Landlords, Neighborhood Reps, Lawyers to Meet Over Controversial Zoning Issue

Photo: An owner-occupied home (currently for sale) between two nonconforming rental houses in East Lansing.

East Lansing’s Planning Commission is set to take up the issue of nonconforming rental houses at its meeting tonight, following East Lansing’s City Council’s move last week to finalize membership of  a new ad hoc committee charged with making recommendations on this controversial issue. The goal of forming this committee is to address property owners’ desire to make significant improvements to these rental house properties, something the City is not currently allowing them to do. Mayor Mark Meadows told ELi today that the Planning Commission will be tackling the issue tonight specifically in order to give some guidance to the new committee.

The issue of nonconforming rental houses in East Lansing may seem to be about obscure zoning rules, but resolution (or lack of resolution) of the matter may ultimately affect important relations between town and gown, business people and East Lansing residents and City staff, East Lansing and State-level representatives, and homeowners and landlords who own properties in the old, near-university neighborhoods.

As a consequence, the stakes around this committee’s work are seen by many involved to be high. This article relays recent news about the committee-related controversies while also attempting to provide plain-language background to those unfamiliar with the nonconforming rental house story—including background on the players and their concerns.

What makes a rental house nonconforming:

As MSU grew in the second-half of the twentieth century, conversion of houses to rentals became a strong trend in the near-university neighborhoods, including Bailey, Southeast Marble, Oakwood, Chesterfield Hills, and Red Cedar. Students wanted to rent near campus, and so it became profitable for landlords to buy owner-occupied houses near campus and convert them to rental houses. Houses that were originally built in the 1800s-1950s to be homes for single families became rental houses with licenses to rent to four, six, or in the case of some very big houses, sixteen or more unrelated persons.

As the twentieth century grew to a close, with many nearby houses converting to student rentals, neighborhood destabilization became a major concern to many East Lansing homeowners and to the City. A series of zoning rules and regulations were put into place over the years to try to slow conversion and to maintain homeowner quality of life in these neighborhoods.

One of these, Ordinance 900, greatly restricted rental rights on single-family homes and turned many of the rental houses into “nonconforming” houses. A property “conforms” to zoning if it is being used as the zoning specifies it is supposed to be used. Ordinance 900 basically said that single-family homes in the areas we’re talking about should be owner-occupied or, if rented, rented to no more than two unrelated persons. By defining this as being what counted as a property “conforming” to zoning in these areas, Ordinance 900 made a large number of rental houses suddenly count as “nonconforming” in terms of zoning.

Ordinance 900 did what was intended: it dramatically reduced the economic incentive to buy owner-occupied houses and turn them into rental houses, because you could only rent them to, at most, two unrelated persons, which is not or not very profitable in East Lansing with most houses. Conversion of houses to rentals has been slowed dramatically by Ordinance 900 as well as through the use of other tools like rental overlay districts (which stop the issuing of new rental licenses).

To be clear, these nonconforming rental houses are being rented out legally by the landlords; nonconforming houses that already had licenses for renting to four, six, or more people before Ordinance 900 went into play still legally have those licenses. But the City is not allowing landlords to make certain kinds of improvements to nonconforming houses. That prohibition against certain improvements to nonconforming houses is the crux of the landlords’ beef with the current system, and is what they’ve been trying to undo.

What the landlords want the right to do:

Many rental nonconforming houses in East Lansing are owned and managed by locally-owned property management companies like Community Resource Management Company (CRMC), Prime Housing Group, and Hagan Realty. In an interview, Brian Hagan of Hagan Realty explained for our readers what happened to cause the rental nonconforming controversy:

“From 1997 [when Ordinance 900 went into effect] until 2011, we completed several remodel jobs ranging from interior re-configuring to complete second story additions” on nonconforming rental houses. “All of these met building and other applicable codes and were approved under the current zoning ordinance.”

But then, “in 2011 we were told by [City of East Lansing] staff that these type of improvements would no longer be allowed unless we brought the property into conformity, which would require the property be licensed for only two unrelated [persons] or a family. As you can imagine the economics of bringing a property into conformity don't make financial sense.”

Landlords want to make the kinds of improvements they were allowed to make prior to 2011. These include, for example, the addition of bedrooms and bathrooms, and significant improvements to kitchens. They are not asking to be exempted from the normal building permit process or from the rules of the Historic Districts; they are asking to be allowed to make the kinds of improvements owners of owner-occupied houses are allowed to make, in some cases literally next door to the landlords’ nonconforming rental houses. (This raises issues of property rights—why one owner can do something to her or his house that an owner of a next-door property cannot.)

Landlords say that when they want to make these changes—such as moving bedrooms from basements to newly-added spaces above ground—they are not seeking to rent to more people (typically students in these houses), but rather to provide better quality housing which will ultimately benefit the renters, the landlords (who can charge more), and ultimately the City taxpayers, because the improvements will mean property values increase and landlords pay more in real estate taxes.

Hagan explains, “We are not seeking an increase in density. We've been saying this since 2011. For example, a house that is currently licensed for four [unrelated persons] would remain licensed for four whether we reconfigure the interior or add on to the home. Also, any remodeling or additions would be required to meet all applicable building and zoning codes—just as a homeowner would be required to meet.”

Some owner-occupied homeowners in these areas are concerned, however, that the ultimate result of these changes could be that more renters move in, because they will not have to share bedrooms or bathrooms as much. An example: a house may now be legally rentable to four people but only in fact be rented by two, because it has only two real bedrooms and one bathroom. If a landlord were to be allowed to create two more bedrooms and more bathrooms, such a house might go from housing two to four unrelated persons.

Student renters also sometimes put more people in a house than are on their lease (something landlords and the City try to work against). They do this primarily to save money. Some homeowners fear that if landlords get the right to increase house sizes, with more bedrooms and bathrooms added, renters might be more inclined to take a house legally licensed for four renters and put six people in.

Thus the fear is that while the legal rental density of the area would not increase by giving the landlords what they want, the actual number of renters in neighborhoods might increase.  Homeowners fear more renters may mean more cars, more traffic, more noise, more parties, and thus lowered quality of life and property value.

Additionally, some homeowners in these areas believe that there should be economic pressures, such as the restrictions currently in place, to try to incentivize conversion of these houses back to owner-occupied; they say that was the whole point of using Ordinance 900 to designate these houses as “non-conforming”—to cause landlords enough financial pressure to eventually give up the properties as rentals and sell some of the houses to people who will live in them.

Those who say this is a goal of the existing rules recognize that there are some areas where this will never happen, because the area has already converted so heavily towards rental and/or commercial properties. Some support rezoning those heavy-rental areas to make the rentals conform by virtue of a zoning change. Some have also suggested there should be “license exchange” programs that consolidate rental licenses away from primarily owner-occupied neighborhoods. Critics of the license-move idea say that will lead to “student ghettos” and failure to help students learn how to be good neighbors.

Meanwhile, some who support giving the landlords the right to make the improvements they want to make say that if there is any chance the houses will convert back to owner-occupied, the chances are improved by letting landlords make the properties more attractive by improving kitchens, adding bathrooms, etc.

So the issues are complicated, and while the landlords appear fairly united in their views, the homeowners in these areas are not.

Actions so far on this issue:

In 2014, after several years of the landlords objecting to the 2011 change in practice, the City convened a group to examine this issue, including landlords and representatives from the five most-affected neighborhoods. (I was one of the representatives for the Oakwood neighborhood, and Hagan was also in the group, as a landlord.) The group was officially convened only twice, however, and the City staff’s resulting report to the City Council resulted in no action.

As a consequence, frustrated East Lansing landlords moved on to appeal to the Local Government Committee of the Michigan House of Representatives to pass legislation (known as HB-5041) that would give the landlords the rights they want to make changes to their rental nonconforming properties. (Read more.)

