American Experiment warned that this would happen…
St. Paul’s rent control ballot is yet to come into effect, but the residents of the city are already seeing the consequences of the terrible policy. According to Pioneer Press,
Andrea Suchy-Shinn owns six rental properties in St. Paul, at least half of them open to low-income tenants subsidized by federal Section 8 housing vouchers, but she’s in the process of selling.
Her townhomes in the Selby-Dale neighborhood likely will be converted into condominiums. Her triplex off Congress Street, on the city’s West Side, is poised to be sold to a new owner who may not accept new tenants who rely on federal vouchers to pay the rent.
“It’ll be up to him,” Suchy-Shinn said. “Right now, he says the Section 8 tenant that’s currently there can stay.”
Her reasoning for reducing her footprint in the St. Paul market? Under the city’s new rent-control mandate that takes effect May 1, she doubts she’ll be able to keep up with cost increases for heat and utilities, property taxes, trash collection and everyday maintenance.
In fact, at her fourplex on the 1600 block of Charles Avenue, which could go up for sale soon, “I’m right now not breaking even,” said Suchy-Shinn, who saw her property taxes for the one location climb from $6,000 to $9,000 in the course of a single year. “The heating bill was $618 for one month. I pay the heat. Everything is going up.”
Andrea is not the only one. Some landlords are already raising rents in anticipation of the 3 percent rent hike cap.
Before rent control, Steve Townley hadn’t raised the rents on his two residential units in three years. After the rent-control ballot measure’s approval in November, he immediately and reluctantly boosted his tenants’ rents by 3 percent.
That’s because the city’s rent stabilization ordinance, as currently written, does not allow landlords to hike rents more than 3 percent between occupants and play catch-up with the market. Other rent-controlled markets like New York City (prior to 2019) offer “vacancy decontrol,” allowing landlords to effectively make up for lost time once a unit has gone vacant, but St. Paul does not.
Townley owns two residential units on Como Avenue in the St. Anthony Park neighborhood, where he rents out a three-bedroom apartment to a tenant he’s had for 13 years, charging some $300 below what’s typical for the market. At the neighboring studio apartment, he said he charges “well below” $1,100, the threshold where a one-bedroom unit might technically qualify as affordable housing.
Until now, Townley’s reasoning for keeping rents low was that there’s a benefit to maintaining an occupied unit, and a cost in terms of both time and money in trying to fill an empty one. There’s also a benefit to renting to a tenant you know, like, and trust, rather than playing the field. He’s had problem tenants before, and it wasn’t fun.
“Normally, when I have a really good tenant, I keep the rents attractive enough that they want to stay,” Townley explained. “I consider good tenants worth keeping, even if the rent I charge them is below market value. In the past, I knew that if the good tenants leave for some reason, I would be able to rent the units to the next tenant at a much higher price. I believe that many small-time landlords feel the same way.”
Once the city’s new rent-control policy takes effect on May 1, he’ll no longer be able to do that, he said.
“I immediately raised the rents on my units, knowing that with a 3 percent cap on rents, I have to get my rents moving up toward market value so if the tenants do leave, I will at least be close to market value when the turnover occurs.”
Otherwise, he said, “I will be way under market value when they do leave and I’ll never catch up.”
American Experiment warned that this would happen in our report published last October. We especially warned St. Paul residents to say no to the ballot proposal because it would disproportionately hurt small landlords, and consequently low-income renters.
These warnings have come to pass. Minneapolis City Council members should take note lest they risk repeating St. Paul’s mistake.