Rent control reduced home values in St. Paul by $1.6 billion

St. Paul’s rent control ordinance is set to take effect beginning May 1. Yet there is no shortage of evidence showing how disastrous the ordinance has been. Housing permits are lower in St. Paul and housing projects are on pause.

Unfortunately, this is not all. According to a recent research study, in addition to reducing housing development, St. Paul’s rent control ordinance also reduced home values.

As the Star Tribune reports,

Early evidence suggests the passage of St. Paul’s new rent control law caused the growth rate of residential property values to lag behind other cities, according to an analysis of real estate transactions conducted by University of Southern California researchers.

While the city’s housing market remains competitive, with a shortage of listings driving prices up in recent months, economists Kenneth Ahern and Marco Giacoletti studied geographic and seasonal trends, building age, square footage and other variables to compare the change in St. Paul real estate prices following voters’ November approval of rent control to what other markets experienced during the same period.

They estimate that if voters had not passed a 3% annual cap on rent increases, residential property values would be 6-7% higher — a collective $1.6 billion.

“Prices tend to reflect what’s happening in the future,” Ahern said. “We know that in the future, rents are going to change. If I as an investor anticipate that, I’m not going to pay as much today for something that’s going to have less cash flows in the future.”

Ahern and Giacoletti used data from Redfin, an online real estate brokerage company, to look at nearly 150,000 Twin Cities-area transactions that took place between January 2018 and January 2022. The analysis focuses on one-to-four-unit properties and does not include large apartment buildings.

According to the study, while both owner-occupied and renter-occupied homes lost value, losses were more concentrated in areas with more rental property. Not to mention that these losses were also concentrated among individuals whom the ordinance was supposed to help — lower-income individuals.

Certainly, some tenants benefited from the ordinance. But this came at the expense of low-income property owners. As per the study,

tenants who gained the most from rent control had higher incomes and were more likely to be white, while the owners who lost the most had lower incomes and were more likely to be minorities

We warned this would happen

Once again, the potential loss in property value due to rent control is a side effect that American Experiment warned about before this ordinance was voted on.

Sadly, given that the ordinance is yet to go into effect, more disastrous consequences are still to follow.