The Landlord Lens - Understanding Rental Occupancy Laws

Episode Date: October 11, 2024

Occupancy laws affect rental properties in a number of states, and some of those laws are being struck down. Colorado recently struck down its "U+2" occupancy limit, and here the TurboTeam talks through the pros and cons of occupancy laws from a rental perspective.

I'm Jonathan, this is Krista, and we're here to help you be a better landlord. All right, Krista, we are here to talk about occupancy laws. So, what is an occupancy law? An occupancy law limits the number of people who can be in a property. Typically, this applies to rentals more than general homeownership, because landlords care more about who's in the property than a homeowner inviting people in. There are quite a few arguments for and against occupancy. limits, but we just saw a big move with Governor Jared Polis here in Colorado, who signed

HB 24107, really rolls off the tongue, into law this spring. It is now going into effect shortly. So there's a lot of conversation stirring up, not just in Colorado, but nationwide, about what to do with occupancy limits. Absolutely. So here in Colorado, let's focus on that one, since you mentioned it. We had occupancy laws. What were those laws? So informally-known, as U plus two. These really took off in about two dozen different either counties or cities in Colorado, but really specifically affected college towns. The idea was that a tenant could only live with two other people who are not related to them or married to them, which means that you could have a six-bedroom house and only three tenants in there. Obviously, that's not ideal, but there are

some concerns about what could happen if you eliminate occupancy limits altogether. This law that has just been signed into action is not doing away with all limits. There are still limits based on sanitation and general upkeep of a unit, but it's not limited to only three people. Okay. So what are the other limits that are still in effect? So the standard limit that we see most often used actually came from HUD in the 1970s. The idea was that you should have a limit of two people per bedroom in a space. However, the reason that we're starting to have conversations about repealing that,

It's mostly due to the fact that it can become a discrimination point against different types of families, different groups of people, and it really cuts down on affordable housing by making the space less dense. Makes sense. And you mentioned college towns. I know this was a particular grievance for landlords in Fort Collins where Colorado State University is. Can you talk about why that matters for student housing? My alma mater. So this is actually something I have direct experience with. when I was a renter trying to find a place,

I was really struggling to find somewhere that I could afford, even though I had roommates who were willing to live with me, simply because you're limited to the number of people who can exist in a rental, no matter how many bedrooms are there. So on the landlord's side, they're missing out on potential revenue because they have all these rooms, but they can't fill them. And now there's going to be a shift

where we could see that rent revenue increase for landlords because they can choose to rent by the bedroom or otherwise open it up to big groups of people, making the housing more affordable and opening it up where you can make more revenue. And so this recent change is specifically Colorado, which is great because housing in Colorado has gotten very expensive, especially in some towns like Boulder or Fort Collins that are also college towns. Do occupancy limits exist elsewhere? Yes, absolutely. We are also not the first state to actually take action about making a change here. So Austin predated us, I believe in

2023 they pass their own resolution to get rid of occupancy limits or more accurately to reform them so they're not as strict. Similarly, Seattle has done the same thing. And these are not the only cities that are considering their options when it comes to occupancy limits. We're never going to completely eradicate occupancy, if only because it can become a health risk. A lot of places around COVID times actually we're starting to really enforce these laws and look at ways to strictly keep the numbers down because of the fear of spreading disease. So I think now that we're out of that more reactionary state, we'll see more of these changes coming out nationwide. It's also good for climate change. Speak more about that. Heck yeah. So one of the big issues that we're

facing as a country is the lack of affordable housing. One of the main solutions is to either build more housing or make better use of the housing that already exists. By allowing people to rent in bigger groups, we are making denser livable spaces, which means people can afford to live there. There's a space for them to go, and we are not exerting all of the different fossil fuels and other bad things in building new properties. Okay, so all of the things you have said make it sound like this is a great change. Are there any arguments against this change? Certainly. One of the ones that comes up specifically from landlords is the idea that we're going to clog up local areas, local neighborhoods, because their properties can't hold all of those people, or more accurately,

have all of those cars in the yard, and otherwise accommodate an increased number of residents. You see that same complaint coming from more affluent neighborhoods as well, where there's a concern that increased local traffic would become a detriment to their quality of life, which I would challenge. Speaking personally, the benefits of allowing more people to live in a space, assuming that it's safe health-wise, outweighs the risk of your neighborhood being a little less empty. It's okay if there are more people, and especially because this change would really help multi-generational families. There are so many different groups of renters that benefit. We all benefit because it helps the climate crisis. It seems like a win to me. It seems like the

would also help with traffic, you know? If people are, especially, we mentioned student housing being particularly affected here, if students are having to live farther from campus just because they can't get into any of the other ones, since they're all occupancy restricted, then they're going to be driving a lot more. Whereas now, they're going to hopefully be closer to campus. They can walk. Who knows? They could walk. Yeah, I am inclined to agree. So the local neighborhood traffic might increase, but I think the overall city traffic or overall area traffic would decrease. And it's really a matter of figuring out the best balance for everyone, but I think that these moves put us in the right direction. Awesome. Okay, so for landlords, say they still want to

restrict the number of people who can be in their rental unit. Do they still have that power? So you do, because again, it comes down to sanitation and making sure that everything is up to date with health codes and things. I would highly recommend getting in touch with your local HUD office just to ensure that any kind of verbiage you put in your listing or in your lease aligns with your local laws. But it's not like you have to allow everyone into your rental. You don't have to rent out a two-bedroom to 10 people.

Right. Just make sure that you communicate your expectations and have a really strong guest policy that you highlight, like lay out for your tenant so they understand what the limits are in terms of having overnight guests or people who are recurring visitors. Awesome. All right, well, thanks for talking occupancy laws with us.

If you out there have any of your own thoughts or experiences with occupancy limits, we'd love to hear them. Don't forget to subscribe. TurboTenant is the all-in-one platform for landlords to manage their rental properties. From vacancy to tenancy, we have you covered with industry-leading tools and expert advice. Landlord better, from anywhere.

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