City Council Meeting Date: May 20, 2025
To: Mayor and City Council
From: Jake Reilly, Community Development Director
Melissa Hanson, Housing Coordinator
Risi Karim, Assistant to the City Administrator
Mike Morehouse, Building Official
Mikayla Schmidt, City Planner
Title
Second reading of ordinance updating Chapter 34 - Land Development Code related to rental licenses, tenant protections, and affirmatively furthering fair housing
Body
Action Requested:
Consider second reading of ordinance to amendment Chapter 34 - Land Development Code related to rental density and short-term rental licensing and registration.
Summary Report:
The City of Northfield continues to be a growing community, and, like the rest of the country, the city is seeing an increased demand for all types of housing and a limited supply of housing of all types. Two ordinances are presented to address life-safety concerns and economic development and housing security concerns associated with rental properties.
Background:
Thjs is the Second Reading of this ordinance. The first reading passed unanimously by consent agenda at the May 6th City Council meeting. The following background was provided previously and included again with the second reading.
Background
To ensure safe and healthy housing for all, the city initiated a review of the City’s rental housing licensing program in 2019. This evolved to include amending other related ordinances, including strengthening of the city’s nuisance codes and enforcement tools, including hiring sufficient qualified staff to implement and enforce the code requirements. 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 existing 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 recommended for consideration in Phase II include:
• Addressing the limitation on rental properties in certain areas of the city.
• Defining short-term rentals and adopting a licensing and registration process and related ordinance regulating short-term rentals.
• Reviewing successful inclusionary housing ordinances in other cities.
• Considering a tenant protection ordinance.
• Reviewing successful source of income protection regulations in other cities.
At the August 1, 2024, HRA meeting, staff introduced concepts and language associated with the above policy/ordinance considerations. In November 2024, additional information was prepared and shared with the HRA board. Based on the feedback received, staff have prepared the first two ordinances to address the limitation on rental properties in low-density neighborhoods and addressing licensing short-term rentals.
Limits on rental properties in low density neighborhoods
To address the limitation on rental properties in low-density neighborhoods, staff 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 and R2) 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 to accommodate a growing student population, neither college plans to allow more than 50 students to be housed in off-campus, nor in-town housing in any given academic year. Both colleges have undertaken significant strategic facility planning with an eye toward strengthening the ability to ensure that all admitted students can live on campus.
Unfortunately, the restriction has also unintentionally resulted in fewer rental units being available to the general public and has resulted in renters living in relatively unsafe conditions (including, recently, 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.
The staff recommended removal of the 20% limitation on licensed rentals in the R1 and R2 districts was endorsed by the HRA Board, the EDA Board, and the Planning Commission. 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 and inequitable situation for renters and property owners alike. Staff is confident in the City’s ability to continue 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 defined in state law as residential units being rented for fewer than 30 days at a time. These units can be entire homes, a portion of a home, or one or more units in a multi-family building, or residential units attached to or within a commercial building. Short-term rentals can serve as a viable alternative 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.
More recently, STRs have become a substitute for traditional vacation and business travel lodging such as hotels, motels, and bed and breakfasts and are typically listed on as those listed on third-party “accommodations intermediary” such as “Air BnB” or “VRBO.” In 2008 the City of Northfield adopted its own statutorily permitted 3% lodging sales tax which applies to rooms “rented” for 30 days or fewer, including hotels and motels and short-term rentals.
When the city is not able to register short-term rentals, it limits the ability for the Northfield Convention and Visitors’ Bureau (CVB) to collect the 3% lodging and related service sales tax that applies to other hotels and motels in the city limits. The Minnesota Department of Revenue also collect sales tax from those who own/manage/maintain short-term rentals and other similar lodging facilities. This is a specific sales tax associated with “lodging and related services” allowed by state statute.
The City is not responsible for facilitating the transactions related to the sales tax, nor is it responsible for retail registrations, other than establishing a form and a process for the property owner to remit taxes to the City. Most property owners in Northfield who are aware of the 3% sales take submit the form and the tax revenue is returned to the CVB. All responsibility for the computation, collection, and remittance of the sales tax belongs to the property owner and/or a third-party accommodations intermediary. The sales tax itself is paid by the consumer along with any other relevant fees. 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. This has the potential to create 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 safety in a standard rental unit. The proposed ordinance is crafted to ensure these life-safety concerns are addressed. Short-term rentals are held to the same standard as all licensed 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 residential 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.
Attachments
1. Draft Ordinance
2. PC Resolution 25-001 recommending ordinance for adoption
3. Background Presentation (pdf)
4. March 6, 2025 HRA Meeting Minutes - HRA motion of support for proposed rental ordinances.
Alternative Options:
N/A
Financial Impacts:
There is potential cost savings related to staff time to enforce rentals operating without a rental license. This provides a potential benefit of reducing life/safety concerns which can cause less need for fire and rescue services.
There is an anticipated increase in rental license fee “income” for the City and lodging tax revenue for the Northfield Convention & Visitors Bureau.
Tentative Timelines:
ü March 5, 2025: Public hearing notice published in the Northfield News; HRA reviewed, provided feedback, and passed a motion of support for both staff recommendations
ü March 20, 2025: Public testimony and review by the Planning Commission
ü March 24, 2025: Economic Development Authority reviewed, provided feedback and passed a motion of support for both staff recommendations
ü April 17, 2025: Planning Commission passes resolution supporting the staff recommendations and forwards ordinance to City Council
ü May 6, 2025: 1st Reading at City Council
May 20, 2025: 2nd Reading at City Council and summary publication
May 28, 2025: Summary Publication Published in the Northfield News
June 27, 2025: Ordinance takes effect