Minneapolis should learn from St. Paul’s rent control disaster
In early November, residents of St. Paul and Minneapolis chose to approve rent control ballot measures. Unlike Minneapolis, St. Paul’s ballot measure already included a specific proposal that caps annual rent hikes at 3%, covers all buildings, and does not allow vacancy decontrol –– whereby landlords can resent rents to market levels once a tenant vacates.
In our report, we warned that rent control has proven harmful to many cities that have enacted it. We especially emphasized the fact that St. Paul’s ordinance would be more harmful considering it is one of the most restrictive in the nation, if not the entire globe.
These warnings have come to pass, as can be seen with numerous developers pausing projects and Mayor Melvin Carter scrambling to make amendments that would prove more accommodating. However, signs prove that the worst might be yet to come for St. Paul residents.
According to Pioneer Press, one major development project in St. Paul has lost funding due to the city’s rent control ordinance.
A Minneapolis developer that had drawn strong criticism from Frogtown advocates over a proposed Lexington Parkway apartment building said the project plan has added deeper affordability, as housing advocates had asked for, but lost its major financing partner last week.
It’s unclear if that means the 304-unit Alatus project will fall off the table entirely, but a “for sale” sign remains on the Wilder Foundation’s long-vacant lot at the southwest corner of Lexington Parkway and University Avenue, a major transit corridor, after three years of planning.
The two acres of land have been on the market since at least 2012.
“We’re pausing and assessing,” said Alatus principal Bob Lux, on Monday. “We’re not saying it’s dead by any means. … We were ready to close last week.”
Lux and Chris Osmundson, the director of development for Alatus, said the city’s new rent control ordinance — approved by voters in November — has made investors skittish on the six-story, $70 million project, and the same holds true for other multi-family projects across the city. A major backer and two prospective funders have pulled out.
“Right now, our previously firmly committed equity partner has put their funding on hold indefinitely — $23 million — and two other groups have passed that had previously given term sheets on the project prior to the rent control ordinance,” Osmundson said. “Barring a substantive change to the ordinance, I would estimate the likelihood of the project moving forward (with that level of affordability) at less than 10 percent.”
Certainly, the passage of rent control in both cities is bad news. But while it might be too late for St. Paul, residents in Minneapolis still have a chance to escape the disastrous effects of rent control if their city council chooses not to bring Minneapolis’ rent control ballot proposition into reality. The Minneapolis City Council needs to watch closely what is happening in St. Paul.