Legal Briefs

Dean v. City of Winona

By Erick Kaardal, Daniel Frank and Ilya Shapiro
July 26, 2014

Since 2005, the City of Winona, Minnesota will not grant rental licenses to property owners if more than 30 percent of the lots on their block already have rental licenses (the “Rule”). The Rule contains a “grandfather clause,” however, that allows property owners who had licenses prior to the Rule to continue renting even if their block has already reached the 30 percent threshold. Therefore, many blocks in the City violate the Rule, which the Minnesota Supreme Court is now reviewing. Cato has filed an amicus brief, joined by the Minnesota Free Market Institute at the Center of the American Experiment, supporting the property owners challenging the Rule. We argue that the Rule is an arbitrary, inefficient, and unconstitutional restraint on an essential and fundamental property right because it strips property owners of their right to manage and enjoy their property due to the actions of their neighbors. The Rule also damages communities by reducing property values and creating inefficiencies in the local economy and housing market without a substantial government interest. First, the Rule is a significant intrusion into the fundamental rights of residential property owners because it denies the right to rent — one of the three principal ways to use a property — and significantly limits the right to sell. In addition, since the Rule restricts fundamental rights, it needs to be tailored to achieve a legitimate government interest to be held valid — but the Rule is both over-inclusive and under-inclusive. Second, the right to rent is too important to restrict with an arbitrary limit on rental licenses. The Rule isn’t an effective way to protect “community character” — its purpose according to the City — especially given the fact that the law has many exceptions and is applied arbitrarily. For example, the Rule favors currently licensed property owners and encourages them to add rental properties to their lots, thereby defeating the asserted goal of avoiding rental clustering. Finally, the Rule harms communities by artificially depressing property values and increasing the probability of vacancy. It further fails to rationally address the City’s other concerns. For example, one of the Rule’s ostensible purposes is to reduce student-housing-related nuisance complaints, but it still allows large groups of students to live together in “theme houses.” For these reasons, the Minnesota high court should reverse the lower courts’ ruling and protect the full constitutional rights of Minnesota property owners.

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