Here is what the St. Paul City Council should do about its rent control ordinance

Early September, the St. Paul City council is expected to decide on what to do regarding the city’s heavily debated rent control policy. As reported by the Star Tribune,

Dozens of tenants, landlords, developers, labor unions, nonprofits and other community members have written to council members and on Wednesday packed the council chamber for a three-hour public hearing, making a range of conflicting claims and pleas to the seven-person elected body.

On the one hand, developers and other city council members want to change the policy.

More than a dozen local developers wrote to council members saying the existing policy has prompted financiers to pause or cancel projects in St. Paul, which is already experiencing a housing shortage.

“If the City is unable to fully repeal the rent stabilization policy adopted in November 2021, it must swiftly amend the ordinance in order to neutralize the negative impact and disinvestment stemming from this policy,” wrote Maureen Michalski, vice president of real estate for Ryan Cos., which has paused some housing projects on St. Paul’s Highland Bridge development.

But renters and advocates for the policy want to keep it the same

But even more tenants, including those who campaigned for the ordinance, urged the council not to alter the law that voters said they wanted. Exempting affordable units and new construction would remove protections for thousands of St. Paul renters, they said.

“Tenants who live in affordable housing are disproportionately low-wealth, BIPOC, disabled, queer, immigrant, elderly, and families with young children — these are the people who need renter protections the most,” wrote Kristine Knoll, a 75-year-old renter who said her fixed income cannot keep up with rent increases above 3%.

The St. Paul Rent Stabilization Stakeholder’s Group — which was tasked with studying the policy in order to explore ways of “improving and enhancing” it — has made numerous recommendations on what to do about the policy as well.

While the group recommends keeping the 3 percent cap, it recommends adding a provision for a reasonable rate of return, which would allow landlords to pass through some costs to landlords. The group also recommended exempting new construction on a 15-year rolling basis, enacting partial vacancy decontrol, and allowing landlords to bank rent increases below 3 percent.

So between tenants, landlords, and the stakeholder’s group, the St. Paul council has a lot to work with. But what do experience and research say about all of this?

Research evidence is clear

Research evidence is clear on rent control. In cities where such kinds of policies have happened, only disaster has followed. As we outlined in our report published last year, rent control does not work as intended because it

  • Reduces the quantity and quality of housing supply
  • Heavily subsidizes housing for middle- and high-income renters
  • Reduces the mobility of renters
  • Leads to housing misallocation
  • Reduces property values and erodes the property tax base

Some of these things have already happened In St. Paul. Housing permits are already significantly below where they were before the policy was enacted, yet not even a year has passed since the ordinance became active in May this year. Numerous housing projects have also been paused since rent control passed. And not to mention that about $1.6 billion in property value has also been lost due to rent control.

In the face of such harmful consequences, the least that the St. Paul City Council can do is make the policy more accommodating. This can be done by implementing provisions that most other places with rent control tend to have. These provisions include:

  1. New construction exemption,
  2. High rent hike caps indexed to inflation, and
  3. Vacancy decontrol

The St. Paul ordinance allows landlords to raise rents by more than 3% and up to 8 percent provided that they certify that they will not meet a reasonable rate of return if they cannot raise their rents past the 3 percent cap. Landlords can also request to raise rents by more than 8 percent, but those applications prompt reviews of financial records.

But such an exemption process has its own issues. For one, it is costly for landlords to go through, and costly for the city to enforce. Landlords have already sued the city over complaints that it

does not employ sufficient staff to review requests for exemptions or hear “futile” appeals when those exemptions are not granted

The best thing for the city would be to raise the cap and have it apply uniformly over the entire housing market. That would solve both landlords and the city money, and reduce complexity.

Nevertheless, regardless of whatever amendments the City Council makes, the fact remains that nothing beats getting rid of the disastrous policy altogether.