Rent control passing is bad news for the Twin Cities

Good news: Minneapolis residents on Tuesday voted no on the proposal to defund its Police Department. Unfortunately, both Minneapolis and St. Paul residents voted yes on the proposals to enact rent control. As for St. Paul, rents will not be allowed to rise over 3 percent for a 12-month period, and for Minneapolis, further action will have to be taken by the City council to enact a specific rent control measure.

What to expect

There are a couple of things that the Twin Cities should expect to happen in the housing market due to rent control.

For one, rental property owners, when they were interviewed by the Urban and Regional Affairs (CURA) on what they think about rent control, expressed that it may cause them to raise rents in advance. As the article explains,

The expectation of limited impact notwithstanding, several owners commented that if they thought rent stabilization was imminent, they would immediately and aggressively raise rents from current below-market rates to market rates. The purpose of such increases would be to minimize the reduction in future income and property value, which together affect an owner’s profits and their ability to reinvest in a property.

One owner said, “All tenants would get letters. We would raise rents to market levels. All of the gains from the next 10 years, I would need to collect them all now. Everyone else would do it, too.”

So it is highly likely that going forward, one of the most immediate effects of the passage of the rent control ordinances will be landlords raising rents in advance — before rent control actually becomes effective. This is more likely considering that the St. Paul rental raise cap is one of the lowest in the nation.

Landlords for new units are also more likely to set initial rents very high in order to make up for future losses of income, especially considering that the St. Paul ordinance, if enacted as is, does not allow vacancy decontrol.

Additionally, landlords have expressed the view that they would raise other non-rental fees in order to make up for the loss of income. These include lost key fees, parking fees, storage locker fees and laundry, as well as other late fees.

The most damaging effect of the rent control ordinance, however, would be the reduction in housing supply that will likely follow. Price controls –– ceilings to be specific –– discourage the provision of a specific good or service. Rent control will act the same way. This is evidenced by our report showing how numerous other cities have fared.

The Twin Cities face an acute shortage of housing. Currently, the Twin Cities Metro region has some of the country’s lowest vacancy rates, showing that new supply is much-needed just to keep current prices from rising. Rent control will only worsen this problem and end up harming the very people the policy is intended to help.