations on-campus. After significant building projects associated with student housing on both campuses, neither college expects more than 50 students to be housed in off-campus housing in any given academic year. Both colleges have undertaken significant strategic facility planning with an eye toward strengthening the ability and interest of students in living on campus. Unfortunately, the restriction has also unintentionally resulted in fewer rental units available to the general public, and has, sadly, resulted in renters living in relatively unsafe conditions (including a fire in a residence), because while it might not be legally permissible for the units to be rented without a license, it can also be a financial hardship for a property owner to maintain a vacant home for an extended period of time.
Staff recommends removal of the 20% limitation on licensed rentals in the R1 districts. The Building department’s experience with license holders and renters is that the limit is artificially and unnecessarily limiting the supply of rental housing available in Northfield and may pose an unsafe situation for renters and property owners alike.
A second option has also been prepared for consideration by the HRA and the Council. This alternative draft offers the following policy change highlights:
• Clarifying the definition of block face.
• Exempting owner-occupied/homesteaded properties from the 20% limitation.
These amendments will at a minimum potentially double the number of rental units available in the most walkable portion of the city. However, the preferred recommendation of staff is elimination of the restriction. Staff is confident in the City’s ability to address any nuisance or health and human safety-related problems in rented units citywide, given the success of the nuisance and property abatement programs over the last several years.
Short-term rental license ordinance
Residential short-term rentals (STRs) are generally defined as residential rental units being rented for fewer than 30 days at a time. These units can be entire homes, a portion of a h9ome, or any other property used for a temporary place to stay or live. Short-term rentals can serve as a viable alternative to an Accessory Dwelling Unit for additional income for property owners, including those who have a homestead exception on their property taxes because they live in the home most of the year.
Within the last decade, however, STRs have exploded as a substitute for traditional vacation and business travel lodging such as hotels, motels, and bed and breakfasts. State statute allows the Minnesota Department of Revenue to collect sales tax from those who own/manage/maintain short-term rentals. This is a specific sales tax associated with “lodging and related services.” When the city is not able to register short-term rentals, it limits the ability for the Northfield Convention and Visitors’ Bureau (CVB) to be allocated the lodging and related service sales tax. The City is not responsible for facilitating any of the transactions related to the sales tax, nor is it responsible for retail registrations. All responsibility for the computation, collection, and remittance of the sales tax belongs to the property owner and/or a third party “accommodations intermediary” such as “Air BnB” or “VRBO.” For more information on residential short-term rentals and applicable sales tax rules, visit the state’s web site: https://www.revenue.state.mn.us/guide/sales-residential-short-term-rentals
Most importantly, without regulation and licensing of short-term rentals in Northfield, concerns regarding life-safety, regulation, enforcement, and consumer protection cannot be addressed, potentially creating a situation in which a property owner may be able to rent out a unit on a fewer-than-30-day basis that does not meet the City’s requirements for a standard rental unit. The proposed ordinance is crafted to ensure all life-safety concerns are addressed and that short-term rentals are held to the same standard of all rented residential units, regardless of the renter’s tenure, without placing undue burden on the City’s ability to maintain, review, and enforce the rental licenses.
The proposed ordinance:
• Defines short-term rental in Chapter 14 - Business and Chapter 34 - Land Development Code.
• Adds parameters common to the regulation and licensing of short-term rental units to minimize potential negative externalities related to having lodging-style facilities in residential neighborhoods.
• Licenses these rentals like any other rental property in the City. This process affords for neighbors and officials to address any potential violations. It also minimizes the burden on City staff to enforce such license and has the potential to prevent additional burden on city staff or resources regarding building, fire, and police protection and prevention.
The HRA is being asked to make a motion of support for the attached ordinance changes.
Alternative Options:
The HRA could recommend one, both, or neither of the proposed ordinance updates. The HRA could also recommend adoption of the ordinances by Council with identified comments and feedback for consideration.
Financial Impacts:
Potential cost: Staff time
Potential benefit: Reduction in life/safety concerns, rental license income; lodging tax revenue for CVB
Tentative Timelines:
March 6, 2025 HRA review, feedback, motion of support
March 20, 2025 Planning Commission public hearing and review
April 8, 2025 City Council work session
April 17, 2025 Planning Commission resolution
May 6, 2025 First reading at City Council
May 20, 2025 Second reading and summary publication
June 29, 2025 Ordinance in effect