St. Paul rent control: Debates are up while construction is down

St. Paul rent control: Debates are up while construction is down

2022-07-13T07:09:21-04:00April 22nd, 2022|Economy, Minneapolis-St. Paul, Real Estate & Construction|

Writer: Joshua Andino

2 min read April  2022With less than a month until St. Paul’s new rent control ordinance is officially implemented, new apartment construction has slowed and debates have ramped up.  

According to construction permit data obtained by the Pioneer Press, St. Paul’s new apartment construction has slowed by over 80% as developers and investors reassess the viability of projects in the new economic environment. Developers, investors and even the St. Paul Area Chamber of Commerce have voiced their concerns for the bill, warning its stringent application would drive developers out of a city that has attracted 23,000 new residents and only 4,300 new apartments over the last decade, according to Marquette Advisors. 

The rent control policy is unique in its severity, capping rent increases to 3% for all existing rental properties and those under construction. Normally, rent control policies exclude new construction to allow for new and continued development. St. Paul’s ordinance makes no such exception. 

A study by University of Southern California researchers at the Marshall School of Business noted that upon the passage of the rent control ordinance, St. Paul bucked national trends and caused property values to fall by as much as 7%, a loss of $1.6 billion. Owner-occupied and rental properties alike lost value. The report, Robbing Peter to Pay Paul? The Redistribution of Wealth Caused by Rent Control, notes that the primary beneficiaries of rent control have primarily been white middle-class renters, with minorities bearing the majority of the cost.

“First, we find that the introduction of rent control in St. Paul in November 2021, caused statistically significant and economically large declines in property values. This result is robust to general trends in market prices, local fixed effects, and property traits. This shows that even given the endogenous responses of landlords to mitigate the effects of rent control, they still suffer a large economic loss. Second, in contrast to the law’s intended goal, we show that the benefits of rent control are enjoyed by relatively higher income tenants, while the burden of rent control is borne by relatively lower income owners,” stated the report.

There have been a number of discussions regarding what the final policy and implementation will look like. Mayor of St. Paul Melvin Carter pulled together a 41-member committee of community leaders including renters, residents, realtors, developers and community organizers that spearheaded the ordinance. Meanwhile, the city’s Department of Safety and Inspections was tasked with creating the rules and framework for implementation of the ordinance. The preliminary regulations were posted on the city’s website and will be finalized and released on Friday, April 29. 

One amendment favored by the mayor would include exempting new construction for 15 years. At the same time, a Republican-led Minnesota Senate committee has drafted legislation seeking to overturn and prevent any rent control policies from taking effect. While unlikely to pass the Democrat-controlled chamber, the proposed legislation highlights the political salience of the issue. 

Earlier in March, Carter testified before the state Senate Housing Finance and Policy Committee on the work underway to formalize the ordinance. “To be clear, there are still critical questions that must be answered, ” said Carter. “We must determine if 3% is a long-term fixed target, or a starting point. We must assess the impact on small local landlords, and we must work together to define a reasonable rate of return.” 

The mayor was confident that the city can overcome potential challenges. “I think we know enough that we’re able to reject some of the end-of-days scenarios that we hear from folks,” said Carter.