Bahieh Hartshorn recalls spending her first year or two out of college taking out payday loans to help make rent.
Hartshorn even relocated to find cheaper digs, and as a housing advocate, she’s heard heartbreaking stories from low-income tenants — many of them Spanish-speaking immigrants — who saw their monthly rents go up by hundreds of dollars when their building ownership changed hands.
With those experiences in mind, Hartshorn — a renter and board chair of the West Side Community Organization — plans to vote “yes” on a ballot initiative in November that would cap residential rent increases in St. Paul at 3 percent annually. “People feel it in the gut how much they need that stability,” she said.
Jason George is urging the members of his trade union to vote “no” on the same ballot question. St. Paul already tends to lag Minneapolis in terms of new housing construction, and he worries housing investors will avoid funding new projects in the city.
“If this ordinance passes, there will be fewer affordable-housing developments, for sure,” said George, business manager with the International Union of Operating Engineers Local 49, which operates construction cranes and other heavy machinery. “Future developments are sources of city revenue. That’s how they pay for plowing the roads and fixing the streets, which are also things our trades do.”
‘RENT STABILIZATION’ MEASURE ON NOV. 2 BALLOT
In St. Paul, a renter-majority city, the “rent stabilization” ballot question has split housing advocates and forced soul-searching among elected officials who have long committed to keeping stable housing accessible to everyday families.
Pointing to a possible slowdown on housing investment, four of the seven St. Paul City Council members have publicly opposed the ballot initiative, as have most of the mayoral candidates on the Nov. 2 ballot. Minneapolis Mayor Jacob Frey recently vetoed one of two rent-control-related ballot questions in his city.
St. Paul Mayor Melvin Carter on Tuesday said he would vote “yes,” though he also expressed concern about the impact on new construction and said changes to the ordinance will be needed down the line.
“I am voting ‘yes’ for rent stabilization, not because the policy is flawless as drafted — we can and must make it better, quickly — but because it’s a start,” Carter said, in an announcement posted to social media.
UNLIKE ST. PAUL’S PROPOSAL, OTHER CITIES EXEMPT NEW CONSTRUCTION
Rent limits can be organized in many ways. That’s fed a pointed debate across the Twin Cities. In his recently published book “The Affordable City,” urban planner Shane Phillips makes the case for anti-gouging laws that protect residential tenants from double-digit rent increases. He’s supportive of “rent control,” but a certain kind of rent control.
“There are vanishingly few reasons why a landlord should need to raise a person’s rent by more than 10 percent in any given year,” writes Phillips, who manages the Lewis Center Housing Initiative at the University of California-Los Angeles.
Phillips, however, takes a dim view of any “rent control” or “rent stabilization” policy imposed on new housing, at least within the first 15 or 20 years of construction. Developers need a financial incentive to build new units, and landlords need time to fill up those units and recoup their investment, he writes, especially during an economic downtown. Otherwise, a lack of construction helps no one.
“If they’re forced to lease new units at a loss for the first few years … they may as well declare bankruptcy on opening day,” he writes. “Developers will understandably avoid cities where this is a possibility, and supply will stagnate. This is why rent stabilization doesn’t apply to new housing virtually anywhere in the world.”
Depending upon whom you ask, his writings form a rationale or an indictment of the ballot proposal that will be presented to St. Paul voters next month, as well as a similar effort that will have to pass through a few more steps in Minneapolis.
A 3 PERCENT ANNUAL CAP
In both cities, housing advocates have proposed capping annual rent increases at 3 percent, and the new limit would apply regardless of whether the apartments are owned by big developers or small mom-and-pop operators, or old or new construction. If a tenant moves out, the unit would still be subject to the same cap on rent increases.
Critics are calling St. Paul’s proposed “rent stabilization” ordinance the most restrictive in the country, if not the free world. Proponents say the proposal is overdue against the backdrop of rising rent prices that have proven to be recession-proof and pandemic-proof.
Concerned about the possible negative impact on housing construction, the state’s two largest unions associated with homebuilding — the North Central States Regional Council of Carpenters and the International Union of Operating Engineers Local 49 — have joined a political action committee urging residents to vote “no” on the question.
Other members of the Sensible Housing Ballot Committee include the St. Paul Area Chamber, the St. Paul Area Association of Realtors, the Minneapolis Area Realtors, the Minneapolis Regional Chamber, the Minneapolis Downtown Council and the Minnesota Multi Housing Association.
“Yes, indeed there is a housing affordability problem that we’re facing. It’s a real problem. But this is the wrong solution,” said committee chair Cecil Smith, president of the Multi Housing Association, in an interview.
