As anyone who has shopped for housing in St. Paul knows, prices are up, and supply is down. Significantly. What does this have to do with the rent-control ballot initiative on the St. Paul ballot Nov. 2? Simple: The proposed rent control initiative, if passed, will make our city’s housing availability problems worse.
While I’m no Milton Friedman, I am an economist at heart, and in St. Paul we have a housing supply shortage. This rent-control initiative proposes a policy solution to a supply-side economic problem.
Our community must look at a multi-pronged approach to housing issues that increases the availability of rental units and provides stability and incentives to developers, while allowing economic flexibility for upkeep of properties.
Simply put, a better answer to the problem of scarce housing and rising rents is to increase the housing supply. While the optics of rent control look good at first glance, the downstream consequences and repercussions of such a draconian rent-control ordinance more than outweigh any short-term benefits to renters.
The most relevant unintended consequence is that such a policy would hurt the very people it is intended to help.
This isn’t about good people vs bad people. This is about math.
I’ll offer a real-life example from here in St. Paul. I just spoke to a developer. He’s considering two housing projects in St. Paul. His banker called on Monday and basically said, “if rent control goes through, we’re out. No deal.” This same developer owns other residential properties in St. Paul.
Should this rent-control initiative pass — in the face of a proposed tax inceases of 6.9% for the city of St. Paul, 3.2% for St. Paul Schools, 1.6% for Ramsey County, inflation of 3% or more and increases in the price of building and maintenance supplies and labor — he will have to cut costs elsewhere.
He needs to earn enough income to pay the mortgage on the property. And he must maintain the housing to code.
What’s not required by code? Security guards. Hallway cleaning. Air conditioning. Appliance repairs or upgrades. Patios or public space.
He could just convert the property to condos and sell the units, which would further reduce the supply of rental housing.
Multiply that conversation and these decisions by the 200+ property owners in St. Paul and you’ve got a race to Class C housing. Then, when property owners sue for tax relief (and win) as a result of this ordinance, the city will see reduced revenue and even less opportunity to invest in housing. Rental property quality and quantity are reduced, the most vulnerable are the most impacted.
Let’s look at a few of the problems.
No up-front exemptions.
If passed, this ordinance would place a hard cap at 3% annual increase for all residential rental units – in perpetuity. This cap is not tied to inflation, consumer price index, or continually increasing property taxes. There is no exemption for new construction, and it does not include a vacancy decontrol option. Such an ordinance does not exist anywhere in the country, and for good reason.
Unvetted.
This is an unvetted proposal for a significant change in city policy that did not include public input or any economic modeling and analysis specific to St. Paul.
Slowing or even stopping new construction.
Among the 30 recommendations in the Governor’s Task Force on Housing is one to “build 300,000 homes by 2030 … to stabilize prices and meet demand.” Immediately before us are the 4,000+ housing units under development in Highland Park. And just ahead are United Village in the Midway, and Hillcrest, among others. As Bill Lindeke says in his MinnPost article of Sept. 21, the proposed ordinance “would place unprecedented restrictions on the construction of new housing.” Nonprofit housing developers already are strapped; this ordinance would increase their burden. We need more housing units across the spectrum to prevent the housing crisis from getting worse. Of special note from the Governor’s Task Force is that rent control was considered, but specifically excluded from the recommendations.
Significant – and undetermined – cost of administration.
The Minneapolis Rent Stabilization Study of February 2021 refers to Oakland and its spending of $3 million to $4 million per year on its rent-control program.
And, most importantly, rent control will have a negative long-term impact on the most vulnerable renters.
Take a look at a 2019 study from San Francisco. It is a real-life example of policy that actually hurt the people it intended to help. Limiting new rental construction and degradation of existing properties inevitably will lead to reduced supply, suppressed upward mobility, and poorer quality/less quantity of the most affordable housing. Meanwhile, the cost of real estate continues to increase, putting home ownership further out of reach for working class people.
Business, labor, government, renters, landlords, funders, and stakeholders must come together to address the complex housing issues St. Paul faces — but this rent-control proposal is not the answer. I urge you to vote ‘no” on Question 1 on Nov. 2.
B Kyle is the president and CEO of the St. Paul Area Chamber.
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B Kyle: Rent control is not a solution to St. Paul’s housing shortage - TwinCities.com-Pioneer Press
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