Condo Media - May 2012 - 27

by Nena Groskind

Rent District
Should Community Associations Restrict Rentals? The Debate Continues as the Numbers Grow

conomic strains are renewing an old debate in community associations — whether the investors who own units and the tenants who occupy them are less desirable and more problematic than residents who own the condominiums in which they live. This is really an ongoing debate that has been intensified by the increasing number of condominium owners who are offering their units for rent because they are unable to sell them at all, or unable to sell them for enough to cover their outstanding mortgage in the current market. While the single-family and condominium markets continue to struggle, the multifamily rental sector has been rebounding. High unemployment rates and tight credit standards have reduced the number of prospective buyers who are able to purchase homes; falling prices, and concern that they will continue to fall, are keeping many potential buyers who could afford to buy on the sidelines and in the rental market; soaring foreclosures have pushed many former owners into the rental market as well, increasing demand for apartments, pushing rents higher and increasing the appeal of rental units for investors. These trends are playing out in community associations, where investor

ownership rates have been rising and rental populations have been growing.

Incentives to Rent
“The rental market has been getting stronger,” Hugh Shaffer, PCAM, senior manager at G&G Management Company, says, “and investors are taking advantage of it.” Many boards have been responding to that rising tide in their communities by proposing bylaw amendments to restrict rentals or ban them altogether. But industry executives say owners, by and large, haven’t been embracing those plans — largely because they fear that they, too, may have to rent their units one day, and don’t want to put in place restrictions that might impede their ability to do so. Secondary market rules, which used to impose tight restrictions on investor ownership in community associations, have gotten looser as policymakers have sought ways to bolster the struggling housing market. Fannie Mae and Freddie Mac no longer insist, as they once did, that owners occupy at least 70 percent of the units as a condition of financing loans in a community. They now insist only that borrowers obtaining loans today occupy the units they purchase. The Federal Housing Administration (FHA) requires a 50 percent owner-occupancy rate,

which still leaves plenty of room for rentals in most communities. The major argument against rental restrictions — that they may restrict the marketability of some units, making it more difficult for owners to sell them — still stands. But it’s not the only one. Restrictions are difficult to administer and even more difficult to enforce. Someone has to keep track of the percentages and verify that owners who say they are occupying their units are actually living in them. “It becomes an administrative nightmare,” one manager notes. In an effort to ease the impact of rental restrictions on owners who might be forced to rent, some communities adopt “hardship exemptions,” but these can be problematic, too, Janet Aronson, a partner in the Massachusetts law firm Marcus, Errico, Emmer & Brooks, notes. The definition of a hardship is “subjective,” she says, depending on the attitudes of the board members enforcing the rule. She recalls one situation in which owners built a new home, but then found they couldn’t sell their unit and wanted permission to rent it. The board refused, concluding that they had created their own “hardship” by building before they sold, and so they didn’t qualify for the exemption. A court battle ensued.

CONDO MEDIA • MAY 2012

Condo Media - May 2012

Table of Contents for the Digital Edition of Condo Media - May 2012