Newly-elected Mayor Mark Meadows managed to convince the House Committee to let East Lansing try to work out a solution. (Read more.) This past week, East Lansing’s City Council officially appointed a new group to examine the matter by passing a resolution. The group includes:

• Doug Jester as Chairperson; Jester is a former mayor of East Lansing and a resident of downtown’s City Center I condominiums.
• Brian Hagan as Vice Chairperson; as noted, Hagan is a co-owner of Hagan Realty, which owns many houses of the type we are talking about.
• Dan Bollman, homeowner in the Bailey Neighborhood who is also a Planning Commissioner.
• Davia Downey, representing the Housing Commission.
• Nancy Marr of Prime Housing Group, a major landlord in East Lansing.
• Alex Noffsinger, the University Student Commission Appointment.
• JoAnn Russell, Red Cedar homeowner and former president of the Red Cedar Neighborhood Association.
• Sally Silver, Bailey homeowner and former president of the Bailey Neighborhood Association.
• Michael Lawrence, faculty at MSU School of Law and Oakwood homeowner. (Disclosure: Lawrence is the Board Treasurer for ELi.)
• Kathleen Boyle as alternate; Boyle is a Red Cedar homeowner, lawyer, and former member of the Council.

The group is set to start meeting January 22.

In his comments to me, Hagan asked me to point out that “we are not just landlords, we are lifelong residents, our kids go to school here, we are part of this community in many ways. I think most readers know that, but I just don't want to be painted as some landlord that is just here to get as much out of my rental as possible as I've heard stated in some meetings (not by you).”

This point was echoed in the comments to Council this past week by landlord Nancy Marr of Prime Housing Group. She told Council that her parents founded Prime Housing Group in 1978 and that it is a locally-owned, family business. While many of the big apartment complexes are owned by companies that are headquartered elsewhere and whose owners do not live locally, many of the owners of rental nonconforming houses are lifelong residents of the East Lansing area and own longtime family businesses headquartered here.

Why landlords are concerned about the work group plan:

At Council this past Tuesday, Marr also spoke during public comments to express her concern about whether there is really a “good faith effort” to address the landlords’ concerns with this group. She said she appreciated being invited to serve on the committee but hoped there was going to be an “open-minded approach to this issue.”

Marr said it was unfair that rental property owners were barred, by the 2011 staff reinterpretation of the rules, from making the very kinds of changes to their properties that homeowners next-door could make to their properties. She requested that a trades inspector be added to the working group. To this, Mayor Mark Meadows said that City staff could not officially serve on the committee but that a trades inspector would be asked to join the group for advising.

Marr also suggested adding another person from the business community to provide the perspective of a business owner trying to work with the City of East Lansing. (Many business owners have said it is very difficult to work with the City on certain matters, including on rental properties.)

Marr pointed out that there are some “rental nonconforming” properties that are badly in need of updating in areas that have very few if any owner-occupied houses. She asserted that the zoning rules make little sense at this point. Marr said that there is already plenty of data available for the City to consider with regard to what negative or positive changes occur from various rules and regulations. (Hagan agreed in our interview, telling me, “It has been nearly eighteen years since ordinance 900 was implemented and there is no evidence to support the theory that rental homes will revert back to family homes. Furthermore, there is no evidence that shows the additions/remodels we have done since ordinance 900 was passed have had any negative affect on the neighboring properties or the community as a whole, in fact, it's quite the opposite. Improvements to rental homes have led to increased tax revenue and increased property values in addition to safer, more desirable living conditions for tenants.”)

When the committee-organizing resolution came up on the agenda last week, Councilmember Susan Woods echoed Marr’s concern about low landlord representation on the committee. She moved to add Mark Fisk, a landlord and President of the Glencairn Neighborhood Association, to the Committee. She received support for this motion from Councilmember Shanna Draheim for purposes of discussing the matter.

To this, Meadows spoke, saying he had told Hagan that there was “no attempt to stack the deck.” He said that Bollman, the Planning Commission representative, had expressed public sympathy for the landlords on this issue, and that Alex Noffsinger, the University Student Commission Appointment, had testified in favor of the House bill, HB-5041, that would have given the landlords what they sought.

