St. Paul voters could pass one of the country’s most stringent rent control policies

By: - October 26, 2021 10:22 am

Emily Lynch leans on a truck outside the house she rents in St. Paul. Her rent is going up $400 next year. Photo by Max Nesterak/Minnesota Reformer.

Emily Lynch’s rent is going up 34% next year.

For the past four years, she’s rented a small, beige house just north of the Capitol in St. Paul for $1,176 per month plus utilities.

“It’s a dump,” as she puts it. The roof leaks. The basement has mold. The windows are old and barely keep the cold air out.

A string of bad luck led Lynch, 53, to the house in 2017 and kept her there. After having her identity stolen and being laid off, she was almost back on her feet and able to afford to move out.

She had a good job at a steel mill and found a house that she could rent to own. And then the pandemic hit and she found out she was getting laid off again — one of about 222 workers to be laid off when Gerdau decided to idle most of its steel mill in St. Paul.

“So I’m not going to buy a house when I know I’m going to lose my job,” Lynch said.

After nearly a year she found a union job in lead and asbestos abatement, earning $27.80 an hour.

Generous unemployment benefits kept her nearly caught up with her bills, and federal rental assistance — though it only just arrived months after she applied — filled in the rest.

Now comes a spike in her rent: a $400 increase coming Jan. 1.

“They’ve never put $400 in here in four years,” Lynch said. “It’s not worth it.”

It’s stories like Lynch’s that’s motivating an effort to enact rent control in St. Paul and Minneapolis to protect renters from large rent hikes for which they currently have no protection — especially in one of the tightest housing markets in the country.

Lynch’s only option at the moment is to pay up or move out, and possibly see her rent jump anyways.

“There’s hardly anything out there, or it’s really expensive,” Lynch said.

The ballot initiative in St. Paul — appearing on the ballot as Question 1 — goes further than just blocking exorbitant hikes in rent, however. It would be one of the most stringent rent control policies in the country, capping rent increases at just 3% annually for all units across the city.

Unlike policies in virtually all other places, there is no exemption for new buildings. There also isn’t a “vacancy decontrol,” meaning landlords won’t be able to increase rent beyond 3% after a renter moves out.

Its opponents warn the proposal goes too far and will ultimately hurt St. Paul. While current residents will reap the benefits of a predictable, modest 3% annual increase, a coalition of building trades unions and the real estate industry argue that landlords — seeking better returns on investments already made — will convert apartments and rental houses to condos, shrinking an already short supply of rental housing.

Meanwhile, they argue, new investors won’t build new apartments in a market with such stringent rules against rent increases.

Ryan Companies, which is developing the old Ford site, says the rent control ordinance could prevent them from finding the investors needed to finish the project that was to include more than 760 affordable rental units.

Other landlords say they’ll have no incentive to fix up old buildings with better windows, kitchens and bathrooms if they can’t recoup their investment.

Mayor Melvin Carter gave only a tepid endorsement. He tweeted he would be voting yes “not because the policy is flawless as drafted — we can and must make it better, quickly — but because it’s a start.”

In an interview, Carter declined to say exactly what he thinks needs to change about the policy.

“I’m not going to lay out anything like this needs a change or that needs a change,” Carter said. “We’ll bring together a large group of community stakeholders to dig into some of those issues together.”

A majority of St. Paul city council members — Amy Brendmoen, Chris Tolbert, Jane Prince and Dai Thao — say they will not vote for the ordinance.

They all expressed openness to supporting some version of rent stabilization but said the current proposal is too aggressive.

“The problem is that what is before the voters in St. Paul is a very blunt instrument,” Prince said at the launch of the campaign to oppose the ballot initiative. “The ordinance would cover properties at all income levels. For the life of me I can’t understand why we would be putting rent control in higher-income luxury apartments.”

This is uncharted territory for everyone on the council and the mayor. None has had to implement an ordinance passed through a citizen petition like this one. Council Member Brendmoen was active in the push to enact ranked choice voting as an activist, which was much more straightforward.

