Radical Rent Control Measure Blows Up in St. Paul in Less Than a Week

The payback was immediate.

Reason reports Developers Halt Projects, Mayor Demands Reform After St. Paul Voters Approve Radical Rent Control Ballot Initiative.

In last Tuesday’s municipal election, 52 percent of voters approved Question 1, an ordinance that puts a hard annual 3 percent cap on rent increases. It makes no allowances for inflation or exemptions for vacant apartments and new construction that are typical in other rent control policies.

The new ordinance doesn’t go into effect until May 2022. Nevertheless, several real estate companies with large projects in the works have already announced that they’re pulling their permit applications.

That includes Ryan Companies. Local NBC affiliate KARE 11 reports that the company pulled applications for three buildings in its proposed 3,800-unit Highland Bridge project.

Other developers are singing a similar tune.

“We, like everybody else, are re-evaluating what—if any—future business activity we’ll be doing in St. Paul,” Jim Stolpestad, founder of development company Exeter, told the Minneapolis Star-Tribune.

The Star-Tribune reports that developers have also been calling Nicolle Goodman, the city’s director of planning and economic development, to say that they were placing hundreds of new units on hold in response to the passage of rent control.

All of this could well encourage landlords to just get out of the rental market altogether and sell their properties to owner-occupiers. Rising home values in St. Paul, where prices have increased 12 percent in the last year, only make this option more attractive for landlords.

This is what happened in San Francisco where an expansion of preexisting rent controls led to a 15 percent reduction in the supply of rental housing, according to one 2018 study. That study found that incumbent tenants benefited handsomely from the limits on rent increases but that their windfall came “at the great expense of welfare losses from future inhabitants.”

Mayoral Lie

Despite the insanity of doing something that’s tried and failed everywhere, St. Paul voters upped the ante by passing the most restrictive measure ever.

Blame Mayor Melvin Carter. He backed the initiative and it only barely passed.

Carter’s not so brilliant idea (lie) was he could amend the law after it passed.

But he can’t materially change the bill nor can the city council.

The problem for Carter, which he knew in advance, is the council cannot by law make “substantive” changes to the law.

The city council president admitted what Carter now wants to do is “substantive”.

Rent Control Advocates Celebrate 

“We didn’t wait for policymakers or funders. We leveraged the power of the people and direct democracy to do this for ourselves,” said Danielle Swift, an organizer with the Frogtown Neighborhood Association. “Text banking, phone banking, door-to-door, 100 percent grassroots organizing got it done.”

Alarmed by overnight rent hikes for low-income tenants, organizations such as the Housing Justice Center, TakeAction Minnesota, the Alliance and the West Side Community Organization gathered signatures to get their own rent-control proposal on the Nov. 2 ballot by petition.

Swift blamed “generations of economic exploitation and exclusion from homeownership” for marginalizing communities of color — some 82 percent of the city’s Black households rent, compared to 39 percent of white households.

“This policy will have a dramatic and immediate impact in advancing housing and racial justice in our city,” she said.

Shortages Loom

Judging from rent prices, there is already a severe shortage of housing in St. Paul.

The most likely reason is fear of something like this or insurance and maintenance hikes in the wake of George Floyd riots.

And now that the bill has passed many new development projects, some for thousands of units, were cancelled.

Small landlords will sell to live-in owners further reducing supply.

Finally, with 3% caps regardless of tax hikes, inflation or any other issues, landlords will not make capital improvements to their property.

The overall quality of remaining rental units is sure to decline.

Thanks for Tuning In!

Like these reports? If so, please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen.Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish