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The Wrong Housing Answer in Saint Paul

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eye on the news

The Wrong Housing Answer in Saint Paul

Trying to combat a housing crisis, Minnesota’s capital city passes the strictest rent control policy in the nation. November 12, 2021
Economy, finance, and budgets
Politics and law

Voters in Saint Paul, Minnesota, recently approved the strictest rent control policy in the United States. While rent growth in the Twin Cities has been relatively modest over the past year, this measure comes after decades of rising rents and stagnant wages for the city’s low-income renters, whose support proved crucial in passing rent control. The ballot measure caps residential rent increases at 3 percent annually, with no allowances for inflation, new building, or new tenants. Barely a week after the vote, developers were already pausing projects across St. Paul.

The one-page rent control measure is just the beginning. City hall now needs to implement it. Yet even city council members don’t have answers to basic questions: Does the measure go into effect now, or in May 2022? Who’s in charge of regulating rent? What happens if you’re found to violate the measure? A city website meant to answer such questions was taken down within hours.

Mayor Melvin Carter has called on the city council to offer a “clarifying amendment” to exempt new construction from the measure, but it may be too late. Local laws prohibit ballot measures being changed or repealed for at least a year after passing. When Carter declared his support for rent control, he said it needed improvements but made the announcement only three weeks before Election Day.

To understand just how stringent St. Paul’s new rent control is, look west to Oregon, which recently passed its own rent measure. It exempts buildings less than 15 years old from rent caps and allows rent increases every year of up to 7 percent plus inflation. In most cases, Oregon landlords can raise rents once a unit becomes vacant—a so-called “vacancy bonus” meant to encourage owners to maintain their units’ quality.

By comparison, if the U.S. inflation rate of 6 percent were to continue, St. Paul’s 3 percent rent cap would effectively mandate that landlords lose money. Property owners can apply for one-time exemptions to the cap to earn a “fair return,” but there’s no sense of what that likely contentious process will look like. And assuming St. Paul’s rent control doesn’t come into effect until May 2022, landlords will want to hike rents as much as they can, while they can.

The law is sure to inhibit construction. Ryan Companies, a local developer, announced that it has put three building projects on hold because funders were skittish over rent control. Developer Jim Stolpestad said he lost a major financial backer as well. “We, like everybody else, are re-evaluating what—if any—future business activity we’ll be doing in St. Paul,” Stolpestad told the Minneapolis Star-Tribune. With home values rising by double-digit percentages annually in the city, many property owners will likely be better off converting their rental units into condos to sell, even with a carveout for new construction. Rent control may well shrink an already-limited supply of rental housing in the Twin Cities. Over the past decade, the Minneapolis–St. Paul metro area has added nearly three new residents for every new housing unit permitted.

Nevertheless, rent control is gaining new allies across the country. Voters in neighboring Minneapolis authorized the city to pass rent control, though recently reelected Mayor Jacob Frey opposes the idea. Boston’s incoming mayor Michelle Wu supports rent caps, as do three-quarters of the city’s voters. Nationally, congresswoman Alexandria Ocasio-Cortez has been pushing for universal rent control, while many of her Democratic Socialist allies call for canceling rent altogether. And across the Atlantic, in Berlin, rent control has morphed into a voter-backed plan to socialize much of the city’s housing.

If the past is any guide, St. Paul’s strict rent control will backfire—resulting in fewer homes, enormous wealth transfers to current tenants at the expense of everyone else, and decaying buildings as maintenance dollars dry up. At best, rent caps deal with the symptoms of a housing crisis, not the cause: a lack of supply in the face of rising demand, leading to higher prices. The best answer to St. Paul’s—and America’s—housing shortage is to build more housing.

Photo by KAREN BLEIER/AFP via Getty Images

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