If passed, the council would have six months to enact the policy, including setting up a process through which landlords can request exemptions in what is likely to be a bureaucratic morass attempting to review proposals from the city’s thousands of landlords.

An anti-rent control sign in front of an apartment building in St. Paul. Opponents have raised $4 million to defeat the initiative at the polls. Photo by Max Nesterak/Minnesota Reformer.

The only statute in the city’s charter governing changing an ordinance passed through citizen petition says the City Council isn’t allowed to repeal the ordinance within the first year of being approved.

The mayor and City council could use that language to justify making the ordinance better, as Carter says he wants to do, while still complying with the state law that forbids cities from enacting rent control unless approved by voters in a general election. That’s how the policy ended up being crafted by activists and, after garnering some 9,000 signatures, placed on the ballot through citizen petition in the first place.

Even if the council and mayor sought to amend the ordinance later, doing so would mean going against what a majority of voters said they wanted. Carter, for his part, sees a way to do that without alienating voters.

“We’re going to invite St. Paul stakeholders into the process, to build upon whatever the outcome of the vote is,” Carter said.

Beyond the political considerations, there will certainly be legal challenges should the council try to amend the policy. Opponents of rent control could sue to force the council to either keep the policy they don’t like or repeal it completely. And, under legal pressure, the council could fold as it did with the slew of renter protections it approved last year.

St. Paul is an unlikely place for such a strict rent control policy. Housing is much cheaper in comparison with big coastal cities that have enacted rent control like Portland, San Francisco, Sacramento and New York City.

If Question 1 passes, St. Paul will become not just the first city in Minnesota to enact rent control but the first in the Midwest.

Minneapolis could follow shortly after with voters also deciding this November if the city council can write a rent control ordinance with the details of the policy to come later. Unlike St. Paul, Minneapolis does not allow ordinances to be passed through ballot initiatives.

Even if the housing crisis is more dire along the coasts, there are plenty of people struggling to make rent every month in the Twin Cities, too.

Forty-five percent of renters in the Twin Cities metro area are considered “cost burdened,” paying more than 30% of their pre-tax income on rent. Black, Native and Latino renters, who have lower incomes on the whole, are even more likely to be cost burdened, with well over half paying more than they can afford in rent.

This crunch has inspired a bevy of grassroots activism in both cities to increase housing supply and enact renter-friendly policies.

Last year, the St. Paul City Council unanimously passed what were then the strongest tenant protections in the state. They capped security deposits at one month’s rent, blocked landlords from screening tenants out for old evictions and criminal convictions, and required landlords to have just cause to terminate a lease.

But landlords sued the city and the council narrowly voted to repeal the protections less than a year later to avoid a protracted legal battle.

Tram Hoang, the campaign manager for the Keep St. Paul Home campaign promoting rent control, says people have asked her again and again since she started working on tenant advocacy in 2018 if there was anything in place to protect them from their rents going up.

“People were seeing rents going up hundreds of dollars at a time in the form of an economic eviction,” Hoang said. “And we had to say, ‘No, there currently is no ordinance that protects folks from egregious changes in rents.’ ”

So she and her colleagues at the housing advocacy group the Alliance began studying rent stabilization policies across the country and crafting one for St. Paul.

As part of their research, they saw a lot of complicated policies with exemptions and loopholes that led to two housing markets — one for people with affordable rent controlled units and the other for people with higher rents to subsidize the rent controlled units.

“If it doesn’t protect everyone, it doesn’t work as well,” Hoang said. “And we found that if you have loopholes, they will be taken advantage of.”

Tram Hoang, campaign manager for Keep St. Paul Home, speaks at a press conference with elected officials and other supporters of the rent control ballot initiative. Photo by Ellie Leonardsmith, courtesy of Housing Equity Now St. Paul.

For example, allowing landlords to raise the rents however much they can once someone moves out could lead landlords to try to force tenants out under various pretexts to seek higher rents.

Or exempting new construction could result in developers tearing down apartments and building similarly sized, more expensive buildings without rent control. So they decided to chart a new path: No exemptions.