Meadows said, “I can’t figure out why anyone would think this is a stacked deck.” He said he was “surprised some neighborhoods have not said this is tilted in favor of the landlords.” He opined that “everyone will come away a little unhappy and that is the way the system works best.” He said he wanted to give the process “a chance to work.”

After Meadows said that Jester, who will be chairing the committee, had not expressed concern about the composition of the group, Woods withdrew her motion to add Mark Fisk, and Draheim withdrew her second of the motion.

I asked Brian Hagan if he was satisfied the deck is not “stacked” against landlords. He replied, “I have nothing against the committee members personally. I believe each of them will be good representatives of their neighborhoods, commissions, and areas of expertise. The concern with the makeup of the committee was, and remains to be, that there are only two landlords out of nine total committee members. Landlords are affected the most and the committee should reflect that.”

Additional debate about law professor appointment:

One of those named to the new committee is Mike Lawrence, who, as noted above, is a law professor at MSU. At Tuesday’s meeting, Draheim raised a question about a 1998 publication by Lawrence on amortizing rental non-conforming uses that, as she put it in a brief follow-up interview with me, “has caused concern by landlords (and others I think) that he is pretty anti-NCU [non-conforming use].” She added she didn’t have an opinion about whether Lawrence is or isn’t “anti-non-conforming use,” but wanted to note that some had raised concerns.

Asked about this publication by e-mail, Lawrence explained the so-called “amortization approach,” where a city undertakes to establish a reasonable period of time—maybe even decades—intended to allow non-conforming property owners to "recoup" their investments. This allows them financially to satisfy their "expectation-interest"—to have enough time to make reasonable money over the years through their investment.

After that set time elapses, under an amortization approach, the nonconforming uses would terminate, meaning that the landlords could no longer have an exception to the area’s zoning for those properties. (Again, the City might otherwise decide to change the zoning of an area to fit the actual use of properties in the area, in which case the properties would no longer be “nonconforming” because the zoning would have changed.)

In the email interview with me, Lawrence questioned whether this amortization technique would even be used in East Lansing: “Even where allowed by law (not in Michigan), such an attempt to amortize rental properties would involve serious policy discussions and political disputes.”

It’s unclear whether this will be one approach considered by the committee.

Chairperson Doug Jester’s take:

Asked by email, after last week’s Council meeting, about the landlords’ concern that they are outnumbered in the group, Committee Chairperson Doug Jester told me, “I intend that the committee process and report will be structured so that Council will be informed of the views of each committee member on each recommendation so that Council can give the weight they choose to the views of landlords and other stakeholders represented on the committee.”

I also asked Jester whether he thinks there will be a way for the committee to come up with proposals that will address the landlords’ concerns in a way that is amenable to most owner-occupied homeowners in the affected neighborhood. Jester said the group has “a difficult assignment on an issue where there are genuinely conflicting interests. I am sure we will be able to identify significant areas of agreement but I do not anticipate consensus on all issues.”

Jester added, “I expect all members of the committee will approach this task with good will and assuming good will on the part of other committee members. I encourage other members of the community to make the same assumption.”

The meetings will be open to all those interested. Said Jester, “All of our meetings will be public and will provide opportunity for comment. We will focus our first few meetings on ensuring the committee have a shared body of information about the current policies and related issues and will then begin deliberating. Interested members of the community will be most effective if they learn along with us then comment as we begin deliberations. We will try to make that opportune time to comment clear in our meeting announcements.”

State-level pressure remains:

Whether or not the East Lansing committee makes progress on this issue, at least some of the landlords intend to keep trying to find a remedy at the State level. Hagan told me, “We are still working with [State House] representatives to pass HB-5041.”

He explained, “We have been actively trying to solve this issue at the local level for nearly five years. We will participate in the current effort to address the issue, but there are no guarantees that the committee will adequately address the issue or that council will adopt the committee’s recommendations, therefore we feel it is in our best interest to continue to seek approval of HB-5041.”

As noted above, Planning Commission is expected to take up this issue tonight at its meeting. ELi will continue to follow this story.