Big money scores big with St. Paul council’s plan to gut rent stabilization

September 20, 2022 5:45 am

St. Paul renters ask the city leaders not to make significant changes to the rent control policy passed by voters during a council meeting on Aug. 24, 2022. Photo by Max Nesterak/Minnesota Reformer.

The St. Paul City Council plans to approve a package of amendments this week that will exempt at least 20,000 of the city’s rental units from the rent control protections approved by voters last year, according to an analysis by the Housing Justice Center.

For what purpose?  So that landlords’ profits continue to remain higher than the 3% return the voters thought was reasonable.

Mayor Melvin Carter should veto it.

The amendments come to us via Council Member Chris Tolbert and Council President Amy Brendmoen, which includes some small positive tweaks, some problematic changes and two huge giveaways to big business — the biggest being a 20-year retroactive exemption for newer buildings from the rent stabilization rules. That means landlords could raise rent as high as they like in any rental units built in 2003 or later.

Council Member Mitra Jalali unsuccessfully attempted to moderate this handout to landlords by shortening the new construction exemption from 20 years to 15 years, and more importantly, not making that retroactive to existing buildings. This failed on a vote of 3-4, with Council Members Nelsie Yang and Russel Balenger voting in favor.

In related news, this month an Ohio-based investment company, the Connor Group, paid $76.5 million for the 275 “class A” apartment complex in Burnsville. The “RiZE on Grant” was built a year ago, for approximately $60 million. The $16.5 million profit — a 27% return — is the real reason that landlords want their new properties free from rent control. Rent control limits some of the profit potential for a property, and that limit will reduce its value in the resale market.

The goal of housing should be shelter – homes and apartments where children grow up and seniors can thrive. Not the extraction of unreasonable profit for developers. Without control, the appetite for profit does not end.

“Landlords’ perception of a ‘reasonable return,’ climbed from 6% to 12% then up to 18% or more. We need to specify a reasonable return,” Ann Juergens, a professor at the Mitchell Hamline School of Law with experience with rent control in San Francisco, told me.

Regular people are told that a 5% return a year is good. But when 27% returns are possible, those with millions – and billions — will seek it.

The millionaires and billionaires took note when the voters of St. Paul proposed the 2021 rent stabilization amendment. They spent $4 million on an astroturf campaign run by an out-of-state consulting firm to defeat it while proponents spent about $300,000.

These people with millions and billions are threatening to take their millions and billions elsewhere  — in what can only be described as a capital strike. This fear-based approach is cited by council members supporting exemptions from rent stabilization.

“I want to see more actors in the housing market,” Tolbert said.

He specifically cited Ryan Companies, the main redeveloper of the Ford site in his ward and a fierce opponent of rent stabilization. Council Member Jane Prince cited a 100-unit affordable project in her ward that lost funding and was canceled, apparently because of rent stabilization.

The council session on Sept. 7 opened with the city’s new director of Planning and Economic Development noting that housing permits were down by either 4%, 14%, 31%, or 38% depending on how you slice the numbers. But the numbers also showed over 500 units being permitted, illustrating that the doom and gloom was exaggerated. The underlying economic situation is that there’s a shortage of rental housing and you can make good bank off fancy rental.

Moving now from the developers and their speculative market to the housing operators: There are three ways to make money being a landlord: Your property increases in value (see above); preferential tax breaks (which for-profit affordable developer Dominium makes a lot of money on); and, the rent you collect.

Although the people with millions and billions know the quickest money is in resale, there is still money to be made in rent. In order to maximize the profits from rent, some landlords will attempt to drive down their costs through deliberate disinvestment, while raising rents as high as they can.

Let’s pause for a moment and examine how Carter’s own Department of Safety and Inspection has already let landlords increase their rents past 3%, up to 8%, by using the “right to a reasonable return” language in the ordinance passed by voters. To do this, the landlords fill out a worksheet that shows (on their say-so) that their profits are going away unless they can get the bigger increase. Though landlords could be subject to an audit, that rule has let bad actors across the city raise their rents.

Renters have a right to challenge it — if they know they have that right, and if they act within three weeks after they’re notified. Dominium raised their rents in St. Paul 7.97% to stay under the 8% cap. (They contributed $300,000 to the ‘vote no’ campaign.)

The council also plans to allow partial “vacancy decontrol,” by allowing landlords to raise rents up to 8% plus the rate of inflation when a tenant moves out. While the amendment language says this only applies when tenants move out on their own accord or are evicted for “just cause,” it seems likely that we will see landlords push tenants out in order to raise rents beyond 3% a year.

The voters of St. Paul passed the strongest rent control measure in the country, with the 3% rent increase cap, no vacancy decontrol and no exemption for new construction.

The housing developers and big landlords have proven successful at circumventing this with the Carter administration and elected City Council. We at the Metropolitan Interfaith Council on Affordable Housing include many who have a faith tradition that says “do good in this world.”

Some of our developers (and, perhaps, some of the City Council) seem to be devotees of a different faith – “free market fundamentalism.” In its most extreme form, free market fundamentalism claims the market should never be restrained, that the market can do no wrong, and that the market is always the best and only solution.

Well, the “free market” cannot, has not, and will not ensure that everyone has an affordable place to live. That is why this industry needs to be regulated. That is why the citizens of St. Paul voted for rent stabilization.

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John Slade
John Slade

John Slade is the East Metro organizer for the Metropolitan Interfaith Council on Affordable Housing (MICAH).