By refusing exemptions, St. Paul would avoid the fate of other cities that have enacted rent control: parallel rental markets — one free market, one under the rent control regime — with renters in the former desperate to get into the limited supply of the latter.

And then they looked at how much rents have increased on average in the Twin Cities in recent years — about 3%.

This is perhaps the most unusual part of the ordinance. Unlike policies in other cities, St. Paul’s proposed ordinance is not tied to inflation. In California, which instituted rent stabilization last year, landlords may increase rent up to 5% plus the local rate of inflation. In Oregon, which approved rent stabilization in 2019, landlords are limited to raising rent no more than 7% per year plus the rate of inflation.

“We don’t know where inflation will be in the future, so the choice of 3% is kind of interesting. One might think you’d want to avoid such rigidity,” said Mark Willis, a senior policy fellow at New York University’s Furman Center for Real Estate and Urban Policy.

In recent months, the United States has seen its highest inflation in 30 years. If inflation were to rise above 3%, landlords would effectively be losing money.

“If inflation never goes above 3%, that’s one thing. But if it does, that could spur lots of owners to appeal which, if not successful, could lead to long-term problems with the ability of owners to properly maintain the stock,” Willis said.

But 3% is more generous than some cities, Hoang points out. Berkeley, for example, only allows rents to increase slightly slower than inflation, which has hovered around 2% for the past five years until supply chain issues and generous federal pandemic relief sent it soaring over 5% this year. The policy only applies to properties built before 1980, however.

Despite its lack of exemptions and rigid cap at 3%, proponents of the measure do not tout it as one of the most stringent policies. In fact, they bristle at the characterization.

The proposal has inspired fear approaching panic in landlords and developers across the Twin Cities, who have pitched in nearly $4 million — as of last week — to defeat it.

The specter of slowing housing construction amid an ongoing shortage poses the biggest threat to the proposal, with local leaders and supply-side liberals saying it will ultimately leave the city worse off.

It inspired two local labor unions — representing the carpenters and operating engineers — to come out against it, saying it would kill jobs.

That could be hyperbole — developers are quick to claim any proposed regulation will kill business — and activists are willing to bet they’re bluffing.

What exactly will happen is uncertain, if only because no other place has tried applying rent control to new construction.

Tony Barranco, senior vice president of real estate development for Ryan Companies, said he’s worried about finding investors to fund new projects in St. Paul if the ordinance passes.

“The Twin Cities is in a global market for capital for real estate,” Barranco said. “A big amount of fuel comes from institutional investors who have choices about where they invest their dollars globally.”

If managers of pension funds, insurance companies or real estate trusts worry that a 3% annual rent cap could hurt their investment, they can simply put their money elsewhere. That means even developers who want to continue building in St. Paul may struggle to find the money to do it.

Barranco raised the prospect of the ordinance threatening the Highland Bridge development on the former Ford site, the biggest redevelopment project in St. Paul’s history and a jewel in Carter’s crown as mayor.

While construction has already started on the project, it’s not completely funded yet. They still need investors to step forward to fund construction of market rate housing, which will help pay for them to build affordable units. Ryan has pledged that 20% of the roughly 3,800 units being built on the Highland Bridge site will be affordable.

Cecil Smith, CEO and president of the Minnesota Multi Housing Association, announces a campaign with support from business and labor groups to defeat rent control ballot initiatives in Minneapolis and St. Paul in front of the Carpenter’s Local 322 on Oct. 5, 2021. Photo by Max Nesterak/Minnesota Reformer.

“It’s predicated on having the market rate projects be the ultimate economic generator to create that (affordable) housing,” Barranco said. “I don’t know how you can take out the critical part of that economic piece and have it function.”

Developers also say the policy will stop them from being able to maintain the city’s aging housing stock, which provides the lion’s share of the city’s affordable housing without public subsidy.

