America’s Most Controversial Rent Control Law Is Getting a Hasty Makeover

The controversial rent control law that was passed in St. Paul (Minnesota) is about to be implemented. As it nears implementation, lawmakers are scrambling for details, mitigation strategies, and even reversal.

Tomorrow, the St. Paul City Council is going to discuss details for implementing Question 1. This voter-approved ordinance caps annual rent rises at 3 percent. It does not include any exemptions or allowances, such as those that are typically granted or given out by the government, vacant units or inflation.

It is not expected that the policy will take effect before May 1. However, developers fled the city nearly immediately after it was passed in November 2021. Many thousands of units of proposed new housing have been cancelled or put on hold, while the number of multifamily permit applications issued by the city plummeted.

St. Paul’s ordinance permits landlords to apply for an exemption from that 3 percent cap. This is in accordance with their “rights of a reasonable returns on investments.” However, the initiative’s text doesn’t specify what constitutes reasonable return on investment or how to request that exemption. It doesn’t even define some of the most basic terms like “rent” and how it is subject to the cap at 3 percent.

Both rent control opponents and supporters have found this frustrating.

This group claims that landlords try to undermine the law by raising utility bills or charging additional fees for property repairs. Some legislators in states have cited the law’s vagueness as an argument for its repeal.

They don’t have any terms. They don’t even have what rent is defined yet,” said state Sen. Rich Draheim (R–Madison Lake) last week. Does it cover utilities?” Do you include parking? Is it inclusive of internet? There are many questions.”

Draheim said these comments during a hearing by the Minnesota Senate’s Committee on Local Government Policy. The bill was nullifying St. Paul’s ordinance on rent control and prohibiting all cities from adopting rent control in the future.

Draheim and others opposed to rent control highlighted at the hearing the dangers St. Paul’s rent control policy caused new developments in the city.

Senator cited Census Bureau data that showed that multifamily building permits fell 80 percent over the past year after St. Paul adopted rent control. New multifamily permits in neighboring Minneapolis are up 60%. The nation is expecting 2022 to be a record year in apartment construction. Cecil Smith from the Minnesota Multifamily Association claimed at the same hearing, that some developers have canceled or suspended plans for around 3,100 St. Paul units since the ordinance was adopted.

The St. Paul City Council will be discussing a couple of ordinances on Wednesday. These are intended to clarify the law’s ambiguities, and offer some clarity for tenants and property owners. First, the ordinance will define basic terms such as “rent” or “rental unit.” Another would instruct St. Paul’s Department of Safety and Inspections, (DSI), to establish a consistent process for requesting exemptions and define a reasonable rate of rent for landlords.

This bill will still need to be approved by DSI. Staff at the city say that it will continue through April.

There is more time for larger changes in St. Paul’s rental control policy. Melvin Carter (the mayor of the city) has requested that the council exempt rentals less than 15-years old from the 3-percent rent cap. This exemption would not be effective until January 2023.

California’s and Oregon’s state-level rent control policies for 2019 included a 15-year exclusion for new construction. It is intended to give developers pricing flexibility to ensure that new supply does not become discouraged.

It is possible to think that an exemption for new construction may reduce the incentive of some developers to build. All unregulated new construction becomes over time old, rent-controlled housing stock.

California’s and Oregon’s policies include several other exemptions from the state-level rent controls laws. The laws permit property owners to inflate rents up to an extent. Both allow landlords and tenants to increase rents at their will. Rent increases are subject to higher caps: Oregon has 7 percent and California has 5 percent.

Although a city-appointed stakeholder group discussed the possibility of exempting St. Paul’s laws from these exemptions, no formal proposal has been made. Rent control activists who won the city’s election last year were opposed to any exemption for new construction.

The idea that St. Paul’s rent control has caused the decline in development activity is also being criticized by them.

Tram Hoang, of St. Paul’s Housing Justice Center stated that “It is the jobs in the industry to adapt to market conditions” at last week’s Senate hearing. According to her, developers delay construction due to supply chain issues as well as a shortage of labor.

It appears that housing is being built by developers in response to the market. There are many market factors that influence where and when developers build. The fact that there are more building permits being issued in Minneapolis than in other cities suggests that rent control may be playing an even bigger part in reducing the supply.

There are very few chances that St. Paul’s rent control program will be stopped in its entirety. It is unlikely that St. Paul’s rent control initiative will be overturned in its entirety. MinnPost According to reports, Draheim’s bill is facing long odds in Minnesota’s Democrat/Farm Labor-controlled House of Representatives. Even Republican senators wondered if it was fair to overturn St. Paul voter’s will retroactively.

That point was also stressed by advocates for rent control.

B Rosa of Housing Equity Now St. Paul spoke out against Draheim’s bill at the committee hearing. Draheim’s bill would have taken away the ability to organize your community. It was not only unwise, but also against democracy.

Rent control advocates appear to have a different view of building community in this instance.