St. Paul council poised to exempt new construction from rent control

The council is also likely to allow landlords to raise rents as much as they please after tenants move out

By: - September 7, 2022 10:21 pm

Renters and activists urged the St. Paul City Council not to exempt affordable housing from the city’s rent control policy during a public hearing on Aug. 24, 2022. Photo by Max Nesterak/Minnesota Reformer.

Less than a year after St. Paul voters passed rent control through a citizen-led ballot initiative, the City Council is poised to roll back the signature features that make the current law one of the most stringent in the country.

Under a package of amendments the council will vote on Sept. 14, new construction will be exempted for 20 years; rents may rise more in years with high inflation; and landlords may raise rents as much as they please after a tenant moves out in what’s called “vacancy decontrol.”

The changes would be a blow to the grassroots movement that organized the signature gathering and electoral victory in the face of a well-funded opposition comprising landlords and the building trades unions.

The rent control advocates also won the support — albeit muted — of Mayor Melvin Carter, who will likely face political pressure to veto the council’s rent control amendments. The council faces the risk of backlash by dismissing the voters’ decision to approve rent control last year in a city with a majority of renters.

The council has been debating a slew of rent control changes for weeks in what will be the first major overhaul of the policy since it was approved by voters last November. That policy caps rent increases at 3% for all units across the city and was approved by 53% of voters over the objections of a majority of council members.

Last month, City Council Member Chris Tolbert introduced a package of changes aimed at enticing developers back to the city amid a construction slowdown, while also removing incentives for landlords to increase rent by the maximum 3% allowed each year.

On Wednesday, the council took up nine amendments to Tolbert’s proposal, clearing the way for it to take a final vote on the package of changes in one week.

New construction

The council narrowly voted down an amendment by Council Member Mitra Jalali that would have shortened the new construction exemption to 15 years and only exempted construction going forward. That proposal is in line with the recommendation of Carter’s 41-member rent control task force that was made up of developers, landlords, renters and renter advocates.

That leaves the original proposal by Tolbert that exempts all apartments less than 20 years old.

“What you don’t want to do is have a new construction exemption that doesn’t go far enough to incentivize new construction,” said Council Member Rebecca Noecker, who voted no on Jalali’s amendment. “There are developers who are asking for 30 years. I think that’s way too long. Twenty years seems to be unanimously the minimum that will help spur construction.”

During Wednesday’s council meeting, Nicolle Goodman, the city’s director of Planning and Economic Development, told the council that permits for new housing units in the Twin Cities metropolitan area are up 38.5% in 2022 over last year. By contrast, St. Paul saw a 31% decrease in the number of new permitted units.

Goodman also clarified data provided to the council by the city’s Department of Safety and Inspections last month that showed applications for construction permits were up significantly from previous years, which seemed to contradict building permit data that showed construction cratered in the city.

Goodman explained the data provided by DSI showed an inflated number of applications because developers sometimes submit multiple applications for the same project, and city staff hadn’t removed duplicative data.

Once duplicative applications were accounted for, city data showed building permits in 2022 have been slightly lower than the past four years on average, rather than 20% higher as originally reported by city staff.

Jalali said she thinks the city needs data for a longer period of time to determine how much of an exemption is needed, noting that labor and supply shortages may also be hamstringing new development.

“Rent stabilization is not the only factor potentially impacting the industry,” Jalali said.

Vacancy decontrol 

The rent control policy passed by voters doesn’t allow landlords to raise rents beyond 3% annually even after a tenant moves out.

Renters and activists say that protection is needed to prevent landlords from forcing out tenants so they can seek higher rents. But the policy does incentivize landlords to increase rent 3% every year to keep up with the market and save for future repairs and improvements.

Tolbert’s proposed allowing landlords to “bank” annual increases that they could use once a tenant moved out — either willingly or for a justifiable reason like unpaid rent — so that landlords wouldn’t be incentivized to increase rent on current tenants.

Council Member Jane Prince offered an even more favorable amendment for landlords, giving them full vacancy decontrol — allowing them to set whatever rent they choose — after a tenant moves out for “just cause.” The policy would not protect landlords who unlawfully force out tenants.

Prince argued full vacancy decontrol is necessary to encourage landlords to continue investing in their properties, and because tracking “banked” rent increases for thousands of apartments would be an administrative burden for city staff.

That amendment was narrowly approved 4-3 over the objections of Council Members Jalali, Noecker and Nelsie Yang.

“I’m really concerned about the incentive it potentially creates for landlords to remove tenants or find ways to drive tenants out so they can reset the rents,” Jalali said.

Prince, a staunch opponent of rent control, noted that “bad landlords” are already exploiting weaknesses in the city’s rent control policy. She pointed to the city’s “self-certification” process that allows landlords to raise rents by as much as 8% if they say it’s necessary to get a reasonable rate of return. Those applications are automatically approved but subject to an audit, like a tax return.

Inflation is a reason for an exemption 

St. Paul’s rent control is unusual in not explicitly tying rent increases to inflation. The ordinance caps annual rent increases at 3%, a number the law’s citizen authors chose before inflation reached a 40-year high.

An amendment proposed by Noecker would explicitly state inflation is a reason for landlords to seek an exemption to the rent control policy, although it would not change current practice. The city’s Department of Safety and Inspections has been considering inflation as an unavoidable increase in costs.

That amendment was unanimously approved and will get a final vote next Wednesday as part of the larger package of changes.

More notifications, no affordable housing exemption 

Under Tolbert’s proposal, all low-income rental properties would be exempt from rent control, including Section 8 properties and those financed through low-income housing tax credits or other government subsidies.

Jalali put forward an amendment that would remove an exemption for affordable housing, but the City Council narrowly voted down the proposal.

The City Council also unanimously approved amendments requiring landlords to inform tenants if their apartment is covered by rent control or not and for tenants to be notified when their landlords apply for exemptions in order to give them more time to appeal the increase.

Jalali offered an amendment that would require landlords to pay relocation costs for tenants they forced out, but it was narrowly defeated.

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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.