Joe Abraham, principal at Pergola Management, says his business model for the past 25 years has been straightforward: buy an old building, fix it up with new bathrooms and kitchens along with maybe a new roof or furnace, and rent it out.

The buildings Abraham buys typically have a long list of deferred maintenance and improvements, and so the rents are way below what the average tenant in the city is paying.

It’s his model that’s especially threatened by the rent control proposal, he said, because there isn’t an exemption for new owners, and he makes a large investment in improving the buildings on the front end — about $25,000 a unit.

“When we spend that kind of money, it’s hard to then get a $15 per month rent increase,” Abraham said.

Rents may jump a few hundred dollars at first, but usually increase only modestly after that — around 1% to 2% a year. His roughly 500 apartments in Minneapolis and St. Paul — being older and without amenities like gyms and underground parking — also typically remain affordable to low- and middle-income households.

The rent control ordinance allows landlords to seek exemptions for improvements, but only to bring properties up to code. It’s possible to have an apartment meet code, but still be in bad shape, with drafty windows, cracked tile and old toilets.

With a 3% annual cap on rents, Abraham said no one will be able to rehab old properties in St. Paul.

“The product will just deteriorate year after year after year,” Abraham said.

A study of rent control in the Boston metro area before it was banned in Massachusetts by referendum in 1994 found that rent regulation didn’t lead to major maintenance problems affecting the building’s heat or plumbing but was associated with “chronic aesthetic problems” such as peeling paint.

Lynch, the woman whose rent is going up 34%, is skeptical rent control could make it any worse.

“I don’t believe that because there’s so many slumlords,” Lynch said. “People aren’t making the repairs anyway.”

It’s not just rent control that is frustrating Abraham about the cities. It’s the shift on both city councils in recent years to prioritize renters — who now make up a small majority in both cities — and passing policies that favor them.

“I don’t feel like I have a voice with our elected officials in either city right now,” Abraham said.

That’s led Abraham, a St. Paul resident, to begin divesting from his hometown, as well as Minneapolis. He’s already sold 13 buildings as he looks to shift his business beyond the Twin Cities.

One consistent finding of rent control studies is that it usually leads owners to convert their properties to condominiums and sell them off, which results in a small number of rental units.

Joe Collins, the CEO of Housing Hub, which owns the house that Lynch rents, decided to raise the rent $400 because he wants to sell it, along with all the other single family homes he owns in St. Paul.

“I don’t want to rent small houses anymore,” Collins said, noting they’re more expensive to maintain.

Instead, he wants to focus on larger apartment buildings, where each unit doesn’t require its own roof or furnace or washer and dryer.

While he never raised Lynch’s rent until this year, he said if the proposal passes he’ll likely raise rents 3% every year on all his properties. Even so, had he raised Lynch’s rent each year for the past four years, her rent would be $147 more from when she moved in. Far less than the $400 increase she’s staring down come January.

Asked about the leaky roof and the drafty windows, he said Lynch has not inquired about maintenance.

“I have no work orders. If she puts in a work order, we’ll go over there and repair it,” Collins said. “Now if she wants to put new windows in, I mean, where does she think the rent is going to go?”

Having landlords sell houses and condos presents a difficult quandary for rent control advocates. On the one hand, it’s creating more homeownership opportunities.

“In Minnesota, we have one of the worst racial homeownership gaps,” said Hoang, the campaign manager for the St. Paul rent control initiative. “And so if we are seeing more homes available for ownership on the market, then that’s something that we’re not against, right?”

On the other hand, the people who buy them are likely to be wealthier, and whiter, than the renters they’re most eager to protect from displacement. The shortage of single family homes in St. Paul has already driven prices beyond the reach of many hoping to buy a so-called “starter home.”

“I can’t tell you who’s gonna end up buying homes,” Hoang said.

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Max Nesterak
Max Nesterak

Max Nesterak is the deputy editor of the Reformer and reports on labor and housing. Previously, he was an associate producer for Minnesota Public Radio after a stint at NPR. He also co-founded the Behavioral Scientist and was a Fulbright Scholar to Berlin, Germany.