Smith called the proposed ordinance “the strictest, most draconian rent control that anyone has ever seen in our country, if not the world. There’s no exceptions for new development or for small property owners and single-family homes. … We want voters to think twice about that and understand what they’re really voting on. Let’s turn our attention to solutions.”
‘KEEP ST. PAUL HOME’ CAMPAIGN
Advocates with rent-stabilization proponents “Keep St. Paul Home,” however, say a flat 3 percent cap on rent increases actually fixes problems that have emerged in other cities that have imposed rent control. That includes New York City, where competition for housing remains high, and rents on new units and de-controlled properties no longer subject to the restrictions are among the highest anywhere.
“For the past 20 years, median rent has not increased more than 3 percent (annually),” said Tram Hoang, a campaign manager for the St. Paul ballot initiative. “That tells us 3 percent is enough. It’s generous. People have been able to keep up with property taxes and maintenance, even amidst economic turbulence like the (2008) foreclosure crisis.”
The campaign has drawn the support of the Alliance, the Frogtown Neighborhood Association, the Housing Justice Center, Jewish Community Action, the Southeast Community Organization, the West Side Community Organization, TakeAction Minnesota and SEIU, the Service Employees International Union.
Advocates in those ranks have gone door to door for years in the urban metro talking to tenants, and there’s a compelling question they’ve been hard-pressed to answer.
“They would ask … is there anything protecting me from a rent hike of $200, $300 or $400 at a time? And unfortunately, we had to say no,” Hoang said. “This issue most disparately impacts low-wealth renters and renters of color. When we look at St. Paul, we know people of color are most likely to be renting. It impacts the majority of the city, because the majority of the city are renters.”
QUESTIONS ASKED
The Center for Urban and Regional Affairs at the University of Minnesota recently studied the question of rent control and found little evidence that it reduced housing production in cities where it has rolled out across the country, but it noted that most of those programs exempt new construction. The St. Paul proposal does not.
However, the ordinance doesn’t limit the starting price for rents in new construction.
“This ordinance will allow landlords to set their new rents at whatever rate they feel is necessary,” said Margaret Kaplan, president of the Housing Justice Center in St. Paul, on Wednesday.
The CURA report also found that in Minneapolis, rent caps set in line with changes in the cost of living would have had no more than a modest impact on average rents in recent years: “These caps would have limited the most aggressive rent increases in the city but would not have affected median increases.”
When the state of Oregon imposed rent control, it created a much looser restriction than the St. Paul version. The Oregon law imposes a cap on annual rent increases of 7 percent, plus inflation. And the Oregon law only applies to multi-unit buildings constructed more than 15 years ago. Between tenants, there’s no limit on how much rents can increase. Berkeley, Calif., on the other hand, created a restrictive form of rent control set to 65 percent of inflation, as measured by the Consumer Price Index.
It’s unclear to what degree the St. Paul City Council can tweak the rent stabilization ordinance after it has been approved by voters at the ballot, as Carter has suggested.
Critics worry that substantial changes might require sending the ordinance back to voters in another election cycle. Whatever happens probably won’t happen overnight. The city charter states: “No ordinance adopted by the voters on initiative … shall be repealed within one year after its approval.”
EXCEPTIONS FOR LANDLORDS
In St. Paul, there’s also some question as to how a landlord might seek an exception to the 3 percent cap if they remodel their building or face another large, one-time expense, like a particularly difficult property tax increase in a given year. The ballot question indicates the city council and staff will craft a process.
Said Smith, “Right now, if we had a 3 percent rent cap, but there’s an 11 percent levy increase on property taxes — our largest operating expense — are we going to have thousands of property owners every year coming to the city seeking an exception?”
In St. Paul, median property taxes on apartment buildings went up about 5 percent in 2021, 5 percent in 2020, 17 percent in 2019, 11 percent in 2018 and 11 percent in 2017. They actually dipped down 0.7 percent in 2016, according to Ramsey County.
Advocates with the ballot initiative point out that property taxes are just a fraction of the typical property owner’s overall mortgage and related real estate costs. In fact, they average 11 percent to 16 percent of rents, according to the Minnesota Department of Revenue.
“A 3 percent increase in property taxes doesn’t mean a 3 percent increase in rent. Property taxes are just a proportion of the rent,” said Carolyn Szczepanski, a communications manager with the Alliance. “Say monthly rent is $1,500 and 15 percent of that — $225 — goes to property taxes. If property taxes increase 10 percent, that means rent increases by $22.50, which is only a 1.5 percent increase in rent.”
Smith and other critics note, however, that property taxes total a larger share of total costs for older, modest buildings — as much as 20 percent of costs — than they do for luxury apartments with plenty of staffing and modern amenities.
